This is Kickstart—the daily morning management briefing on innovation, leadership, technology and the economy from the editors of Canadian Business. Sign up to get it directly to your inbox each weekday at 6 AM Eastern.
Good morning! Here’s what’s on our radar at the moment:
Leadership lessons from the Houston Astros
The Houston Astros won their first World Series championship this week. That victory was the culmination of a controversial, years-long rebuilding strategy that Sports Illustrated presciently wrote about in 2014, even going so far as to put a prediction that the Astros would win the pennant in 2017 on the magazine’s cover. It’s a story of genuine organizational courage, requiring long-term thinking and commitment in the face of widespread criticism. Ben Reiter, who wrote SI’s original story, reflected before the winning game on the unorthodox but undeniably effective approach, and how it required a comprehensive culture change—in the front office and on the field—to pull off:
The Astros… never claimed to own a crystal ball, or that they would never make a mistake. They always expected to make many of them. Their goal was to make marginally more correct decisions than their competitors, in the long haul, and to do so they implemented an analytically rigorous system that not only processed all of the bleeding edge metrics they could find or create, but also heavily incorporated data from old fashioned sources: scouts, who could see things about a player’s potential and character that numbers couldn’t. Many of those decisions have now paid off.
Link: Sports Illustrated
Expect another long softwood lumber fight
Yesterday the U.S. Department of Commerce announced another punitive tariff aimed at Canadian producers; the new tax on softwood lumber lacks the splashy spectacle of the 219% duty on Bombardier’s CSeries jet, but it will affect many more Canadian companies and workers. Canadian softwood lumber entering the States will now be subject to a 20.83% tariff after the two countries failed to reach a mutually agreeable arrangement (though this duty is lower than an earlier, interim tariff). Experts believe that with both countries focused on NAFTA 2.0, we’re unlikely to see further progress on the softwood lumber file for some time:
“We’re in for a very long battle” before a final trade deal is reached, [ERA Forest Products Research managing Director Kevin] Mason said. “You’d hate to think you’re going to have another five-year battle like we did last time around, but I can’t see why it’s going to be any different.” The lumber duties are “unjust and punitive” and Canada will continue to push back against American industry, Prime Minister Justin Trudeau told reporters in Brampton, Ontario. While the tariffs aren’t as bad as they were before, they still “represent a burden on forestry workers and communities right across the country,” he said.
Highlights of the new U.S. tax plan
Republican congressional representatives unveiled their much-anticipated tax reform plan late yesterday. There’s no such thing as simple tax reform, but the top-line highlights include:
- reduces the number of personal tax brackets from seven to four;
- lowers the corporate tax rate to 20%;
- aims to get U.S. companies to repatriate profits currently held abroad with a one-time 12% tax.
Notably, U.S. lawmakers are poking the same hornet’s nest that Canada’s Liberals got stung by this year, taking on sole-proprietorships and similar corporate structures that can help individuals lower their tax bills. It’ll be interesting if the Republicans face the kind of blowback that the Trudeau government did; while the plan technically cuts the taxation rate on such “pass-through” structures, it has the potential to actually raise taxes for a sizeable proportion of those companies:
The plan would create a new 25 percent tax rate for “pass-through” businesses — sole proprietorships, partnerships and S corporations that currently pay taxes at the individual rate of their owners. Pass-throughs now make up about 95 percent of businesses in the country and the bulk of corporate tax revenue for the government. […] The bill includes a rule to help prevent wealthy individuals from incorporating as pass-through companies to pay a lower tax rate on their income. As a result, certain personal service businesses like law, accounting and consulting would not be eligible for the rate.
Link: The New York Times
Facebook vs. Franken
More from Washington today, following up on several days’ worth of testimony by reps for the major social media companies about Russian interference in the 2016 U.S. presidential election. Ben Thompson at Stratechery carefully analyzes the technical and political fallout from this week’s congressional hearings, and his opinion is that the tech giants are caught between two contradictory positions: that they are powerful enough to cause seismic shifts in the advertising market and provide unprecedented insights about their audiences to marketers; and also that they are innocent bystanders in the whole affair who were ignorant of what was transpiring on their platforms:
To reduce Russian interference to buying political ads with rubles is to skate over the complexity of this issue: how do you know what is a political ad, for one, and simply looking at currency is almost certainly a relatively useless signal, for another. Rhetorically, though, [Senator Al] Franken is devastating. Befitting his background as a comedian, Franken has a knack for framing the question at hand in a way that is easy for laypeople to understand, and all but impossible for Facebook to answer. [Facebook general Counsel Colin] Stretch looks like a fool, not because he is wrong, but because he is right. This matters; the biggest thing the tech companies have going for them is that they are popular, and this controversy is largely centered within the coastal tech-media bubble. What Franken demonstrated, though, is that this position is potentially more fragile than it seems.
Earnings reports today
Canadian publicly traded companies of note scheduled to report quarterly earnings today:
Aurinia Pharmaceuticals (AUP), New Look Vision Group (BCI), Brookfield Infrastructure Partners (BIP.UN), Clarke Inc. (CKI), Cipher Pharmaceuticals (CPH), Caribbean Utilities Co. (CUP.U), Economic Investment Trust (EVT), Foraco International (FAR), Fortis (FTS), Labrador Iron Ore Royalty (LIF), Leagold Mining (LMC), Marret Resource (MAR), Melcor REIT (MR.UN), North American Palladium (PDL), RioCan REIT (REI.UN), Street Capital Group (SCB), Synex International (SXI), TVA Group (TVA.B)
Thanks for reading! Have a truly excellent day.