Canadian Pacific’s president is turning the 107-year-old empire upside down— or, in terms of its profits, right side up
Peter C. NewmanSeptember261988
There wasn’t a wet eye in the house’
PETER C. NEWMAN
There is no job in Canada quite like being head of Canadian Pacific. It is the nation’s largest private enterprise, and its president not only decides the destinies of its 85,000 employees but helps the country’s economic climate. William Stinson, the current incumbent, is not at all like his blustering larger-than-life predecessors, nearly all of them slambang railroaders who felt much more at home in a caboose than an office. A deceptively sleepylooking gent, the 54-year-old University of Western Ontario graduate in business administration has turned the CP empire upside down—or, from a profit point of view, right side up.
Last week, Canadian Pacific increased its quarterly dividend by 27 per cent, reflecting the vastly improved earnings trend of Stinson’s tenure. The 107-year-old company suffered earning declines during the early 1980s because it had overexpanded into unrelated areas without the required cost controls. Profit for the first half of 1988 was up by 49 per cent over the same period in 1987, and the 1987 total was an astounding 324 per cent higher than the 1986 one. The biggest current boost has come from the forestry sector in which CP owns two recently amalgamated giants, CIP Inc. and Great Lakes Forest Products.
“Some of the big things have been done,” Stinson told me recently, “but the rate of acceleration of change is so rapid these days that you can never sit back and say, well, I’ve finished doing this or that. What we’re doing here is building up our core businesses— transportation, energy, forest products, real estate and hotels—and divesting the rest. In today’s environment, you have to have the management resources to be competitive. Before, we were trying to do it in too many areas.”
As part of his company’s many shifts of emphasis, Stinson has moved CP’s headquarters from its historic stone home at Montre-
Canadian Pacific’s president is turning the 107-year-old empire upside or, in terms of its profits, right side up
al’s Windsor Station to the 28-storey, spitand-polish Place du Canada. He wrote down the company’s container and bulk shipping assets, increased its control position in Algoma Steel and sold it at a premium to Dofasco, purchased nine Canadian National hotels for $260 million and sold Maple Leaf Mills for $360 million. He divested CP of its base-metal anchor, Comineo, for $472 million and paid Michael DeGroote $500 million for 12.8 per cent in Laidlaw Transportation. The deal raised a lot of eyebrows because the 12.8-per-cent shares carried with them 47 per cent of the company’s voting position. Other shareholders were never offered a similar deal—but DeGroote’s son, Gary, sold 110,000 of his nonvoting shares on March 30, the day his father publicly announced that he was looking for a buyer.
Stinson’s most daring step was selling off CP Air, which tied in directly to the company’s dedication to the transportation sector but which had never been a big money-maker. “There wasn’t a wet eye in the house,” Stinson says of the airline’s sale to Pacific Western. This year, he is planning about $1.5 billion in capital expenditures to update his company’s physical plant, especially some
of the hotels acquired from CN. The Empress in Victoria, for example, is undergoing a $32million face-lift.
Among CP’s many other projects, Marathon, the company’s real estate subsidiary, is planning a $1-billion waterfront centre in downtown Vancouver, which will include a major hotel and will compete directly with Li Ka-shing’s redevelopment of the former Expo lands on False Creek. Marathon already owns 27 shopping centres, 47 office buildings, 59 industrial structures and an apartment complex.
Strictly outside CP’s core groups is Syracuse China Corp., a major manufacturer of commercial chinaware acquired in 1978, with factories in Joliette, Que., as well as Syracuse, N.Y., and Beaver Falls, Pa. CP’s energy holdings are concentrated in PanCanadian petroleum, which boasts reserves of more than 194 million barrels of oil and natural gas liquids and 3.8 trillion cubic feet of natural gas.
Since Stinson took over, corporate debt has dropped by $3 billion to just over $4 billion. Stock analysts say that CP’s share asset value is more than $38, which is $17.50 above the current market price. “Of course, we’ll grow again,” said Stinson, “but we don’t want to spread ourselves too thin from a control point of view. We know the businesses we’re in, we’re comfortable in them and we can run what we have with a very small staff.”
That is the most surprising figure of all: Canada’s largest domestically owned company has a head-office staff of fewer than two dozen key people, with a total staff of only 450. Stinson’s frustration is that federal regulations will allow him to abandon only four per cent of CP’s railway tracks per year, and he wants Ottawa to adopt the U.S. system of selling underused sections to local entrepreneurs who run small railways connecting into the main lines.
CP’s next step will include expansion outside Canada. At the moment, 22 per cent of the company’s revenues are earned from foreign sources. As well as the china company in New York state, CP operates three hotels in West Germany.
In a very real way, Stinson has revived a CP tradition that reaches back to such macho predecessors as Donald A. Smith, George Stephen and Sir William Van Home, because they too realized that what would make the company great was not its land holdings or railway but its commitment to entrepreneurial spirit. As Van Horne, the U.S. entrepreneur who completed the original tracks, said when he renounced his American citizenship, “Building that railroad would have made a Canadian out of the German emperor.”
Maybe it is Stinson’s mild manner, but nobody bothers to hate what used to be the CPR anymore. “It’s mainly because the railway isn’t such an important part of the social fabric anymore,” he said. “We’re not the powerhouse we were when a lot of those original hostilities were built up over time.”
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