The view is spectacular from the 44th floor headquarters of Brascan Ltd., a diversified natural resources company and a holding of Toronto entrepreneurs Peter and Edward Bronfman. The Commerce Court West building faces south on LakeOntario, with the TorontoIslands strung out on the water below. In his office, J. Trevor Eyton, Brascan’s chairman, keeps a high-powered telescope pointed at the panorama. Encouraging a visitor to have a look, he jokes, “I use this to keep an eye on the competition.”
If so, it’s a grim picture Eyton confronts each time he takes a peek. Metropolitan Toronto‘s 3.8 million residents have been hammered by recession in recent years, and despite a modest recovery, times are still tough. Unemployment remains stuck at around 11 percent, in line with the national average. There’s a spate of poor fundamentals, including a burgeoning debt and deficit. With the near annihilation of the Progressive Conservative party in last October’s elections, CEOs are holding their breath, wondering where the new, Liberal prime minister, Jean Chretien, will come down on fiscal policy and on maintenance of a vast but costly-social safety net.
The upshot: Businesses remain wary, with many still downsizing. Generally tranquil Torontonians are up in arms: Witness a street demonstration last year over a proposal to increase taxes.
“There have been mergers, firings, bankruptcies, closures, and relocations,” says Paul V. Godfrey, president and CEO of the Toronto Sun, a $328 million newspaper group with holdings in Canada and the U.S. “Things are getting better-but slowly.”
“Everybody’s shaken,” says David R. Beatty, president of Weston Foods, a $1.8 billion unit of Toronto-based George Weston Ltd. “It’s a very nasty business.”
Toronto is the world’s eighth largest city. It ranks among the top five head-office locations, behind Singapore, London, New York, and Washington, according to a survey of 800 senior executives by Chicago consulting firm PHH Fantus. The executives considered proximity to markets, cost of office space, corporate taxes, availability and cost of skilled labor, telecommunications, taxes, and the regulatory environment. More than 50 percent of all the Canadian companies listed in Fortune magazine’s Global 500 have their headquarters in the Toronto area, and more than 70 percent of the top 50 foreign-owned companies in Canada operate there. Noting the wide variety of ethnic groups that have put down roots in the city, the United Nations recently named Toronto the world’s most multicultural city.
Nonetheless, there are substantial problems, partly in the form of high taxes and the resulting exodus of business to cities outside metropolitan Toronto, such as Mississauga, home to several giant companies, including the Canadian divisions of Northern Telecom, General Electric, and McDonnell Douglas. “Our assessment base dipped by $48.7 million in 1993 on a $3.8 billion base,” says June Rowlands, mayor of the city of Toronto, one of six municipalities that comprise metropolitan Toronto. “It’s tough to watch your assets go down an elevator shaft every night at .”
Beatty, 53, says personal taxes also discourage U.S. executives from moving north of the border. “If you’re an American, you can’t afford to live here,” he says. “The marginal tax rate is about 54 percent. Federal and provincial sales taxes take another 15 percent bite, and generally the costs of goods are higher. If an executive here earning 100,000 Canadian dollars ($73,760) goes to Richmond, VA, and earns 100,000 U.S. dollars, his take-home pay probably would double. That creates a one-way flow of talent.”
Nationwide, the economic outlook is mixed, at best. Growth last year of 2.5 percent was second strongest among the G-7 countries, behind the U.S., according to the Organization of Economic Cooperation and Development. Canada‘s Department of Finance projects 3 percent real growth in 1994, but even at that clip, unemployment of 11.2 percent may not budge. The federal deficit last year hit C$45.7 billion, while external debt totaled C$300 billion, or 43 percent of GDP-among the highest in the industrialized world. Price wars rage unabated, eroding corporate profit margins. NAFTA likely will boost exports as the Mexican economy strengthens, but most Canadian executives say that in the near term, they’re not considering direct investment in Mexico.
