Stronach's Louisiana purchase

Taking its entrepreneurial gospel on tour, the Magna empire pools resources to relocate victims of Hurricane Katrina. But will investors quibble?

It's no longer big. And it has no more claim on easy. But ground zero of America's worst natural disaster still has a night life. “A good time is always available in Nawlins–before, during and after hurricanes,” says Richard Muller, a local bank president. “Unfortunately, the Fairmont is closed, so you'll have to find someplace else to eat.”

He's not kidding. Over the holidays, Muller and other born-and-bred establishment types from sleepy Mandeville, an affluent community that rests north of New Orleans across Lake Pontchartrain, got together for a night out in the weather-stripped French Quarter, just like they do every year. The group (which included a Louisiana Senate hopeful) isn't alone, although their white stretch limo was almost lost in the sea of mucky contractor trucks that now flood the city's infamous adult playground.

Bourbon Street bars and gentlemen's clubs are thriving–thanks to recovery dollars. Even the trinket shops are open (offering T-shirts that say nasty things about girls named Katrina and Rita). But don't let the bustle fool you: law has returned to the city; social order hasn't. “Ignore the temp workers,” Muller sighs, “and look around. We've lost the working class.”

In the ghost 'hoods of New Orleans, the traffic lights don't work. You must, however, frequently stop on streets blocked with rubble, overturned cars and boats. And that's when you really notice the homes, many of which still stand, albeit devastated and deserted. The absence of people creates a movie-set feel–think Mad Max or Escape from New York. But the destruction is real, and the numbers are staggering. Hurricane Katrina killed more than 1,000 people, most of them old, ill or disabled, who had lived in the poorest parts of the city. Their neighbours, the thousands of lucky ones, lost their homes, possessions and means of subsistence. As waters were rising on Aug. 29 last year, many of the city's residents were left to fend for themselves. Some were abandoned by health-care workers; at least one of them reports being ditched by nuns–adding faith in humanity to the list of items lost.

Enter Frank Stronach, founder and chairman of the US$20-billion-plus Magna International Inc. auto-parts empire. In Katrina's wake, he deployed his unique corporate powers to whisk hundreds of storm victims to safety while Federal Emergency Management Agency officials were still untangling red tape. He then made a five-year commitment to help his chosen people rebuild their lives.

The Times-Picayune in New Orleans credits Aurora, Ont.-based Magna's chairman with being the individual who has done the most to shore up poor America's leaking trust in capitalist society. The paper's editorial pages insist his generosity “shames us.”

Investors might not share that assessment. After all, Stronach is spending their money, not his. And they've been down that road before.

Frank Stronach caught the hurricane news on CNN in California. He watched slack-jawed as the soul was kicked out of Louisiana's boot tip. Then the levee broke. He could have waited for the public sector to act. But that's not his style. The Austrian-born tycoon came to Canada with just $200 and some tool-and-die experience. He started his empire in a Toronto garage, and Stronach says he remembers what it was like to be alone and hungry–enough to imagine the taste of despair on New Orleans' swamped streets. So he did what only someone like Frank Stronach would do–he picked up a phone and commanded an immediate private-sector rescue mission.

On the other end of the line was former Liberal MP Dennis Mills, a one-time Magna executive who returned to Stronach's inner circle as vice-chairman of Magna Entertainment Corp. after being tossed from public office by New Democrat leader Jack Layton in 2004. When Stronach called, Mills was cottaging in Ontario. But knowing Stronach has a force of will that matches Mother Nature, he didn't question his orders. He simply gathered a team of Magna empire employees and headed south, where Red Cross and FEMA officials were somehow convinced to release evacuees into Stronach's care.

