Paul Desmarais' latest power play

PETER C. NEWMAN October 23 2006

Paul Desmarais' latest power play

PETER C. NEWMAN October 23 2006

Paul Desmarais' latest power play


The tycoon has lost his groove in Ottawaand he wants it back


Paul Desmarais Sr., the country’s top political groupie, enjoys nothing so much as being consulted by Canada’s prime ministers, and has acted as their intimate sounding board for most of the past four decades, nurturing special relationships with Pierre Trudeau, Brian Mulroney, Jean Chrétien and Paul Martin. With the election of the Harper government, the Montreal tycoon seems to have lost his groove as an Ottawa insider—and he wants it back.

This reigning monarch of Canada’s business establishment has not publicly endorsed any candidate in the current Liberal leadership. But John Rae, a director and executive vice-president of Desmarais’ Power Corp. of

Canada—who along with Eddie Goldenberg ran all three of Chrétien’s successful prime ministerial campaigns—is working full-out to negotiate brother Bob into the top slot. “I hate to be melodramatic, but we have felt the sheer force of the Power Corp. people,” is how a senior adviser in one of the opposing camps describes the surprisingly bloody behind-the-scenes struggle. “They’re very good, very well-funded, and will stop at nothing.” Paul Desmarais collects prime ministers and senior politicians like rare butterflies. “To hell with people who say I do it for political favours,” he told me during an interview at his house in Palm Beach in 1998. “It has been a great advantage to say, T know the prime minister of Canada, and I know what he’s thinking.’ I always thought that I couldn’t impose on political figures and ask them to do something for me and still be a friend of theirs, that if I was going to render any service to my country, I could do it by giving these guys my policy positions.”

“The easy thing to think about Paul is that he has the politicians in his pocket, that he is sort of a master of marionettes,” I was told by Senator Michael Pitfield, who had been clerk of the Privy Council under Pierre Trudeau, then quickly morphed into becoming vice-chairman of Power Corp. “But he’s not. He’s a player. He never disengages, never withdraws from the arena. He made an enormous fortune by age 35 and has ever since been engaged in the active governance of this country. Most people automatically assume that Paul’s policy involvements are designed to make him richer, that he tries to control people and events to get some desired selfish result. In fact, he’s an active participant, using his power base to press for what he thinks are desirable policies.”

It’s difficult to isolate any corporate favours that might have resulted from his Ottawa friendships, because Desmarais virtually ceased buying in Canada between the election of René Lévesque’s separatist government in 1976 and his purchase of the London Insurance Group for $3 billion in 1997The company currently has 31,000 employees and consolidated assets that total an astounding $124 billion, with much of its business spread over Europe in media, banking and financial investments.

Desmarais’ Ottawa connections reach back to his student days at the University of Ottawa, when he wrote to John Diefenbaker, asking to see him, and received an invitation for lunch. Before that happened, his father—to whom he had boasted that he knew the Chief—came for a visit. When they unexpectedly met Diefenbaker at the Château Laurier, his father asked Paul to introduce him. He did so awkwardly, since he had not yet met the Tory politician, but Diefenbaker got into the spirit of the occasion and said, “John Des Mair, you’ve got a fine son here. I’m having lunch with him next week.” After that, the young Desmarais thought, “Diefenbaker really put the water in the ocean.”

One of his favourite collectibles was Pierre Trudeau. In fact, the Montreal academic’s run for the Liberal leadership was debated and decided at meetings in the offices of Power Corp., presided over by one of its vicepresidents, Claude Frenette, who was also president of the federal Liberal party in Quebec. Two months after he was elected, Trudeau accepted Desmarais’ invitation to his summer chateau in the Saguenay. Desmarais picked him up at the airport in one of his two Rolls Royces, and when the PM asked what it was like driving a Rolls, Desmarais gave him the wheel. “First time I’ve ever been driven by a prime minister!” he exclaimed.

