Rising to Power - Paul Desmarais & Power Corporation

“Throughout this period, Desmarais worked with a skeleton office staff, himself and a secretary, to keep down administrative costs. Sudbury Bus Lines had the best drivers and mechanics in the city when he took over. They were loyal to him because he was the old boss, Mrs Desmarais’s son, taking over and saving their jobs. He recognized that good, reliable, loyal people were among his major assets, and he earned their loyalty to him personally by ensuring that everyone who worked for him got paid something, without fail, promptly at end of shift Friday, even if it meant he himself went home without being paid and empty of pocket.”

“Power Corporation is a classified-stock corporation, with three types of shares that constitute its capital stock: first preferred shares, 3.75- cent participating preferreds and subordinate voting shares. The first preferred shares carry no votes, but are entitled to a $2,375 dividend (5 percent of their $47.50 issue price); the dividend is also cumulative, so, if the dividend for a certain year can’t be paid, it would be credited to the shareholder and paid the next year, or whenever the company could afford to pay. (Preferreds are, for the most part, issued to raise capital.) The 3.75-cent participating preferred carries 10 votes per share, pays a fixed annual dividend of 3.75 cents per share, and participates in company profits. The subordinated voting is a common share car¬ rying one vote and participates in profits by way of dividends.”

“He accomplished this by winning small, on a narrow front, then expanding laterally and consolidating his position, then moving up to a new level of play to win bigger and repeat the process. All along”

“He worked out a five-year financial projection for his company on a roll of wallpaper, so that he could get all the figures and plans on one sheet. He then found out who at Inco was responsible for ensuring employee punctuality and productivity — it was vice-president Les Beattie — and presented the plan to him. It detailed how Desmarais intended to turn the company into a sound, profitable operation that would ensure Inco’s workers would always have a ride to and from work. It required, however, a cash infusion of $138,000, which Des¬ marais didn’t want to borrow, as it would only add to the company’s debt and defeat the restructuring plan.”

“Bronfman arrived at the hour appointed for the meeting and was ushered to the door of Desmarais’s boardroom. The curtains were drawn and the overhead lights were turned low. Desmarais was seated at the head of the table, haloed in the pool of light cast by a lone desk lamp at his side. Bronfman had to walk the dim length of the room to join Desmarais, the host, in the light.”

“was on because I had been following the adventures of business people like Carl Icahn, Western Canada’s Belzberg brothers, and Rupert Murdoch, who started with nothing, or next to nothing, built corporate empires and, coincidentally, huge personal fortunes. Desmarais emerged as the most fascinating of the lot: chairman, chief executive officer and controlling shareholder of Montreal-based Power Corporation of Canada, the tip of a large corporate pyramid worth billions of dollars. He achieved his position by investing $1 in 1951 and reinvesting the profits ever since.”

“Desmarais started in business by taking over a family-owned bus company that needed careful, professional management to make it profitable. In just 18 years, by 1968, he was in control of Power Corporation, then only a $250-million conglomerate. Since then he”

“Perhaps that is the case: learn the ropes, look for the right conditions and circumstances, and eventually you’ll manufacture the rope. How¬ ever, while business is the art of applying people- and organizational skills, there has to be the will, the intense desire to succeed, to achieve. And what’s behind the desire? Ask the people who climb Everest, or quit safe “real” jobs to fulfill the organic drive to make music, or paint, or write. Ask anyone who’s building a small idea into a big business. Ask the marathon runner down the street, or the community leader who takes on a project because there’s a dream that must come true. Their answers will be worded differently, but the sentiments will be the same: the air is sweeter, the sky is a deeper blue, the earth is electric, life is more exciting when you’re pushing at the envelope of opportunity that surrounds you, driving harder, pushing longer, achieving more. Rising to challenge with joy, feeling the quickening of the soul, the tremendous rush of adrenaline — there’s the key. It comes of risking and winning, especially when the risk is calculated, and the player is primed and ready for the challenge and yearning to play. This is the winner’s game plan: learn the rules, do your research and homework, and meet the challenge by applying your skills, abilities and talents. Then, take a moment to recover from the psychic kick of victory, retrench, recharge, target the next challenge and storm in again for higher stakes, bigger risks.”

“a new level of play to win bigger and repeat the process. All along the way, he let his winnings ride into the new ventures; it’s called rolling up winnings, and it’s the technique for winning when you have only a small bankroll.”