The direction of the Liberal government-which many CEOs regard with apprehension-remains uncertain. Isadore Sharp, 62, chairman and CEO of Toronto-based Four Seasons Hotels, an international chain of luxury properties, says that while Prime Minister Chretien must conciliate the more radical wing of his party, he likely will pursue a centrist line on a range of issues, including the deficit. “He’ll make all the right noises,” Sharp says. “But basically, he’ll follow a broad mainstream consensus.” Perhaps, says Marshall A. Cohen, 59, president and CEO of The Molson Cos., a $3.1 billion diverse brewing and retail company, emphasizing, “we can’t spend our way out of this one.” David Beatty questions whether spending cuts recently announced by Chretien will enable him to slash the deficit within three years to 3 percent of GDP from a current 6.4 percent. Originally, he says, the government hinted there might be another round of cuts but then reversed its position. “We’ve seen this movie before,” Beatty says. “Charlie Brown is lining up to kick a field goal, while Lucy’s holding the ball.”
Few cities surpass Toronto as an international business hub. According to the mayor’s office, the city is a one-hour flight from 30 percent of the Canadian population and a three-hour flight from half the U.S. population. Toronto is home to the Canadian subsidiaries of the Big Three U.S. automakers, along with Woolworth, Xerox, IBM, and PepsiCo. Other multinationals with a substantial presence there include Nestle of Switzerland, France‘s Groupe Schneider, Oshawa Foods, and Britain‘s Royal Insurance. On the Canadian side, the Big Five national banks cast a broad shadow over business. In order of size, they are C$168.2 billion asset Royal Bank-the largest in Canada and the fifth largest in North America-Canadian Imperial Bank of Commerce, the Bank of Montreal, the Bank of Nova Scotia, and Toronto Dominion. Major players also include BellOntario, Hudson‘s Bay Co., Maple Leaf Foods, and Canadian Tire. Outsiders carry some clout, including the fiery Conrad Black, whose Vancouver-based Hollinger media conglomerate owns a piece of the Toronto Sun. But locals such as the Bronfmans and the Reichmanns are nearly invisible, choosing to operate through a tangle of subsidiaries and subordinates.
Underlying the impulse to privacy is a certain gentility. “Please call him Mr. Taylor,” urges an assistant to Allan Taylor, 61, CEO of Royal Bank. “That’s the way we do it here.” There’s also a small-town hospitality: “I am sorry I came up short in my quest for my favourite restaurant book that somehow disappeared from my drawer,” says a hand-delivered note to a visitor from Brascan’s Trevor Eyton. “To make up, I enclose a new ‘Toronto‘s Favourite Restaurants’ publication.” The combination of provincialism, pomp, and power grates on some outside observers. The exodus of business west from Montreal throughout the 1970s and 1980s didn’t help. “If there’s one thing Canadians outside the city agree on, it’s that they hate us,” says Toronto Sun CEO Godfrey. Asked to provide a one-word description of the city’s executive culture, the senior vice president of a large Canadian manufacturer replies, without hesitation, “egocentric.”
If there’s an egocentric company in the lot, it’s probably the Bronfmans’ Edper Enterprises, the holding company for subsidiaries including Brascan and merchant bank Hees International. In a 1988 book, “The Brass Ring: Power, Influence, and the Brascan Empire,” Toronto authors Patricia Best and Ann Shortell likened the Edper culture to the Jesuit religious order, observing that it is driven by an “ascetic, suffer-in-this-life philosophy.” Senior officers work demanding hours but spend weekends with family and friends. Tastes, too, are Spartan: Trevor Eyton’s favorite restaurant-marked with a paper clip in the book he sends-is Movenpick on Yorkville Ave., a brightly lit space with plastic parrots and good food, where German entrees start at around C$8.95.Eyton, 59, is perhaps Edper’s most visible executive: Extending the clerical metaphor, Best and Shortell described him as “more holy than the holies,” the one responsible for “immersing corporate Canada in the sacred teachings.” A member of the Canadian Senate, Eyton is a throwback to an older, more traditional corporate culture. During a controversial interview in 1984, he expressed surprise at the notion that a Brascan vice president, Wendy Cecil-Stuart, might one day run an Edper company. Eyton maintained that a woman might find it hard to generate the necessary “desire” and “commitment.”
