BUSINESS

BOARDROOM BACKLASH

THE POLICIES OF ONTARIO’S NDP CAUSE THE BAY AND OTHER FIRMS TO CONSIDER A MOVE FROM CANADA

DEIRDRE McMURDY June 10 1991
BUSINESS

BOARDROOM BACKLASH

THE POLICIES OF ONTARIO’S NDP CAUSE THE BAY AND OTHER FIRMS TO CONSIDER A MOVE FROM CANADA

DEIRDRE McMURDY June 10 1991

BOARDROOM BACKLASH

BUSINESS

It is one of the world’s oldest corporations, and for much of its 321-year history the Hudson’s Bay Co. has been a pillar of the Canadian economy. It is still Canada's largest retailer, operating 490 stores in four chains: the Bay, Simpson’s, Zellers and Fields. But in years to come, the Torontobased company will likely have a much smaller presence in its home market. Maclean ’s has learned that Hudson’s Bay is, in the words of one senior executive, “very seriously thinking” about relocating its massive warehousing, distribution and internal communications operations to U.S. border cities such as Buffalo, N.Y., and Spokane, Wash. That move, which would eliminate as many as 2,000 Canadian jobs, would enable the company to take advantage of lower U.S. tax rates and operating costs. The Bay’s decision to consider relocating many of its activities to the United States was prompted by another factor, as well. Company officials say that they are deeply worried about the economic policies of Ontario’s New Democratic Party government. “The NDP is generating real fear in the business communi-

THE POLICIES OF ONTARIO’S NDP CAUSE THE BAY AND OTHER FIRMS TO CONSIDER A MOVE FROM CANADA

ty,” said an executive. “That’s causing us to rethink our operations in Ontario.”

Nor is Hudson’s Bay alone. In the nine months since Premier Bob Rae came to power at Queen’s Park, the mood in Ontario’s business community has swung from cautious optimism to anger and despair. The signs of a business backlash have increased markedly since Ontario Treasurer Floyd Laughren tabled the government’s maiden budget on April

29. At a time when the federal government and most of the other provinces are preaching austerity, Laughren called for $2 billion in additional spending in an effort to revive the recession-racked Ontario economy while improving some social programs. At the same time, Laughren forecast that the provincial deficit will climb to $9.7 billion in the current fiscal year—on total outlays of $52.8 billion— compared with a $3-bilhon deficit on expenditures of $46.5 billion in 1990-1991.

Although many social welfare advocates welcomed the budget, business groups complain vociferously that it will saddle the province with too much debt, stifle new investment and make moving to the United States a more attractive prospect. “The government says that, faced with the choice of fighting the deficit or fighting the recession, it is proud to be fighting the recession,” says Lawrence Tapp, president of Lawson Mardon Group Ltd., an international packaging company based in Mississauga, Ont. “I sincerely hope that our children and grandchildren will be just as proud when they have to pay our bills.” Laughren, however, says that the government’s spending plans will help, rather than hurt, the business climate in the province. “I am convinced we are on the right track,” he told Maclean’s last week.

In fact, the budget is only one of many NDP initiatives that are stirring strong opposition in business circles. Corporate critics have also lashed out at proposals to:

• make officers and directors of companies personally liable for back wages and severance

pay in the event of corporate bankruptcy;

• prohibit companies from hiring temporary labor during strikes and make it illegal for management personnel to perform the work of striking employees;

• introduce a government-run automobile insurance program to replace the existing system of no-fault private insurance;

• require all liquor in the province to be sold in refillable containers—a measure that industry officials say would drive distillers out of the province and eliminate 1,500 jobs.

As corporate opposition to Rae’s policies gathers force, an increasing number of business leaders are translating their complaints into action. On May 16, 3,000 protesters, many of them pin-striped stockbrokers and lawyers from Toronto’s Bay Street financial district, held an hour-long rally in front of the provincial legislature to denounce the budget. The rally’s organizers were John McBride, a Toronto-based mining company executive, and Loudon Owen, a lawyer. McBride and Owen, both 33, are now organizing a letter-writing campaign to the premier’s office and are planning another demonstration for June 27. Says Owen: “The gravity of this situation was driven home to me within days of the budget when commercial clients started to call and ask about things like the tax implications of moving their business to the United States.”

