Treating companies like Olympic athletes

In the weeks since his stirring speech to shareholders at Manulife’s annual meeting (“I sometimes worry that we may all wake up one day and find that as a nation, we have lost control of our affairs”), Dominic D’Alessandro has emerged as something of a hero to the economic nationalist set, not to mention an object of fascination to the media, apparently unshakeable in their belief that corporate executives are naturally free marketers at heart, or even at all.

So it was a delight, though not quite a surprise, to find that among the financial backers of Cerberus Capital’s bid for Bell Canada was ...

So it was a delight, though not quite a surprise, to find that among the financial backers of Cerberus Capital’s bid for Bell Canada was ... Manulife Financial (D. D’Alessandro, president). That would be New York-based Cerberus, one of the largest private equity firms in the world, whose offer, had it succeeded, would have effectively turned Canada’s largest phone company into a subsidiary. The contradiction had already been observed in Mr. D’Alessandro’s mounting of the barricades against the “hollowing out” of corporate Canada even as Manulife was busy buying up companies abroad, but to be participating at the same time in what would have amounted to the largest foreign takeover in Canadian history gives a whole new meaning to lip service.

So at least we can be sure of one thing: this has nothing to do with foreigners, or foreign control of the Canadian economy. While the xenophobic nerve ending in the Canadian body public responds reliably to the slightest touch, a reading of the more prominent “hollowing out” theorists suggests there is much more at work here than a sudden fit of economic nationalism. Indeed, a number of its proponents disavow any intention to curb the inflow of foreign capital that has done so much to enrich Canadian shareholders in recent months.

Mr. D’Alessandro, to be sure, speaks approvingly of government “reserving to itself” certain “sensitive” sectors of the economy, such as natural resources. (What makes them “sensitive” he doesn’t say.) After all, he asks, “what self-respecting nation on the planet … doesn’t seek to have as much control as possible over its economy?” In the same rhetorical voice, he asks “what is so controversial about wanting more globally successful Canadian companies?” Further, “does anyone really believe that globally successful companies are created all on their own,” i.e. without government support?

So we’re beginning to catch a climpse of a larger agenda. The Toronto Star’s David Olive reveals more. While he grouses that foreign bidders “will pay almost any amount” for a firm in their sights -- and, worse, that Canadian boards, with their “fiduciary duty to shareholders” (oh, that), are inclined to accept these overpriced bids -- his concerns are clearly more far-ranging. “A few years ago,” he writes, “the longstanding restriction on foreign investments by Canada’s public pension-fund operators was lifted. The funds have since focused on buying real estate, utilities, ports and other infrastructure abroad, rather than forming consortia to, say, make a counterbid for Dofasco or Alcan.”

A thunderbolt! Not only should foreigners be restricted from taking over Canadian firms, but Canadians should be prevented from taking over foreign firms! After all, he writes, “investing in the country’s future would seem a better use of Canadians’ $1.3 trillion in retirement savings” than investing in US.-based makers of -- he names the examples -- pet foods or shopping carts. Why of course. Shopping carts, indeed. What were they thinking, these pension funds? What do they know of the proper use of Canadians’ retirement savings, compared to, say, a writer for the Toronto Star?

Mind you, I think even David would blanch at the sort of concentration of ownership that would result if those footloose hundreds of billions were called home. So the only logical conclusion is that no one should take over anyone. Or at least, that some sort of “holistic industrial strategy” is in order. “As discredited as the concept has become,” he notes, “it does come down to picking winners” (why the concept has become discredited he does not say). While a few “national champions,” he writes, echoing Mr. D’Alessandro, “come into being largely on their own,” most “need the guidance of sound public policy.”

Both men sniff that this sort of thing might upset “free market purists,” by which they mean economists. But it isn’t just a different economic policy they are peddling -- it’s a totally different vision of the economy: what it’s for, what it is.

Something of the same vision, if not exactly the same prescriptions, is evident in a punishingly long piece this week in the Globe and Mail, co-authored by Roger Martin, dean of the Rotman School of Business, and Gord Nixon, chief executive of the Royal Bank. It is one that sees the economy as a kind of sports team, a cohesive unit with a sole purpose: the creation of “national champions,” or in the Martin/Nixon parlance, “global leaders,” which they define as being “in the top five of their industry worldwide in revenues.”

In other words, companies are like Olympic athletes, whose job is to win medals for our side. The objective of economic policy, like sports policy, is to produce as many medal-winners as possible. It’s an appealing vision, and quite wrong, so unless something else distracts me I plan on giving over my next column to it.