THE NATION’S BUSINESS

A rich lode of dubious achievers

Peter C. Newman December 27 1993
THE NATION’S BUSINESS

A rich lode of dubious achievers

Peter C. Newman December 27 1993

A rich lode of dubious achievers

THE NATION’S BUSINESS

PETER C. NEWMAN

It hasn’t been a banner year for Canadian business. To survive was to triumph. But even in this dismal climate there were some startling examples of jungle ethics, goofy judgments and just plain greed. Here are the worst of them:

• The Widow Stock That Ran Away With Itself—For years, Bell Canada was a sleepy monopoly producing steady but indifferent dividends. Its Gibraltar-like dependability made it an ideal “widow and orphans” stock. No more. In the mid-1980s, Jean de Grandpré arrived on the scene, and to get away from Bell’s restrictive regulatory earnings environment he plugged the company into dozens of ventures, mainly in real estate and financial services. It turned out to be one of the worst decisions in Canadian corporate history. In 1993, Bell finally closed the books on $350 million in real estate losses (which followed $940 million in writeoffs and unrecovered loans since 1989) and sold Montreal Trust for $290 million, after having paid $875 million for the company in 1989 and pumping in another $175 million. The holding company for Bell Canada faces $1 billion in losses this year and Northern Telecom, its one-time star performer, dropped more than $1 billion in 1993’s second quarter alone. A question: what will Bell do for an encore?

• It Pays To Be A Flop—Once a major industrial player, Montreal’s diversified paper producer Domtar Inc. has barely been hanging on to solvency, laying off 4,000 employees and recording losses totalling $600 million since 1988. One of the chief architects of its downfall was Jean Campeau, the former head of the nationalistic Caisse de dépôt et placement du Québec. Campeau was appointed Domtar’s chairman three years ago, but took a nine-month leave of absence in June, 1992, to work for the Quebec sovereigntist cause. Last March, when Campeau formally resigned, Domtar’s

Despite the dismal economic climate, some corporations— and their bosses— fell to new lows in the pursuit of high financing

board of directors rewarded the departing chairman with a payout of $450,000. Question: what would Campeau have been paid had the company actually made a few dollars during his tenure?

• Nothing Like Innocence—Last spring, a group led by Michael DeGroote, the former controlling shareholder of Toronto’s wastemanagement firm Laidlaw Inc. paid a $23million fine, one of the largest ever levied by the Ontario Securities Commission, for contravening provisions against insider trading. Although he didn’t question the allegation that his group had made a $17-million profit short-selling Laidlaw stock after learning some of its dump sites were toxic, DeGroote denied having done anything wrong. And his lawyer called the transaction an “honest mistake.” Question: is that like airline food, jumbo shrimp and military intelligence?

• When The Titanic Sinks, Climb Into The Right Lifeboat—When western Canada’s leading department store chain, Woodward’s Ltd., closed its doors, long-term employees received only meagre payments. At the same time, Woodward’s nine senior executives, whose management drove the chain into the ground, shared $6.6 million in

termination allowances, retirement pay and something called “special restructuring bonuses.”

• I’ll See You In Hell First—Although the exact amount was cloaked in the family’s traditional secrecy, there’s no doubt that the largest estate filed in 1993 was that left by New Brunswick billionaire K. C. Irving, who had luxuriated in his Bermuda tax haven since 1972. When he died in December, 1992, at age 93, he left the bulk of his wealth (estimated at $7 billion) to a Bermuda-based trust that will eventually be co-administered by his three sons. But they can only become the estate’s beneficiaries if they become nonresidents of Canada to ensure that Ottawa gets none of the tax revenues. When Sir James Dunn, another rich Maritimer who died in 1956, declined to seek out a tax haven, his hefty estate provided a substantial portion of the seed money Ottawa used to set up the Canada Council. Fashions change; the Irvings don’t.

• A Sweetheart Deal For No Sweetheart— This summer, Ivan Boesky, the notorious Wall Street arbitrageur who was released from jail in April, 1990, after three years behind bars, negotiated one of history’s most generous alimony arrangements with Seema, his former wife of 30 years. He got $20 million cash, a $180,000 annual allowance for life and the couple’s $2.5-million house in La Jolla, Calif. The money, according to the former Mrs. Boesky’s lawyer, was set aside when Boesky was originally convicted of insider trading because he claimed it belonged to his wife. As soon as he was back on civvy street, Boesky went after the funds. Nice work if you can get it.

• It PaysTo BeThere When The Big Boys Go Bust—During the past 12 months, the tattered remains of the once-powerful empire of waterlogged British press lord Robert Maxwell, who drowned in 1991, was finally wound up. The bill of the estate’s liquidators, the accounting firm of Price Waterhouse, came in at $48 million, with the lawyers and bankers involved in the asset disposals charging an additional $32 million. Maxwell never came close to turning money like that when he was alive. Too bad.

• Oh To Be A Banker, Now That Disclosure Time Is Here—If there was one Canadian institution whose credibility has been hurt by this recession, it’s banking. The fact that Canada’s Big Six banks could shovel billions of dollars into the Reichmanns’ pockets without insisting on a peek at their balance sheets was bad enough. Even worse was the credit largess they pressed on department store flipper Robert Campeau, a self-confessed manic-depressive with a long history of nervous breakdowns. Campeau’s lead banker was Cedric Ritchie, the retiring chairman of Scotiabank, whose 1993 compensation totalled $2.6 million. Still, that’s peanuts: George Soros, the Wall Street mutual fund guru, made $865 million last year— and he never even had to lend Bob Campeau a cent.