On Thanksgiving weekend of1970, during the FLQ crisis, Desmarais happened to be

hunting pheasant at a private club (its membership was limited to seven) near Quebec City. After consultations with Ottawa, he was evacuated aboard a Royal 22nd Regiment landing craft. Trudeau spent several Christmases at Desmarais’ Palm Beach mansion and met with him once a month in Montreal. He granted the Montreal financier at least one specific favour.

Desmarais had purchased a minority position in a Paris bank that was expropriated by the French government, but a year later


he had received no compensation. “I told Trudeau about it, and he invited me to come [to Ottawa] for a garden party held for the G7 heads of government,” he recalled. The leaders had been meeting at Montebello, near Ottawa. “When I saw François Mitterrand [then the French president],

I told him we had been unjustly expropriated. His security guys were getting very excited but we had a good talk. Within two weeks I was paid—all cash, and in U.S. dollars.” After he left office, Trudeau joined Power Corp.’s advisory committee, which included former West German chancellor Helmut Schmidt and the former head of the U.S. Federal Reserve, Paul Volcker.

Desmarais’ most profoundly personal friendship was with Brian Mulroney, who was retained for his labour law expertise to settle a nasty strike at La Presse. The Desmarais family became influential mentors as he moved up Montreal’s social, business and political ladders. This was a personal as well as political friendship, and the two men frequently holidayed together with their wives, once aboard the Orient Express. After he left office, Mulroney was appointed to several of Power Corp.’s overseas boards, and expanded his legal and social links with the family.

Of course, no PM could have been closer than Chrétien, since he became a member of the Desmarais family when his daughter France

married Paul’s son André. (Although Desmarais officially turned over the management of Power Corp. to his two sons, Paul Jr. and André, on May 10, 1996, he remains very much in charge, retaining ownership of the company’s controlling shares.)

Paul Martin, Chrétien’s successor, spent most of his early business career at Power Corp., mainly in charge of Canada Steamship Lines. When Desmarais decided to take a run at Canadian Pacific Ltd., he knew he had to spin off his ownership of a competing transportation company, and allowed Martin to buy control of the CSL Group. He made it possible by signing a bank note on Martin’s behalf to help cover the $ 195million asking price. That purchase became the source of Martin’s considerable fortune, and the two men have been close ever since.

To retain the link with Ottawa, Desmarais’ senior staff are backing Rae for the top Liberal job, especially John Rae. Unlike his fellow candidates, the former NDP Ontario premier has shied away from policy issues. “It’s not a campaign about ideas,” Bob Rae told a Maclean’s interviewer last month. “You’re electing a leader, you’re not electing an agenda.” That approach, which mirrors Kim Campbell’s fatal claim during the 1993 campaign (“an election is no time to discuss serious issues”), hasn’t worked. Everyone agrees that Rae is “a nice guy,” but in last month’s runoff he came third in Quebec and

a distant third in Ontario—the only two provinces where the Liberals can realistically hope to make significant gains.

There is little doubt that it was Rae’s calamitous record as Ontario’s 2lst premier in the early 1990s that has decimated his appeal. If Rae were to capture the Liberal crown, it would be too easy for Stephen Harper, in the next election campaign, merely to keep repeating: “He’ll do to Canada what he did to Ontario.” That included trebling the provincial debt, raising the marginal personal income tax rate to the highest in North America, and running an unfocused government, unable to concentrate even on its own survival.

Equally significant to the Liberal delegates in their negative perception of Rae is the feeling that if the former NDP premier should win, Stephen Harper could monopolize the political middle-of-the-road, while a Michael Ignatieff victory would place the Liberals in what his supporters call “the radical centre,” forcing the Conservatives farther to the

right, where there are fewer new votes.

The definitive assessment of Rae’s record in power was broadcast over Toronto’s Citytv on budget day in 1992, halfway through his term. At the post-budget press conference, commentator Colin Vaughn cheekily asked NDP treasurer Floyd Laughren, “When did your government lose its grip on reality?” Instead of ignoring the question, Laughren chuckled and then quipped, “It’s hard to pin down precise dates on these things.”

Should he take the prize, Paul Desmarais would have to give Bob Rae some badly needed reality lessons. It would be a tough gig. M