Like other executives, Eyton is seeking a return to some semblance of the halcyon days of the 1980s. But with Brascan’s financial services businesses lagging, and with prices for commodities, including zinc, copper, nickel, and lead, running 40 percent to 60 percent below the average for the last 10 years, recovery has been slow.
True to form for a North American company, Brascan spent 1993 costs and dumping assets, including its controlling positions in brewer John Labatt and Royal Trustco. (Eyton sold the latter to Allan Taylor’s Royal Bank.) The crash diet paid off: Revenues for the year slipped a fraction to $5.36 billion, but net income rebounded to $109.3 million, compared with a loss of $113.4 million in 1992. “On balance, we are pleased with our efforts,” Eyton says.
Another company fighting headwinds is the Toronto Sun, which recorded operating income of $2.6 million last year, compared with $2.2 million in 1992. The bottom line, however, plunged to a loss of $51.2 million, largely because of write downs taken to strengthen the balance sheet.
Sun President and. CEO Paul Godfrey couldn’t be more different from buttoned-down Eyton, nor the culture at the flagship Toronto Sun itself-a Great White Northern version of USA Today-more of a contrast to conventional Edper. Racing into the Sun’s offices late for a appointment, he puts up coffee. Godfrey settles into a leather chair, sipping from a blue-and-gold mug emblazoned with the logo of the Financial Post, another Sun publication. He is wearing a tie that looks like a German expressionist painting, with broad swatches of scarlet, violet, and electric green clamoring for attention. The designer is Byblos, he says; his favorite pattern is a rosebud on newspaper print he wore for a photo in the 1992 annual report (shown). Gone is that year’s perm, a concession to fashion.
Godfrey, 54, talks at length about his 11-year tenure as chairman of Metropolitan Toronto before signing on as Sun publisher in 1984. He prides himself on having brought baseball to Toronto and for his role in helping to build the SkyDome, accomplishments that prompted Toronto Life magazine to nickname him “Captain Toronto.” A query about a ceramic blue jay on Godfrey’s desk jump-starts a conversation about baseball. The Blue Jays-the team, that is-are Godfrey’s “boys.” After Joe Carter’s home run in Game 6 of the World Series clinched the Jays’ second consecutive world championship last October, Godfrey bolted from the Sun’s private box in the Dome for the home locker room, where he was embraced by the champagne-soaked hero.
In season, he says, the box effectively serves as his “summer home.” Other major Toronto corporations lodge nearby, and between hot dogs, Godfrey “schmoozes,” mixing business and baseball, but taking care, he jokes, never to impinge on the latter. Visitors to the box have included Michael J. Fox; George Wendt, famous as “Norm” from “Cheers”; and Toronto TV talk-show host Shirley Solomon. Though widely respected, Godfrey gives the impression that he is dabbling in the newspaper business between sporting gigs. With a brewery, he is working on securing a National Football League franchise for Toronto. He advised construction mogul Larry Tannenbaum, whose Palestra Group recently lost its bid for an NBA team to another group of investors.
Godfrey also encouraged friend June Rowlands to run for mayor of Toronto. To the delight of local executives, Rowlands, 69, has turned City Hall into a clearinghouse for business concerns. Issy Sharp gives her high grades for launching the Business Development Initiative, an independent agency charged with attracting new business and with preventing established companies from leaving.
Elected on a conservative, law-andorder platform, Rowlands is a freewheeling free-thinker with no pretensions toward being politically correct. If Kim Campbell’s 1993 summer job earned her the moniker, “The Teflon Prime Minister,” everything, it seems, sticks to Rowlands. As a Toronto city councillor,. she attracted international publicity by wearing tattered pantyhose for several days to protest their shoddy workmanship. Shortly after her election in 1991, she made headlines by telling a mayors’ conference that Caucasians are genetically prone to heroin addiction.