“of fresh blood to maintain its vitality. The elite also always opens the doors to serious contenders, the better to monitor them by hav¬ ing them on side and in sight, rather than out of sight, preparing unexpected challenges.”

“As he gathered wealth and a measure was taken of his abilities by other players, Desmarais accumulated more power. The operative definition here is that power is the ability to influence and direct others, while being able to resist influence and direction from others. This isn’t to say that all of the wealthy are powerful, or all of the powerful are wealthy. A rule of power is that if you don’t use it, you lose it, and the ineffectual wealthy are as powerless as anyone else.”

“To him, money is a tool, and like any tool is applied to specific purposes; more importantly, it allows him to be a major player in the informal social and business arrangements that constitute the national and international power structures.”

“The pool-of-light technique was not, by the way, entirely a Des¬ marais original. A version of it was used earlier in the decade on Calgary millionaire Max Bell, a major shareholder in Canadian Pacific Railway. He owned The Albertan, a now-defunct Calgary daily news¬ paper whose editorial offices and presses were on land leased from Canadian Pacific’s Marathon Realty. Marathon was going to raise the lease rates on the land by a substantial amount, and Bell went to see Rod Sykes, Marathon’s man in Calgary (and a future mayor of the city), to protest, argue, and maybe browbeat his way out of the increase. Calgary legend has it that Sykes, at the time a man of substantially less power than Bell, greeted Bell with the pool-of-light technique, defusing and diffusing the power that Bell was trying to bring to bear on him. He steadfastly refuted Bell’s arguments and veiled threats, saying the increase was for the good of the shareholders. Bell gave up the fight and eventually lauded Sykes to the CP board for his performance.”

“As Paul Desmarais operates at a level of business far removed from the experience of all but a tiny minority of us, he also ensures that his rewards reflect the risk and work involved, though he has long since left the period when he was playing for huge wins and had to sustain huge risks. The momentum of his business is such that risk isn’t as critical a factor in his business dealings as they were in the ’60s, because Desmarais isn’t taking long shots to build his power base quickly. These days he can shop through deals that are brought to him, or that his people uncover, and pick the ones worth making, judging return on investment, whether the deal is right for the cor¬ porate mix, and if it consolidates or expands Power’s already con¬ siderable corporate power base.”

“He began in 1951, when he was 24, home in Sudbury on a hiatus from law school, not sure if the legal profession was for him. The family-owned bus company needed managing and he needed some¬ thing to occupy his energy. So, he took on the bus company and found, and showed, that he had the entrepreneurial spirit — the entrepreneur being no more and no less than an enterprising individ¬ ual. He turned the money-losing Sudbury Bus Lines into a money¬ maker by sharply defining what the business was really about and rationalizing the company’s management and operations. He began eagerly, applying his gut feelings about business as well as the the¬ oretical information gained from university studies in commerce. Initially, Desmarais employed a limited and narrow strategy — strategy being the general definition of overall and mid-to-long-term goals. His goal was very short-term: to see if he could succeed in business, before deciding on law school. Tactics are the plans by which a strategy will be implemented, and his were to turn Sudbury Bus Lines into a profitable business. Desmarais succeeded. By the age of 28, he had turned the bus company around, settled its debts of about $350,000, banked $100,000, and had professional management in place, running the company along lines he prescribed. The excitement of making the bus company work”

“With thoughts of law school behind him, Desmarais repeated his turnaround success on a larger scale. Then the momentum of his success drove him down the path of buying undervalued, under- performing companies and turning them around, making them prof¬ itable. Each time he succeeded, he would retrench, consolidate his position and roll up his fortunes again, always increasing the size of his holdings by geometric leaps and bounds rather than in short, arithmetic steps. Whenever he expanded the scale of his operations, Desmarais also had to decide if he was going to expand the scope of his ambitions. Simply to repeat success on a similar scale didn’t appeal to him. This is adequate for the individual who undertakes a venture purely for the monetary rewards, but for the person who has become addicted to winning, each subsequent success must provide a bigger charge, a greater reward, a more fulsome benefit, to justify the effort. Therefore, he had consciously to decide to continue playing and, if the decision was to play on and expand the scope of his ambition, the physical bounds of the strategy had to expand. Because the op¬ portunities within the business he understood were limited in Sudbury, when the opportunity arose, he expanded the geographical area within which he operated to include Ottawa, then Quebec City, then the provinces of Quebec and Ontario. When he reached the limits of the business he knew, he found other pursuits and expanded the vision. The tactical doctrine1 he employed had to grow accordingly, but it became, increasingly, the concern of the people he recruited, the managerial talent that could attend to the details of business so that he could nurture the vision of the empire — the grand strategy. This infrastructure of valuable human resources provided him with the support services he needed to achieve his vision; it had to be made up of employees or partners capable of subordinating their ambitions to Paul Desmarais’s, or believing they could achieve their ambitions by helping Desmarais achieve his.”

