Bay Street protectionism

BHP's bid for Potash Corp. has corporate Canada playing the nationalism card.

Bay Street watering holes aren’t known for attracting economic protectionists. They are stocked with ambitious free market fans who think Ottawa should pretty much allow any Canadian company, great or small, to sell itself to the highest bidder. “National champions, like all corporations,” says a marketing executive who frequents Toronto’s so-called Broker’s Keg, “belong to shareholders, not all Canadians, as much as we may like to think otherwise.” According to one of his drinking buddies from the financial sector: “Any measure enacted by fiat that prevents the free exchange of goods, labour and capital seeking economic gain is done at the cost of efficiency. This is a destruction of wealth and a dead weight to society.”

But a funny thing happens if you climb to the top of Canada’s corporate ladder, where BHP Billiton’s $40-billion hostile bid for Saskatoon-based Potash Corp. has many senior executives and company directors ranting like coffee-shop Marxists. “Canada has left the impression that we’ll sell anything,” says Dick Haskayne, a Potash Corp. shareholder who has served on 20 company boards, chairing six of them, including TransAlta and Nova Corp. “The world thinks buying Canadian companies is just a matter of price. Nobody talks about the government needing to approve anything. But the fact is that we do have laws. With major foreign takeovers, there has to be a net benefit to Canada. And with BHP, I see no net benefit. None.”

Despite the relatively healthy state of our economy, Haskayne argues corporate Canada has been dangerously “hollowed out” by takeovers of industrial giants such as Alcan and Falconbridge, not to mention our major steelmakers. And he doesn’t want control of more resources exported overseas, especially not when he thinks Potash Corp. will eventually be worth more than BHP is offering.

Haskayne argues that Canadians would never be allowed to buy BHP, noting a former chair of the Australian firm once said the worst thing for his nation would be to end up a “branch office, just like Canada.”

Haskayne’s opinions don’t sit well with right-wing pundits, who call his book on the issue ( Northern Tigers, Building Ethical Canadian Corporate Champions) a “manifesto.” But he has plenty of company. Indeed, a majority of chief executives and business leaders polled for this magazine also think Ottawa should block a Potash Corp. sale, even if shareholders support the acquisition. There is even senior-level support for protectionism in financial circles, where fund manager Stephen Jarislowsky recently warned that our politicians will contribute to the “suicide of the country” if a takeover of Potash Corp. is allowed to take place. (Jarislowsky, of course, admits he’d support a sale if the price is right for his clients.)

Lynn Meahan, press secretary to Minister of Industry Tony Clement, declined to comment until a review of the matter, if needed, is completed under the Investment Canada Act. But the Harper government has started being more aggressive with foreign-controlled companies. Ottawa, for example, is currently suing U.S. Steel for cutting jobs and production at the former Stelco plants it bought in 2007, after promising to maintain certain levels of production and employment.

The free market camp argues Ottawa’s hard line with U.S. Steel threatens Canada’s attractiveness to foreign capital. Protectionists, meanwhile, think relying on foreign owners of local companies to act in Canada’s best interests is a joke. Either way, the impact of foreign takeovers remains open to debate.

According to a Conference Board of Canada study, a BHP acquisition of Potash Corp. could cost provincial coffers $2 billion over a decade if the Melbourne-based company proceeds with a new $12-billion mine proposal, which would create more than 2,000 jobs but generate capital write-offs. To some observers, this study justifies blocking a deal. But BHP executives point out that the benefits gained from the construction and operation of Saskatchewan’s first new potash mine in four decades could offset the negative implications of deferred tax payments.

Glenn Hodgson, the Conference Board’s senior vice-president and chief economist, warns people not to read anything into his organization’s Potash Corp. report. He says it is simply an independent assessment of the potential costs to Saskatchewan. The findings, he adds, do not negate a previous Conference Board study that found no evidence to support views that corporate Canada was being dangerously gutted. In 2008, the Conference Board concluded that, on average, foreign takeovers of Canadian companies were more positive than all-Canadian deals because “product and geographic overlap of businesses is less with foreign owners.”

The University of Calgary’s School of Public Policy recently pointed out that Canadian corporations actually do more taking over than getting swallowed. And as noted by Dave Amdur, an assistant professor of economics at Muhlenberg College in Pennsylvania, Canada certainly doesn’t come across as “for sale” in the recent update to the Organization for Economic Co-operation and Development’s index of openness to foreign direct investment. According to the OECD, the only nations more protectionist than Canada are India, Japan, New Zealand, Mexico, Indonesia, Saudi Arabia, Russia, Iceland and China.

Nevertheless, like Haskayne, a growing number of Canadian business leaders are sick and tired of watching executives at our big-name corporations play the role of feed keeper in an eat-or-be-eaten world. “I don’t think Canadian companies should be taken over by companies that can’t themselves be taken over,” says Ian Telfer, chairman of Vancouver-based Goldcorp. “Whether Canada should designate some companies as takeover-proof is another question.”