About 280 battered storm victims, who lost a heck of a lot more than their favourite restaurant, ended up in dorm rooms at a posh MEC horse-racing facility near Florida's Palm Springs. While FEMA was still trying to get its act together, Stronach's guests were being showered with aid and designer clothes. And before the Magna rescue team caught its breath, Stronach ordered his companies to help relocate the displaced storm victims to a new Louisiana community–built from scratch. He also challenged other business leaders to join the “Canadaville” cause by donating funds or services. More than 50 project partners, ranging from Air Canada and Indigo Books to IBM and Sharp Electronics, stepped up to the plate.

“This is a simple case of neighbours helping neighbours,” says Mills. “It's also Stronach's finest hour.”

Stephen Jarislowsky, co-founder of the Canadian Coalition for Good Governance, doesn't see it quite that way. “Stronach thinks he's king of the castle,” Jarislowsky says. “He doesn't give a shit about what anybody else thinks.” Granted, the CEO of Montreal-based investment firm Jarislowsky Fraser Ltd. concedes that he'd rather see Magna companies dump money on Louisiana's disaster zone than into Stronach's pocket. Then again, Jarislowsky thinks investors are capable of deciding when and where to give away their money to charity. In general, he sees nothing noble in Stronach's controversial use of multiple-voting stock to control companies in which the chairman owns relatively few common shares. He even thinks the way Stronach uses his power is inconsistent. “Nothing fits the Stronach philosophy,” Jarislowsky says.

But Stronach isn't really a hard nut to crack, at least as far as his auto-parts conglomerate is concerned. He thinks regulators and institutional investors should stay out of the boardroom. Executives should be required to focus on profits, and companies should have constitutions that predetermine how earnings are distributed to research, management, employees, shareholders and society. How revenue is generated should be left up to the entrepreneurs, who should be pretty much free to play calculated hunches and spend resources how they see fit, as long as they stay within the constitutional limits. That's how Magna is run, and why Stronach says he didn't have to hold a board meeting “when people were drowning.”

Magna's constitution requires it to spend 2% of pre-tax earnings on charitable works, twice the benchmark for corporate giving recommended by the Canadian Centre for Philanthropy. It also sets aside three times that amount for management–Stronach himself typically gets a $50-million-plus paycheque. And that's why he has been called everything from a philosopher king to a greedy corporate dictator. The debate over Stronach's character appeared to quiet down after last year's annual meeting season. But it didn't go away–it just got exported to the United States.

The Times-Picayune calls Stronach the highest-flying angel to spread wings over the disaster zone. But in New York–where they fret over stock charts, not the Weather Channel–investors often scream about how Stronach deploys corporate resources. Hedge fund managers at New York's Greenlight Capital, for example, are suing Stronach in Ontario courts for how he runs MI Developments, a real estate company spun out of Magna in 2003. In particular, Greenlight objects to MID maintaining an ownership stake in money-losing MEC, which common shareholders have voted to cut loose. Stronach–who is chairman of Magna, MID and MEC–has never hidden the fact that he will do almost anything to turn MEC into a gaming giant that generates more revenue than Wal-Mart. In fact, MID was spun out of Magna to keep the horse-racing dream alive, after Magna shareholders started complaining about how Stronach was using his constitutional powers. But MID isn't Magna; it has no constitution to justify funding Magna Entertainment, which Greenlight calls the chairman's “grandiose” pet project. And the same could be said of Stronach's plans for Canadaville–because it was MID that actually underwrote Stronach's grand Louisiana purchase.

In New Orleans, Stronach is a soldier of God; in New York, he's Fidel Castro. In Canada, he remains our favourite corporate conundrum.

Joshua Joy Dara can't get enough of Frank Stronach's brotherly love. It's a cold and damp December day, and the senior pastor of central Louisiana's Zion Hill Baptist Church watches Magna's chairman preaching onstage. They are in a propane-heated tent pitched in a sugar-cane field next to the mighty Atchafalaya River, about an hour's drive north of Baton Rouge and 30 minutes from the nearest McDonald's. This is Cajun country, home of the Bowie knife and a recent special-edition Magna Christmas party.