“small ways, and they took care of him. While his ability to find and motivate the right people is remarkable, equally remarkable is his ability to make the necessary personal transitions and adjustments to achieve his goals whenever and wherever necessary. What is admi¬ rable is his egalitarianism — he’ll do business with anyone of the right abilities, regardless of race, creed, colour, religion or sex, be¬ cause these have no bearing on the bottom line.”

“The situation is no less different today, at a higher level. Desmarais enjoys a “nice-guy businessman” reputation. Now, no man who has achieved what he has in only 36 years is a complete pussycat. On the other hand, those people who agreed to speak about him (most on guarantee they wouldn’t be identified), who know Desmarais or have worked for him, consistently described him as gracious and polite, a man of iron will but great subtlety of mind, who doesn’t need to resort to brutal or brutish tactics to win.”

“Conversely, his people are the ones who become the annoying and persistent seekers after whatever the boss says he wants. Desmarais designs his corporate world as he wants to see it. His numbers man does the computations to see what the cost will be; the tax wizard considers the implications. Research is done, outside consultation taken where necessary, plans and outlines are prepared. Desmarais hears out the details and takes the counsel of his advisors, but then he and he alone makes the decisions. He’s the boss, without question, and if he decides the deal is worthwhile, it gets done, with function¬ aries taking care of the details according to the boss’s master plan, driving people to get it done.”

“So, because the boss doesn’t do the actual, face-to-face hiring, firing, buying, selling, yeaing or naying, being obstinate over the crossing of “t”s and the dotting of “i”s, he’s the nice guy. The executive vice-president in charge of whatever, the dedicated bearer of bad, sad, sometimes glad tidings, is then the visible guy, good, bad, sometimes ugly.”

“In this case, there was nothing in it for Desmarais. If he were in business for recognition and glory, publicity or a public image, he would already have it. Instead, he cultivates a private image, though he has occasionally granted interviews when it suited his purposes. There’s even a rough correlation between the times he has agreed to be interviewed and significant points — winning, losing, or drawing — in his career.”

“When flexibility was required, because of some change in the ex¬ ternal factors that affected his business — information, people, fi¬ nances or tax regulations, for example — he adapted to continue surviving and prospering. He didn’t become so wedded to the sole tactic of buying and turning around companies that he missed other opportunities. He just adopted new techniques, as when he learned the reverse takeover, a grandiose name for a simple merger in which a smaller company gains control of a larger company by letting itself be bought out. As necessity dictated, he added to his tactical repertoire and moved up in the leagues of corporate play. As he moved up, the quality of the competition became a critical factor, too, since the psychic jolt of winning is proportional in impact to the complexity of the components of the play.”

“The most important tactic he learned and employed to great ad¬ vantage was the one that separates the small business person from the corporate builder. He learned that he didn’t need to own 100 percent of a company to control it. All that was necessary was to own 50.1 percent of the voting power.”

“These distinctions are important for business people because it means that a business is itself a commodity divisible in many ways for the purposes of raising money. It means they can sell up to 49.9 percent of control of their companies to raise money, without relin¬ quishing absolute control. If a share issue is planned correctly, it means business people can even sell more than 50 percent of the equity of a company and retain control. There’s a corollary to this, though: it means that under the right conditions a person could buy control of a company without having to purchase a majority of its equity. This is a critical concept to someone who wants to build a large corporation quickly with little capital: do it by acquisition, mainly of controlling interests in companies.”

“So Desmarais also learned and applied the notion that 50.1 percent voting power is absolute control, but in the modem world of corporate capitalism, where corporations might have thousands of small share¬ holders, it’s possible that the owner of a relatively tiny percentage of voting stock has effective control, as long as that person is the largest single shareholder. Economists, securities commissions and business theorists differ wildly when defining the breaking point, so any expert and any number could be quoted; the reality is, though, that there are companies like Bell Canada and American Telegraph and Telephone whose controlling shareholders own less than one percent of voting stock.”

