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Head offices are worth protecting

High-value jobs come with territory

 

DAVID CRANE, Freelance

Published: Thursday, July 24

 

When Rio Tinto, the Anglo-Australian mining giant, made a successful $38.1 billion bid for Alcan a year ago, the Quebec government quickly intervened to make sure that Alcan's global head office remained in Montreal.

 

Fortunately, the Quebec government not only had leverage but, in un-Canadian fashion, chose to exercise it. Those with longer memories can recall how, when Stone Container of Chicago acquired Montreal-based Consolidated Bathurst in 1999, the head office was quickly dismantled and most important functions were transferred to Chicago.

 

Head offices clearly matter, and, with the number of high-profile foreign takeovers of Canadian companies, this has triggered fears of a "hollowing out" of the economy.

 

That's why, just over a year ago, the Harper government asked a small group of talented Canadians, led by corporate executive Red Wilson, to tell it what to do.

 

Wilson's panel - the Competition Policy Review Panel - has now delivered its report, with many important proposals to improve the competitiveness of Canadian companies and build more Canadian multinationals.

 

But Wilson's panel has not been successful in designing an effective policy on foreign takeovers that balances Canada's commitment to an open economy with the need for a stronger business sector headquartered in Canada.

 

Our experience tells us that head offices of large corporations bring many benefits, the panel says. "When a Canadian company is acquired by another Canadian company, Canada loses a head office but gains a stronger company. When the acquirer is foreign, Canada loses a head office and a company," it contends, arguing that foreign takeovers affect career opportunities for Canadians as well as many community benefits associated with large head offices.

 

As the panel stresses, "the head office of an enterprise is its 'brain.' It is the place where strategy and other critical decisions are made by its key management personnel." When a Canadian firm is acquired by a foreign enterprise, decisions that once were made in Canada are now made in another part of the world where Canadian interests may have little importance.

 

Head offices provide high-skill, high-paying jobs. And as the panel points out, head offices also support many other jobs "by attracting high-value business services - legal, accounting, consulting, information technologies, marketing and advertising - to the community."

 

But the panel's solution to foreign takeovers is not to propose stronger rules on foreign takeovers but to advocate policies to develop a new generation of Canadian-based multinationals, companies like CAE, Bombardier and SNC-Lavalin, as well as making Canada more attractive for divisional headquarters of foreign multinationals, as happened with Alcan.

 

These are important proposals and we should certainly do all we can. But even if we do a better job of creating new companies, the best of them could also become foreign takeover targets. So we would be growing seed corn for foreign multinationals or, as it has been put, "growing guppies to feed the sharks."

 

Moreover, the panel would make it even easier for foreign corporations to acquire budding Canadian multinationals by limiting Investment Canada screening of foreign takeovers to companies with a value of $1 billion or more, compared with the current level of about $295 million. This would be a mistake - we should keep as much screening scope as possible.

 

The panel does propose that instead of judging foreign takeovers on a vague test of "net benefit" to Canada, that negotiation of proposed takeovers be based on a test of "Canada's national interest."

 

Australia, which uses the "national interest" test for takeovers of about $100 million or more, has shown it's possible to use this approach to negotiate strong terms or alternatively to say no.

 

For example, according to Secor Consulting, when BHP Ltd. of Australia and Billiton Plc of Britain merged in 2001 to create BHP Billiton, Australia required that the company continue to be an Australian, managed in Australia and listed on the Australian stock exchange.

 

The global headquarters had to be in Australia, both the CEO and CFO had to have their principal places of residence, offices and key supporting functions in Australia and the majority of all regularly scheduled board and executive committee meetings had to occur in Australia.

 

So the "national interest" test could make sense. But it would have to be carefully defined to give Canadians confidence that Ottawa would really stand up for Canadian interests.

 

The panel also proposes easing Canada's foreign takeover restrictions on foreign ownership of Canadian airlines, telecommunications companies and broadcasters. But it's hard to see clear benefits.

 

One important recommendation the panel does make is to give directors of Canadian corporations more power to say "no" to foreign takeover bids. Today, directors are typically forced to become "auctioneers" and find an alternative buyer in response to an unwanted bid. In the U.S., directors have much greater capacity to simply say "no."

 

Canada should continue to screen foreign takeovers, but with a more rigorous and more transparent negotiation of conditions and a greater readiness to say no, while improving the ability of corporate boards to reject unwelcome takeovers.

 

Canada should also focus more on attracting foreign corporations to launch new businesses here, not take over our existing ones.

 

David Crane is a Canadian writer who closely follows innovation and globalization issues. He can be reached at [email protected]

 

interlog.com.

 

http://www.canada.com/montrealgazette/news/story.html?id=65bbef64-3d8f-401e-8ad2-7790f7f4bcd1&p=2

 

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Australia, which uses the "national interest" test for takeovers of about $100 million or more, has shown it's possible to use this approach to negotiate strong terms or alternatively to say no.