Stronach's empire has arranged a jobs fair, not to mention a visit from Santa, who sports gifts for both local kids and the offspring of storm evacuees. Stronach's people have convinced members of the closest community–Simmesport, population 2,200, and pretty much split equally between blacks and whites–to come out and welcome the outsiders with semi-open arms. The tent smells of gumbo and roast pig, a thank-you feast prepared by the imports.

With pastor Dara shouting “A-men, a-men!” and his gospel choir providing backup, silver-haired Stronach outlines how he hopes to turn his sanctuary for hurricane victims into an example of how blacks and whites, rich and poor, can work together “to fight poverty.” The plan involves transforming former New Orleans urbanites into farmers. They'll initially supply horse-track restaurants owned by Stronach's gaming company, then gain other customers by producing “the best organic food in America.”

Stronach points out that he made it big without much education. But he owes his success, he preaches, partly to luck–and society can't rely on luck. Companies, he argues, must do more to train and educate the poor, especially blacks, who are under-represented in executive ranks.

Stronach then shouts, “You know the old saying: if you give someone a fish, you feed them for a day.” The congregation joins in, “Teach them to fish, and you feed them for a lifetime.”

As a clown moves in to entertain the party, pastor Dara whispers, “This man missed his calling.”

The drowning of New Orleans sparked an outpouring of generosity from rich and famous folk. Céline Dion, Oprah Winfrey and Nicolas Cage each donated US$1 million to relief efforts. To raise funds, Colin Farrell and Paris Hilton offered to date donors. Chris Rock worked a food bank. John Travolta trucked in supplies. And who could forget Sean Penn, who rented a motorboat and plied the city's submerged streets, looking like Rambo searching for vets?

Like all of the above, Frank Stronach has been accused of trying to squeeze positive publicity out of human tragedy. The cynics suggest he was simply attempting to curry political favours for his Magna Entertainment horse tracks, noting that MEC hired former U.S. ambassador to Canada Paul Cellucci last year to help reform U.S. gaming laws.

This isn't the first time Stronach ordered Magna to help poor urban Americans. The auto-parts company also recently opened a technical centre in Baltimore. “Frank was in town on horse-racing business, and he was moved by the poverty,” says one company insider, “so a crumbling neighbourhood in that city got a state-of-the-art trade school that would have gone elsewhere, despite objections from some company officials.” And when it comes to Stronach's response to Katrina, some opinions count more than others.

“We're not in Kansas anymore, Toto,” jokes Charles Mason, looking out over the sugar-cane field slated to become Magna's organic farm, “or I guess maybe we are. Shit.” But that's all right, the former New Orleans cab driver adds. After all, he is back in Louisiana, where he has a warm place to hang his hat and a new job driving “Mr. Frank's” Canadaville shuttle.

“I'm amazed at the tolerance Magna people have for criticism,” says Carl Tipton, a retired teacher and former professional football player. He and his wife, Gwen, were the last two lucky storm survivors to land a Magna-sponsored ticket to safety. “Gwen always said she'd never ride in a motorboat, helicopter or airplane,” he says, “but she did all that in four hours after being stranded for days among people fighting each other tooth and nail for food and water.”

While stationed in Florida, the Tiptons were temporarily moved out of Stronach's horse-racing dorms to weather Wilma, and the couple started to think they'd never sit still again. But today, as FEMA prepares to cut off funding to thousands of other displaced victims, they're settling into a new house on Canadaville's Canada Drive. Gwen's putting up curtains. Someone from Magna provided a stand after noticing the couple had a Christmas tree. “This is wonderful–starting to feel like home,” Carl says.

He has no idea what the future holds. But his family can live rent-free–with no bills for heat, electricity, basic phone and cable–for the next five years. And he hopes to teach kids to read when a new community centre opens this year.