“Tactical doctrine is the body of principles and philosophical guidelines that determines the tactics used in a given situation, i.e. economical deployment of resources. Such a set of guidelines ensured that detail work was always dis¬ patched, so Desmarais could keep his goal, success, firmly in sight, and pursue it with single-minded purpose. No matter how many diversions, digressions, interesting and profitable sideshows and obstacles showed up en route, the course could be adjusted — almost by habit — to get back to the most direct path to the goal.”

“Anything was possible, though; and that was the real reason for the walks, to speak of life and plans, ambition and luck, opportunity and the future, and to explain that opportunity is available to anyone ready to see it and take the risks to reach for it. So, when they walked together, Noel instructed Paul as he had instructed his own ten children and many of his other grandchildren when they came to visit. He believed that it’s important to teach the young what you have to offer; the more they know, the better equipped they are to succeed in this world.”

“Thomas’s parting words included the family imperative: “I have suc¬ ceeded in doing better than my father, and I expect you to do better than I.””

“Noel was a local business leader because he was the first busi¬ nessman in the area, but he became an active community leader because he recognized that his prosperity and that of his family de¬ pended upon the prosperity of the region. He had come to build his life, his business, a future for his family and a community, so he led development of the settlement, first into a thriving village, then a town that eventually took his name and became Noelville. He also”

“Paul Desmarais’s higher education also played a large part in his development, not only because it broadened the scope of his educa¬ tional experience, but because it also exposed him to contacts and friendships that would be important in future. The contacts made in younger days are important; they offer a view of an individual in the making, which lets the watcher know the stuff of which the person is made. Once they’re adults, then, these people know who can be trusted and how far; armed with a measure of one’s partners or ad¬ versaries, business becomes immeasurably easier to conduct. That’s why the children of the powerful or aspiring English are sent to preparatory schools like Upper Canada College before going to universities having the cachet that comes of being populated and patronized by the ruling class, like the University of Western Ontario or Queen’s. For the Franco-Quebecois, the prep schools were Loyola and Brebeuf; the university was Laval. The Franco-Ontariens pre¬ ferred the University of Ottawa, a small, bilingual men’s university that bridged English and French cultures. It was J. N. Desmarais’s alma mater, and Paul’s elder brother Louis studied there for a while before going on to McGill University in Montreal. After graduating from high school in Sudbury in 1947, Paul Desmarais followed his father and brother to the University of Ottawa.”

“The franchise for the Sudbury transit system belonged to the Des- marais family, and logically they were the ones to provide the bus system. However, independent bus operators were already running busses in communities and suburbs not served by the trolley lines. The trolley company needed some of those routes, including the heavily travelled Sudbury-Copper Cliff run, if it were to become a profitable bus line, and the Desmaraises weren’t about to carry the expense of conversion to busses if they weren’t going to have a viable bus franchise to operate. The companies began negotiating with the city and among themselves to deal with the matter. The situation was resolved in 1949, when the Desmaraises bought the important Copper Cliff run and the rights to carry passengers in west Sudbury; Sudbury city council granted the trolley company a city-wide bus franchise. The company began the costly conversion process, buying busses, ripping up rails, replacing roadway and re¬ moving overhead electrical installations.”

“Desmarais’s efforts to rebuild the bus company’s fortunes are the stuff of entrepreneurial mythology: hard work by some individual whom everyone judges to be a dreamy-eyed eccentric for pursuing a losing venture; the struggle to survive and turn that venture into eventual success; and the former doubters claiming to have known from the start that the venturer was actually a genius. “It was the best the bus company was ever run, once he got it straightened out,” said Pete Lafontaine, a driver for Sudbury Transit, who drove for Desmarais in those days. “The equipment and morale were never better, before or since he took over. The company’s problems were twofold: operating costs and heavy”

“debts had to be covered simultaneously, but the company as it operated when Desmarais stepped in wasn’t generating enough revenue to do so. The company’s one advantage was that the bus business is a cash business; as long as the busses roll out of the bams each day, some hard cash rolls in. Desmarais’s task with Sudbury Bus Lines was straightforward — keep it operating and bringing in cash, while fig¬ uring out how to earn more, cut costs, and make the debt manageable. Defining the task was simple; execution was another matter.”

“In summer and fall, he would take groups of drivers and mechanics to local fishing or hunting camps where he would play host for a weekend. “And once, he found out I was paying for an addition for my house with a loan from a finance company,” reminisced ex-driver Herb Larocque. “He lent me the money to pay off the finance company and I paid it back in instalments out of my pay, without interest. He told me to come to him if I ever needed money again and to stay away from the finance company. He was a good boss.””