 

For example, according to Secor Consulting, when BHP Ltd. of Australia and Billiton Plc of Britain merged in 2001 to create BHP Billiton, Australia required that the company continue to be an Australian, managed in Australia and listed on the Australian stock exchange.

 

The global headquarters had to be in Australia, both the CEO and CFO had to have their principal places of residence, offices and key supporting functions in Australia and the majority of all regularly scheduled board and executive committee meetings had to occur in Australia.

 

C'est en plein ce que nous devons faire. à chaque fois qu'on perd un S.S. c'est des bonnes jobs qui quittent notre coin de pays.

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Je continuerai à défendre que le coût de retenir ses emplois contre les lois du marché dépasse largement les gains que la société pourrait faire avec ses mêmes ressources. Le seul bénéfice de retenir des sièges sociaux est politique.

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Coûts = subventions + réglementations + application des réglementations et surveillance de leur application + coût pour la compagnie d'appliquer cette reglementation = précieux dollars qu'on pourrait investir dans l'éducation ou à baisser les impôts des sociétés qui aurait sur le long terme de bien meilleur rendement économique.

 

vs

 

"bons emplois" perdus dans le déplacement des sièges sociaux = statistiquement pas différent de zéro, les personnes compétentes se replacent ailleurs dans la province, surtout si l'environnement économique est porteur.

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Je vois ça, reste qu'il est difficile de calculer la synérgie qu'un siège social produit ici au lieu d'être à l'extérieur. Les emplois indirects sont pas facilement calculables.

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Il n'empèche toutes ces subventions et réglementations ont un coût et ont est en manque de personnel qualifié... Ces emplois qu'on "protège" ne disparaitront pas, des companies pour employer des gens compétents, y'en a en mâââsse, même ici! Concentrons-nous à créer des conditions favorables pour attirer les gens.

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Ces emplois qu'on "protège" ne disparaitront pas

 

Justement c'est le contraire. Les gens qui travaillent dans ldes S.S. sont généralement des gens bien rémunérés, donc ils sont beaucoup plus mobiles et peuvent quitter. Regardez ce que le départ de Sun Life, Banque Royale et la Banque de Montréal à fait à Montréal au début des années 80!

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Banque Royale et la Banque de Montréal à fait à Montréal au début des années 80!

 

Mais le siège de ces deux institutions n'ont jamais quitté montréal (stricto sensu)! L'emplacement du siège n'a pas ou peu d'importance sur l'emploi, les entreprises trouveront toujours un moyen de contourner la régulation si elles veulent employer du monde ailleurs. Les gens mobiles dont tu parles sont les administrateurs de société, on parle peut être d'une dizaine d'emploi pour un groupe comme la BMO (voir moins si il ne fait qu'un pourcentage qui soit résident) dont on peut obliger la sauvegarde par une loi.

 

Et puis au dela de ça, je ne vois pas comment on pourrait te forcer à rester au Québec si tu as une meilleure possibilité ailleurs, les entreprises sont juridiquement des personnes morales et ne devraient pas être plus restreintes dans leur localisation que toi et moi. Nous ne sommes pas dans un état communiste! Ce genre de décision a des effets disuasif sur la confiance des investisseurs vis à vis du gouvernement qui viole les droits des personnes morales sous pretexte de bien être économique.

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Mais le siège de ces deux institutions n'ont jamais quitté montréal (stricto sensu)! L'emplacement du siège n'a pas ou peu d'importance sur l'emploi, les entreprises trouveront toujours un moyen de contourner la régulation si elles veulent employer du monde ailleurs.

 

Franchement! la Sun Life a officiellement déménagée son S.S. à Toronto et les deux banques disent que leurs S.S. sont toujours à Montréal, mais il ne faut pas être naïf! Nous savons tous très bien que les "decision makers" (c'est à dire les Présidents et les V-P ) sont tous à Toronto et ces deux banques emploies BEAUCOUP plus de Monde à Toronto que Montréal.

 

Nous avons perdus BEAUCOUP de grosses jobs qui paient des gors salaires au profits de Toronto. Et comme que c'est mentionné dans l'article, avoir des gros S.S. dans une ville, ça attires des besoins et des autres firmes(Avocats, Notaires, Comptables etc...

 

As the panel stresses, "the head office of an enterprise is its 'brain.' It is the place where strategy and other critical decisions are made by its key management personnel." When a Canadian firm is acquired by a foreign enterprise, decisions that once were made in Canada are now made in another part of the world where Canadian interests may have little importance.

Head offices provide high-skill, high-paying jobs. And as the panel points out, head offices also support many other jobs "by attracting high-value business services - legal, accounting, consulting, information technologies, marketing and advertising - to the community."

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