Sharp, meanwhile, serves as de facto den mother for the CEO community. His Four Seasons Hotel Toronto is a preferred meeting place for business and social occasions. Brascan, Weston, Royal Bank, Molson, and the Toronto Sun all hold corporate events, including annual meetings, at the hotel. Paul Godfrey had two of his three sons bar mitzvahed there in the Regency Ballroom, most recently, his youngest son, Jay, in 1992.
Among more formal communications channels, boards of the national banks provide an unusual opportunity for CEOs. Because of the banks’ purview and the size of their boards-the Bank of Montreal board has 31 directors from across Canada-”there’s a confluence of expertise over a variety of industries in which I don’t participate,” says board member David Beatty.
Beatty also values think tanks as a source of intelligence, including the nonpartisan C.D. Howe Institute and the Business Council on National Issues-the Canadian equivalent of the Business Roundtable. Other groups serve specific needs: Trevor Eyton and Juan Gallardo, chairman of Pepsi bottler Grupo Embotelladoras Unidas, formed an unnamed group of Mexican and Canadian executives Eyton describes as “part social, part business.” While “treaties broaden trade,” he argues, “people who know one another make deals.” Among the Toronto contingent are Beatty, Sharp, and Cohen of Molson. Executives and their wives, he says, recently gathered in Quebec City for a three-day conference led by Bombardier CEO Laurent Beaudoin. Underscoring this sociable reflex, Allan Taylor says Toronto CEOs talk business at parties and on the golf course. Paul Godfrey recalls making arrangements to expand Toronto‘s Exhibition Stadium for Major League Baseball in front of a crowd assembled to watch the Canadian Football League’s Toronto Argonauts in a Grey Cup game. “I was Metro chairman,” he says. “Former Ontario Premier Bill Davis and I cut an agreement in full view, in front of 35,000 people.”
A larger, global audience is looking on as Canadian companies take on the economy, the government, and deeply entrenched attitudes in the populace itself, in their effort to remain competitive. The battle’s outcome hinges on a number of factors, says Ronald Morrison, president and general manager of Kodak Canada.
Morrison, a Canadian national who began in the company’s processing department in 1958 and worked his way up the ladder, reaching the corner office in 1984, knows a thing or two about competition in this market. In 1987, Kodak Canada began to gear up for the Free Trade Agreement, signed between Canada and the U.S. in 1988. The company-a 2,000-employee operation that produces a variety of film products for sale in Canada and worldwide-rebalanced its physical assets, invested heavily in technology and training, and launched continuous improvement programs in key processes. The result: In 1991, the company received a coveted, top-rung MRPII Class “A” rating.
In recent years, Kodak Canada has battled foreigners, including Fuji and AGFA-Gevaert, which have aggressively sought to expand their market share. Pacific Rim companies in particular, Morrison says, prefer Toronto as a beachhead in the North American market. But he sees more formidable enemies within-heavy taxes and provincial labor legislation that hamstring corporations, driving some out and keeping investment from flowing in. “Canada Packers and Massey Ferguson,” Morrison says, ticking off a company that down-sized in southern Ontario and one that shut down completely. Others that have halted operations include Rockwell International, Johnson Controls, Nabisco Brands, and Canadian Pacific Forest Products.
In the absence of robust growth, Morrison, 58, and other CEOs maintain, the social safety net must come under scrutiny. “The business community generally has a good feeling about the net; it’s one of the things that makes Canada special,” says Taylor of Royal Bank. “But we’re also concerned about our ability to pay for it. There will have to be some kind of an adjustment.”
Certainly, any changes will be hard-won. Deficit financing is a habit here, perhaps an addiction. As Morrison points out, Canada‘s provinces-unlike most U.S. states-aren’t compelled to balance their budgets. The external provincial debt of C$100 billion is roughly one-third of the national debt.
Will tough times generate the resolve needed to square the ledger? “I’ve spent the last five years raising that question around the country,” he says. “We need to make sacrifices in a personal sense, in a business sense, and in a national sense. I’m not at all certain we have what it takes.”
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