Corporate leadership still counts--Leadership is in the details
<a href=www.thestar.com>The Toronto Star May. 3, 2003. 09:30 AM DAVID OLIVE
TOP OF THE CEO CLASS: Clive Beddoe is one of a select number of corporate leaders who have made a real difference to their companies' performance.
The "great man theory of history" took a beating in the epic collapse of financial markets two years ago.
It turns out many CEOs who claimed to be reinventing their industries — or creating new ones from scratch — didn't have the staying power to survive the first economic downturn they faced.
Ditto those who equated themselves with Michael Jordan in justifying their superstar compensation, and vied with J-Lo for ubiquity on magazine covers.
Yet while celebrity CEOs are now out, the theory about how much one leader can accomplish has not been thoroughly undermined after all.
Two of the top 10 companies highlighted in the Star's first annual report card on Canada's top-performing CEOs would not exist but for the persistence of their founder-CEOs — Clive Beddoe's Westjet Airlines Ltd., one of just three consistently profitable airlines in North America; and John Forzani's Forzani Group Ltd., one of the continent's leading sporting goods retailers.
At each of the 10 firms, risky turnaround, expansion and globalization strategies have been driven by CEOs who have put their personal stamp on both the organization and their industry.
For the past decade, Dofasco Inc.'s John Mayberry has been perhaps the most credible spokesperson for a North American steel industry that has seen about a dozen U.S. steel makers seek refuge in bankruptcy protection in the past two years.
And by risking billions of dollars on efforts to upgrade the efficiency of his oil-sands operation at Suncor Energy Inc., Rick George is incidentally making a case for Canada's immense oil-sands reserves as an alternative to the Mideast, Venezuela, Nigeria and other politically volatile oil-producing regions.
Yet these CEOs do differ from the over-hyped leaders of the pre-boom days. Forsaking big-picture talk about "vision" and "convergence," they're deeply immersed in the unglamorous details of their businesses — picking a high-traffic location for their next store, or an out-of-the-way airport with cheaper landing fees for each new city that Westjet serves, or experimenting with winning playlists at Astral Media Inc.'s growing network of radio stations in Quebec.
These are not attention-seeking leaders. "I'm only famous for my big machines," says Rick George, who's happy to surrender the limelight to Suncor's three-storey bitumen extracting trucks at Fort McMurray, Alta.
The only household name on our list is Westjet's Beddoe, who saves money by not advertising his product on television. So his marketing staff is thrilled at Beddoe's repeated TV news appearances in which his comments are sought on the chronic woes at arch-rival Air Canada. They correctly see this as the best, most credible type of advertising.
But Beddoe's annoyance with overdog Air Canada is sincere. And the chip on this Westerner's shoulder is real. "So this is the centre of the universe," was the Calgary-based Beddoe's first comment at a meeting with the Star's editorial board.
Strategies for confronting adversity are the common bond among this year's outstanding CEOs.
Dofasco's Mayberry, who retired yesterday after almost 11 years as CEO, took a series of low-key steps to weather tough times in global steel making. He locked up long-term supply contracts with auto and appliance makers and other key clients to limit Dofasco's exposure to swings in the spot market.
Mayberry also spent some $2 billion on technology upgrades over the past decade to offer clients higher-quality steel. And he gained access to the fast-growing market for mini-mill products by taking a 50 per cent stake in a mini-mill startup in Kentucky.
That slow-and-steady approach has paid off for Dofasco, which reported a first-quarter profit of $47.1 million in April in contrast to a $44 million loss at cross-town rival Stelco Inc. After experimenting disastrously with a short-lived takeover of Algoma Steel Inc. in the late 1980s, Dofasco under its new CEO Mayberry swore off the acquisitions that have since proved difficult for industry consolidators in the United States and Europe.
"We haven't seen too many people turning (mergers) into gold," Mayberry told analysts recently. "We still have this funny, old-fashioned belief that you should earn your cost of capital if you're going to make an investment."
Westjet's Beddoe is equally cautious. He is an irrepressible mascot for Westjet's latest route additions in Halifax, Windsor and Montreal. But Westjet, founded in 1996, was 3 years old before its fleet numbered eight aircraft — a benchmark that upstart Jetsgo Corp. has reached in its first few months of operation.
Each new Westjet destination is expected to be profitable in its own right, not merely as a feeder of traffic to the larger network. If new routes aren't paying for themselves within a year, flight frequency and pricing are fiddled with until the formula is right.
And for all its ambitions to rival, and perhaps overtake, Air Canada on domestic routes, Westjet still hedges its bets by renting aircraft to tour operators flying to Las Vegas and sunspots in Mexico and the Caribbean. Maximizing the use of costly aircraft is one reason why Westjet has logged more than two dozen consecutive profitable quarters.
Westjet's latest quarterly results, released last week, gave ample reason for a cautious approach. Wartime fuel-price increases and a drop in traffic, along with costs in expanding the aircraft fleet, caused profits to plunge 89 per cent.
Global expansion is one way to reduce dependence on a maturing domestic market
George's setback with an ill-fated shale oil project in Australia strengthened his conviction that Suncor needed to bolster its basic business, extracting crude from the Athabasca tar sands. The payoff from that decision has been enormous.