Ontario’s proposed spending plans have also sparked criticism from the federal government, which is wrestling with its own $30.5-

billion budget deficit. During a visit to Hong Kong on May 25, Prime Minister Brian Mulroney said that Ontario’s deficit was a major obstacle to attracting foreign investment. His remarks touched off a series of sharp exchanges between Queen’s Park and Ottawa, which subsided only when Rae and Constitutional Affairs Minister Joe Clark agreed to address the issue during a previously scheduled meeting on national unity.

Laughren, a former economics teacher, insisted last week that he is not alarmed by the threats of a business exodus from the province. “I think there is more heat than light in what they are saying,” he said. But he added that the government will have to try harder to convince Bay Street of the merits of its policies: g “They’re not sure we can manage the store effectively, I and we have no track record s to show them. We have to I consult with the business 1 community before rather “ than after the fact. We’re not good enough at it yet.” - But Laughren’s assurances have failed to persuade many executives, who openly say that they are reconsidering their investment plans in Ontario as a result of NDP policies. Sheldon Caplan, vice-president of Toronto-based Union Felt Products (Ontario) Ltd., for one, says that his company is weighing plans to increase its investment in its Calgary upholstery-products factory and is considering a major expansion of its plant near Buffalo. Says Caplan: “We are consciously choosing not to invest in Ontario. The question we keep asking ourselves is, ‘Who needs this?’ ” Caplan adds that he is particularly annoyed by the government’s proposed legislation on plant closings, which for the first time would make company officers personally liable for back wages and severance pay in the event of corporate bankruptcy. Directors, who are now liable for back pay in the event of bankruptcy, would also become liable for severance pay under the legislation. “If we make a wrong move with an acquisition,” he says, “we not only lose our investment, we could lose our houses, too.” Lawson Mardon chairman Tapp adds that he is now considering whether to move his packaging firm, which employs 700 people in Ontario. “I can operate this company from any jurisdiction in the world,” Tapp says. “If we leave Ontario, it will be with reluctance—but I’m not very encouraged.”

One of the most outspoken opponents of provincial NDP policies is Mel Lastman, veteran mayor of the suburban Toronto city of North York. Lastman, who entered politics in 1972

after running his chain of discount fumitureand-appliance stores, boasts that North York’s pro-business policies make it the “last bastion of capitalism in Ontario.” But he adds that the city, with a population of 560,000, now has over eight million square feet of empty industrial and commercial space—in part, he contends, because high federal and provincial taxes have discouraged new investment. Declares Lastman: “We’re fighting like hell to keep people here, but it’s hard. You can’t lobby or talk to the NDP—they speak a different language. Their idea of government is to spread poverty more evenly across the province.”

Since Laughren tabled his budget, both major New York City-based debt-rating agencies, Standard & Poor’s and Moody’s Investors Service, have downgraded the province’s credit rating, making it more expensive for the Ontario government and its agencies to borrow money abroad. The government estimates that the reduction will add $26 million to the province’s borrowing costs in the current fiscal year. Declares Joseph Taylor, vice-president of capital markets for the Wall Street brokerage firm Merrill Lynch & Co.: “The provincial government has introduced a number of policies that will have a dampening effect on its economy. The perception down here is that the measures are well intended, but the government is completely oblivious to what appropriate economic policy is.”

Other business executives take a more sanguine view of the Ontario government. Henry (Hal) Jackman, chairman of E-L Financial Corp. Ltd., which controls National Trust, says that he refuses to be ruffled by political rhetoric or radical initial proposals. “If this bill went through as it is proposed,” says Jackman of the government’s employee wage-protection legislation, “it would give me great cause to worry. But there is a lot of howling and gnashing of teeth going on, and I don’t think you can assume that because a guy’s in the NDP, he’s absolutely unreasonable. It’s all still at the proposal stage.”

Hudson’s Bay officials do not appear to be as confident about the business climate in Ontario. At the company’s annual meeting last week, chief executive officer George Kosich attacked both the federal and the provincial governments for failing to discourage cross-border shopping. But he added: “Our costs of doing business in Ontario are growing at a faster rate than in all other provinces, mostly from increases in taxation.” Privately, a company executive told Maclean ’s that the firm has even urged some of its own domestic suppliers to move to the United States in order to reduce the wholesale price of their products. If they fail to do so, he added, they will risk being replaced by U.S. suppliers. Although Laughren says that his economic prescriptions will help to revive the Ontario economy, it seems likely that at least some businesses will not remain in the province long enough to experience the results.

BARBARA WICKENS

DEIRDRE McMURDY with BARBARA WICKENS in Toronto