“So the Copper Cliff run was Desmarais’s nemesis, but also the bargaining chip that would save his bus company. All he needed was someone with whom to bargain. Logically, that was Inco’s manage¬ ment, which needed reliable transportation for its many workers living in Sudbury who didn’t own cars and had to make the daily 19 km round trip.”

“nodded agreement that it looked good as Desmarais explained its merits. Then Beattie pointed to the key numbers and asked where the funds would come from. Desmarais raised his eyes from the plan and said the money would come from Beattie. Beattie looked at Desmarais, picked up the ash¬ trays, the wallpaper rolled together with a snap, and Beattie showed Desmarais the door. Desmarais had set the ground for his battle. The rest of his creditors, who included the tax department, commercial lenders and suppliers, had already agreed to the plan. The creditors were ready to accept some cash immediately and payment over five years of the balance owing them from Sudbury Bus Lines, if Desmarais could swing a deal with Inco. Desmarais kept up the pressure on Inco, consistently pushing his plan and meeting with Inco personnel to negotiate some sort of deal involving the Copper Cliff run. Inco management knew it needed a reliable bus service between Sudbury and Copper Cliff. Desmarais was offering a plan that would guarantee the service. At the same time, Desmarais had drawn into the picture the man¬ agement of Local Lines, one of the regional bus lines, which carried passengers from points within Sudbury along routes outside the city limits. It was a company experienced in the economics of rural and inter-urban bussing, and in the strange schedule needs of the Copper Cliff run. It was also the company that had sold the Copper Cliff run to Sudbury Bus Lines in 1949, when the inter-urban route had been profitable. Desmarais didn’t let up on Inco executives. They finally agreed that the Copper Cliff run was essential to them and that they would have to pay for it. So they gave Desmarais his $138,000; it was neither gift nor loan, but a “purchase” of a guarantee of continued existence for the Copper Cliff run. Then Desmarais ensured the ex¬ istence of the run, and the survival of his company, by getting rid of it. He ceded the Copper Cliff run to Local Lines, which could operate the essentially inter-urban line at a profit. Desmarais then distributed that portion of the $138,000 earmarked for initial payments in his debt rescheduling plan, and got on with turning his urban bus operation to greater profit.”

“for his future actions. He looked at the overall business and found the weakness, the Copper Cliff run. Then he asked what the company’s business was — municipal or inter-urban transportation — and decided which it would be. Meanwhile, to keep the company going, he needed help, and asked for it. It’s interesting that although he was popularly judged to be on a fool’s errand, Sudburians helped him, for whatever reasons. Once he decided Sudbury Bus was an urban bus company, Des- marais had to jettison the Copper Cliff run. But he also needed cash to implement his recovery plan. So, he used the route as the bargaining chip to raise the money he needed, and he targeted the key man with a vested interest in helping him get what he wanted. Once he succeeded in his plan, he got on with trimming the business and leading the company to profit.”

“Success with the company earned Desmarais $100,0003 by 1955, when he was not yet 30. By then married to Jacqueline Maranger, whom he had known in high school and who was trained as a nurse, he resumed law studies at Osgoode Hall, though he kept ownership of Sudbury Bus Lines. But then Pierre Genest, Desmarais’s old room¬ mate at the University of Ottawa, told him that Gatineau Bus Lines, the Ottawa-Hull service, was for sale. Desmarais bought the company and moved to Ottawa to manage his new acquisition. He never got around to completing his law degree.”

“When Sudbury Bus Lines gave notice to city council that it was ready to fulfil the terms of the franchise by expanding service through the enlarged Subdury, city council decided it wouldn’t hold Sudbury Bus to the letter of the agreement. Council was worried that the other bus companies would be forced out of business and then seek com¬ pensation. Council feared it would have to pay the bill or, worse, that Sudbury Bus would pay, then run into cash-flow problems and approach the city for help handling even bigger bills. So Sudbury was effectively rendered an open city for bus transport, which meant that any operator could run busses anywhere. Transportation anarchy was averted by an informal arrangement among the four existing operators not to encroach upon the territory each had serviced at amalgamation.”

“His only problem was with the key man in the scenario — the mayor of Sudbury. Targeting the key man has always been a Des¬ marais strategy: he finds the person who has a vested interest in helping him get what he wants. The mayor was not one of those people, and Desmarais finally had to call it quits on Sudbury and make another characteristic move — a quick, clean break, with no recourse to arbitration, conciliation or outside interference.”