Canadaville sits on about 1,000 acres of land and currently has 50 homes occupied by 137 men, women and children. That's just Phase 1. Magna has 25 more homes under construction, and Habitat for Humanity International, a non-profit housing organization, is looking at expanding the community even more.

The accommodations may not appeal to sophisticates from Montreal, Toronto or Vancouver. But don't imagine a trailer park. We're talking comfortable pre-fab homes, designed so that no two units look exactly alike, by specialists from Giffels, a renowned Toronto-based architecture firm. The units come with verandas and decks (thanks to Canadian carpenters), not to mention furniture, appliances, computers and televisions provided by project partners. While the streets aren't made of gold, they are paved, and they sit next to brand new basketball courts. (A sign promises a swimming pool, a soccer pitch and tennis courts will follow.)

Keep in mind the big picture, says Shane Carmichael, a project manager. He arranged for Canadaville residents to return to New Orleans, where they could assess their options and recover anything of value from their past lives. He “almost lost it,” he says, when one woman came back with nothing but an American flag that had draped the coffin at her husband's military funeral. She emerged from a structure that, Carmichael says, most of us wouldn't have used to house good tools before the storm hit.

As soon as Lorne Kumer heard whispers of Stronach's grand plan last September, he knew Louisiana's state of emergency was going to make the project a real challenge–especially in the land of Sarbanes-Oxley, where multiple bids on virtually anything a public company buys are required by law. Kumer, an MID vice-president, could see thousands of headaches, ranging from acquiring land and applying for permits to building infrastructure systems like roads, sewage and power. He also knew supplies would be scarce, so he started hunting. But he was pumped. “As far as budget goes,” Kumer says, “this is the smallest Magna project I've ever worked on. And you know what? I can honestly say it's been the most rewarding. I love what we're doing for these people.”

The feeling is mutual. Lise Steinhauer says Canadaville's residents call Stronach's team godsent. The Florida-based academic recorded a series of oral histories when the storm victims were housed in Palm Springs. One woman, she says, thought Stronach's plan to put residents to work (at above minimum wage if they're able and can land no other job) sounded like slavery. But the ones who took him up on the Canadaville offer were glad for the opportunity. “These are not people who were on welfare,” Steinhauer notes. “They are used to working.” Nobody knows how long they'll stick it out. Some are more grateful than others–but they're all grateful.

The locals, however, are a different story.

Simmesport is proud and insecure at the same time. Local radio plays telling songs, with lyrics like “I ain't first-class, but I'm not white trash, and women like me fine.” There is no housing bubble in this neck of the woods. During America's dot-com boom, the town's median household income was US$15,455, which helps explain why no new single-family home building permits were issued between 1996 and 2004. Simply put, the community desperately needs a break, but many of its people distrust foreigners and fear change. Not surprisingly, Canadaville faced opposition as bullheaded as that of General Richard Taylor's Confederate army when it tried to stop northern forces from crossing the Atchafalaya in 1864.

Simmesport Mayor James T. Fontenot is now a reluctant believer. When he first heard about Canadian plans to plant Katrina refugees on his doorstep, he almost jumped out of his wheelchair. He still thinks you're asking for trouble anytime you plant people from “a strange place” next to a small town. But the man locals call “Boo” couldn't scare Dennis Mills and Frank Stronach away. So he milked them instead. “A cow gives five gallons,” Fontenot says. “I only got four and three-quarters out of Dennis.” In return for Fontenot's support, Simmesport will get US$50,000 per year for five years, a new police substation, two new cop cars, a new community centre and the recreational facilities mentioned above.

Opposition still exists. One vocal area resident, for example, insists the organic farming business plan is a Canadian snow job, because it isn't suited to the region. But Calvin Walker, an animal science professor at Southern University in Baton Rouge, disagrees. He and other experts from the school's agricultural research centre were brought in to develop the business plan. In addition to a vegetable farm, the project will create Louisiana's first certified organic poultry and pork operation. A meat processing plant and beef production are also on the table. “We're going to make it happen,” says Walker. “And anyone who makes jokes about slavery is just ignorant.”