Beginning in the late 1990s, George invested a staggering $3.4 billion in Suncor's existing oil-sands facility at Fort McMurray, source of some 90 per cent of total profits.
The completed Millennium Project enabled Suncor to nearly double its profits last year, to $761 million. It will also help Suncor double its output by 2010. But George's focus now is on further reductions in production costs to become still more competitive with the $4 to $6 (U.S.) per barrel production costs in the Mideast.
So soon after Millennium, one of the biggest construction projects in Alberta history, George is embarking on the $3 billion Voyageur project at Fort McMurray with the goal of further efficiency improvements that will cut his production costs from $13 to $10 per barrel. Ultimately, George wants Suncor to emerge as the world's fifth- or sixth-largest producer, drawing still more attention to the fact that the Athabasca region accounts for one-third of the world's oil reserves.
Sporting-goods merchant John Forzani coped with adversity by learning how to manage the growth unleashed by his too-rapid acquisitions of competing chains, most notoriously of the large but unprofitable Quebec-based Sports Experts in the early 1990s. That deal created a national chain, but was marred by a culture clash between Forzani's entrepreneurial, English-speaking executives at Calgary head office and the more bureaucratic francophones at the new acquisition.
Retreat was in order, but Forzani and capable lieutenants he recruited soon imposed cost and inventory controls for the first time on their newly enlarged empire. They dumped money-losing locations, and took a Loblaw Cos. Ltd. approach to tracking sales of every item on a daily basis to learn exactly what was selling, where and at what price.
Today, as Forzani hands over the reins to one of those lieutenants, Bob Sartor, his company is posting its sixth consecutive year of record profits.
Through painstaking experimentation, the company has learned how to "de-seasonalize" the sporting goods business by offering an astonishingly wide variety of goods, from fashionable ski wear to golf togs, and from snowboards to in-line skates. The eclectic product mix helped Forzani subdue big-box interlopers from the United States.
Other top-performing CEOs have responded to tough conditions by expanding globally in a risky bid to reduce dependence on a maturing market.
At a struggling Cott Corp. in the late 1990s, turnaround CEO Frank Weise wasted no time after refinancing the firm and shedding such distractions as a pet-food subsidiary in staking the company's future on international expansion.
Under its late founder, Gerry Pencer, Cott became a stock-market darling by growing rapidly, a strategy that brought the firm to near ruin and which the new CEO was expected to abandon.
Instead, after implementing a rigorous cost-control regime, Weise has rekindled Cott's old reputation as a growth play with five soundly financed acquisitions in the past three years. These have strengthened Cott's position in the United States, where it now has 7 per cent of its market niche, and in Mexico, whose 100 million people have the world's second-highest per capita consumption of soft drinks, trailing only the United States.
But that is not a pell-mell growth strategy. Like Magna International Inc., which builds its new auto-parts factories alongside the assembly plants of its auto-maker clients, Cott now grows safely in tandem with Wal-Mart Stores Inc. and other key customers for its private-label beverages, letting those bigger firms take the brunt of the risk in developing new markets.
For Loblaw, meanwhile, Wal-Mart is an adversary, not a partner. Loblaw is the dominant Canadian grocer, but treats Wal-Mart as a serious threat given the latter's hugely successful move into food retailing in the United States.
Before Wal-Mart strikes at Canadian grocers, Loblaw CEO John Lederer is seeking to blunt the threat by challenging Wal-Mart on its own turf of non-food retailing.
A complacent Lederer could easily continue to thrive from Loblaw's unassailable hold on the industry's best real estate, which enables it to plunk No Frills, Zehrs and Fortinos stores in the neighbourhoods of its choice.
Instead, Lederer is pushing his real estate advantage by introducing such grocery store novelties as costume jewellery and Ralph Lauren jeans in his emporia. An increasing number of Loblaw parking lots now boast a gas bar, and Lederer is even experimenting with "dollar stores" within some of his larger outlets, along with expanded pharmacies.
At times, Lederer seems intent on duelling anyone who challenges him for a piece of the consumer dollar. "Why couldn't we sell you a coffee maker, toaster or frying pan?" he asks, when not musing about full-service Loblaw auto-repair centres.
How much of this is pure bluff is not the question. Confronting the world's largest retailer on his own ground, Lederer has gone on the offensive not only against Wal-Mart but Shoppers Drug Mart, Canadian Tire Corp. Ltd. and the growing Everything For A Dollar chain.
It might seem folly to take on all comers. Actually, Lederer is wisely putting rivals on the defensive. And it's not as if Loblaw is straying from its core strength in food in order to slay new dragons.
"Doing food right gives us the ticket" to expand into new niches, Lederer has told Bay Street analysts who might wonder if Loblaw, faced with the Wal-Mart spectre, has begun to forget what business it is in.
"The only obstacle is our ability to execute," he says. "We could do anything we want if we feel it is worthwhile."
An audacious pronouncement, to be sure. But it's torn from the playbook of the late Sam Walton.
Additional articles by David Olive