In preparation for a meeting of the board on Friday, April 19—five days before his surprise resignation shocked Canada’s business community—Jean Monty spoke privately and individually with each of his 12 fellow directors. He wanted to talk through his strategy for beleaguered BCE Inc. and sound out their reactions. Over those few days, Monty, who was both chairman and CEO, gained the board’s overall backing—even though there was a quiet grumbling of dissatisfac-
tion. But in the face of directors’ mountings questions and concerns about his plans, Monty wanted more. In what amounted to a boardroom power struggle, he demanded unqualified support for all his proposals from each member—a much stronger vote of confidence than the consensus he already had. Without it, he’d walk. In two separate meetings on Monday, the board thrashed through questions of strategy. It did not discuss Monty’s offer of resignation, but directors could already see he would not get everyone onside. Dissident members, like Tony Fell, power-
house chairman of RBC Dominion Securities Inc., were making that clear. On Tuesday, at a crucial meeting that went well into the night, support for Monty was not unanimous—and the board accepted his resignation.
Still, at 8 a.m. the next morning, Monty and his successor-to-be, president Michael Sabia, gave a major presentation to analysts—first Monty, then Sabia, in their usual fashion—at the Sheraton hotel in Toronto. It was only after that, at 8:45, that Monty stood again in front of his audience, peppered with senior BCE executives, and announced he was resigning, effective immediately. The room went “dead quiet,” says Robert Callander, a portfolio manager with Caldwell Securities Ltd. “This was a watershed meeting in Canada.” Questions about the presentation were fielded by Sabia. The shocked crowd
had no queries about Monty’s departure.
The board had made other important decisions the previous night. For investors, there would be no dividend cut. The positions of chairman and CEO were split— as large institutional investors advocate— and board member Richard Currie, the famed president in the President’s Choice supermarket brand, was appointed nonexecutive chairman. To deal with BCE’s disastrous investment in Teleglobe Inc., its flailing international telecommunications subsidiary, the board decided to cut its losses and end its long-term financial support for the company, which meant taking a minimum hit of $7.5 billion.
As the news reverberated, the stock market, which had slapped down BCE’s share price to its lowest point in years due to the Teleglobe mess, responded swiftly. BCE’s price bounded upwards, closing the week at $27.02, 17 per cent higher than on Tuesday. And the ripple effects began to wash in. The Bank of Montreal added $125 million to its loan loss provisions, essentially admitting it expects to lose that much on Teleglobe. The international syndicate of lenders to the company—led by BMO and including other major Canadian banks and insurance companies— stands to lose about $2 billion. BCE admitted that without its financial backup, Teleglobe may well have to seek protection from creditors. Bondholders, who are looking at pennies on the dollar, talked with lawyers about suing BCE for reneging on its promise in December to shoulder up to $ 1 billion of Teleglobe’s load. As one senior securities industry player puts it: “This is huge.”
Monty, 54, is the fall guy, says another. “It’s part of our culture that when a mistake gets made, somebody’s got to take the blame,” a senior Montreal investment banker observes. “Jean Monty is a man of extremely high integrity and extremely high dignity. The investment in Teleglobe, in hindsight, was a major mistake, to put it mildly. But this,” he stresses, “is only in hindsight.”
While the Teleglobe investment was Monty’s most egregious misstep, critics have found fault with other parts of his strategy. They say he paid too much for CTV Inc., bought in 2000 for $2.3 billion and folded into a media company with BCE’s majority stake in the Globe and Mail. BCE Emergis Inc., the company’s electronic commerce subsidiary, which laid off 750 employees in April, was another error, some argue. And
Monty shouldn’t have given SBC Communications Inc., one of the biggest local phone carriers in the U.S., a so-called “put” option when he sold a 20-per-cent stake in Bell Canada to SBC; this permits the American firm to force BCE to buy back the holding at an inflated 125 per cent of the original price—or about $6.4 billion. In short, the critics say, Monty’s whole convergence strategy—to buy or build the media content that would fill the technological pipelines—was sorely misguided.
The mistakes will take some time to undo—and Sabia, a sharp strategist and self-described “shit disturber,” is the man set to do that. Slated as heir apparent last January when Monty announced his promotion to the No. 2 position of president and chief operating officer, Sabia, 48, is a genuine Monty fan, says a source close to both. Before BCE, Sabia had a career in government—he was the bureaucrat behind the GST—and then at Canadian National Railway Co. Now, though, his job is to sift through Monty’s acquisitions, and decide which will stay and which will be sold off. It’s unlikely he will totally dismantle Monty’s strategy, and he will probably move slowly as he fine-tunes operations. Observers say he’s the right guy for the job. “He is wicked smart,” says consultant Mark Bruneau, president and CEO of Boston-based Adventis Corp.
In his presentation to analysts, Monty addressed the issue of SBC’s put option. “We feel comfortable” with the potential expenditure, he said. But clearly, he wasn’t comfortable with carrying on with the job of taking apart what he’d built. He’d also lost credibility, with bankers and with investors, over Teleglobe. And while board members backed him on Teleglobe, some felt his other plans weren’t well thought through. Ultimately, the board decided it would be more assertive—and Monty, in his demand for unanimous support, showed he didn’t want to deal with that. “If Monty had understood better the emerging corporate governance culture,” says an informed source, “this would never have happened.”
Claude Lamoureux, CEO of the powerful Ontario Teachers’ Pension Plan Board and a strong advocate of more active governance on the part of directors, applauds the BCE board’s activism. “This is a good day for boards in Canada,” Lamoureux says. “We need more boards that have the courage to act.” Michael Sabia, take note. El]
RESUME: MICHAEL J. SABIA
ADDRESS: BCE Inc., 1000 de la Gauchetière Street West, Montreal
BORN: St. Catharines, Ont., Sept. 11,1953 EDUCATION
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