Ignorance, of course, is a problem. On the odd occasion, David Duke fans in half-ton redneck welcome-wagons have spit out drive-by racial slurs at Canadaville's black residents. Rebel forces also cut down the Canadian flag after it was raised at an equal height to Old Glory (as international diplomacy rules dictate). The rebs apparently debated whether or not to use the Maple Leaf like a coureur de bois improvising toilet paper.

Fontenot insists these are isolated incidents. Everything will work out, he says, so long as none of the new citizens of Simmesport, which will annex Canadaville, commits “a major crime, like a murder or a rape or a home robbery.” The mayor even thinks his town now has a shot at landing a pair of golden arches.

Local state representative Monica Walker is a more enthusiastic politician, with higher expectations. Turns out the Atchafalaya makes a lot of sense as a shipping route. And the local development office reports Stronach's project has generated significant interest among three U.S. companies in a port project in Simmesport that has been stalled for more than a decade. “Canadaville has generated unlimited potential for the region,” says the state rep. “You all should be very proud of Frank Stronach and Dennis Mills. If anyone complains about being out a nickel, well, shame on him.”

Greenlight Capital et al. v. Frank Stronach et al. isn't about Canadaville or lost nickels. At one hearing late last year, a group of students, bored after a few minutes watching Greenlight lawyer Paul Steep drone on about special committee procedures, up and left. Justice John Ground of the Ontario Superior Court joked the kids were no doubt hoping for a murder trial.

“They should have been patient,” retorted Steep, who is out to prove Stonach oppresses shareholders' rights.

Greenlight declined to comment for this story. But when it comes to MI Developments' controlling interest in Magna Entertainment Corp., the hedge fund claims Stronach always puts his horse-racing interests first.

Stronach, on the other hand, says he expects shareholders to accept his recipe for success. “You've got to be responsible, you've got to be profitable,” he says. “But you only need one cook in the kitchen picking ingredients for a cake”–and his philosophy dictates how its sliced. Shareholders who don't like what he serves up can sell their shares.

Stronach's social experiment, however, calls into question his defence in the Greenlight case. Magna's spokespeople say MID bought the land on which Canadaville sits because it is a healthy real estate company. But Magna initially announced it was going to make the purchase. It then spent US$10 million on project development costs, which it had to spread over five years to keep within its constitutional limit. So while MID's US$2.6-million expenditure went to a good cause, it still raises an interesting question for Stronach apologists and shareholder activists alike. After all, MID doesn't have a constitution promising society a cut of pre-tax profits. Even if it did, it posted a loss in its latest quarterly filing due to its ownership stake in MEC–a situation MID investors have stated they no longer find acceptable.

When U.S. President Thomas Jefferson made his Louisiana Purchase, in 1803, he decided it was a special case, one in which the greater good that came from controlling the Mississippi was more important than worrying about strict adherence to constitutional rules. Stronach may feel the same way about Canadaville. Either way, whatever happens with Greenlight, he'll be remembered in Louisiana long after John Travolta's supply run and Sean Penn's boat trip are forgotten.

At Rosie T's, a truck stop that serves breakfast with a smile on Louisiana Highway 1, Canadaville is the topic du jour. Some locals might object, but not here–where you may soon find a crawfish dish named after Frank Stronach or Dennis Mills. The waitress on this December day makes no bones about which side of the debate she comes down on. “We already have drugs and rape,” she says. “What we need around here is jobs, and what those people from New Orleans need is hope. I don't care how rich he is–for this man from Canada to dig into his own pocket and do what he has done for poor folks in Louisiana takes a good heart. Don't let anybody from itty-bitty little Simmesport, or anywhere else, say different.”

For the record, the pocket in question is actually owned by shareholders. But for now, we'll give the waitress the final say.

After all, her name is Katrina.