William McElcheran is a Canadian artist best known for a series of bronze sculptures called “The Businessmen”. Calgarians will be familiar with “The Conversation”—two life-sized chubby businessmen complete with hats, overcoats and brief cases, deep in conversation outside the Hudson’s Bay store (pictured below).
My relationship with Will Mac got off to an inauspicious start when I tripped over a parking median and landed flat on my face on the tarmac. I was so focused on ensuring that my little Will Mac sculpture was safely tucked into the back seat that I almost cracked a cheekbone.
Our purchase, “Aspirational Businessman”, is a round-faced businessman looking into the middle distance—his future perhaps? So how is this relevant to what we normally talk about on the Soapbox? Well, today’s topic is businessmen.
McElcheran approaches businessmen with bemused wariness, like bumblebees trapped in a pickle jar. They’re entertaining as long as they don’t get loose.
Art critic Gerhard Finckh* describes McElcheran’s businessmen more harshly: “When a businessman no longer stops to contemplate the consequences of his actions because he is hounded by the idea of maximum profit, when his actions are devoid of moral considerations [we may call him] a “sweet fool”. [But] when his business transactions become a real threat to society and are recognized as such…those who did not oppose him right from the start, are transformed [into]“bitter fools”.
At first, I thought Finckh’s comments were overly melodramatic…but that was before Nexen’s shareholders and the Harper government entered the twilight zone trying to convince us that CNOOC’s takeover of Nexen was a “net benefit” to Canada.
Ironically, this PR exercise emerged at the same time as the Canadian subsidiary of another Chinese state-owned entity, Sinopec, was convicted of health and safety violations arising from the deaths of two temporary Chinese workers in Fort McMurray, and Ottawa banned Huanwei Technologies, a Chinese telecommunications giant, from bidding on a government communications contract because Huawei might pose a security risk (!).
Here in Alberta Premier Redford is working hard to calm our fears. She’s imposed two “conditions” that would make the takeover acceptable to Albertans (well, to the PCs). First; half of the company’s board of directors and management team must be Canadian and second; CNOOC must agree to comply with our environmental laws.
With respect to Redford’s first condition, it would make more sense to demand that half of the management team be the existing team. This would ensure continuity and alignment between the old and new management teams. Unfortunately, the odds of existing management staying with the “new” Nexen are slim to none (and Slim just left town).
Nexen’s senior executives have signed change of control agreements that entitle them to 24 months’ severance and other benefits upon a change of control (being taken over by a Chinese state-owned entity certainly qualifies).
The dollar value of these agreements is staggering. The interim CEO, Mr Reinhart, is entitled to $5.1 million in severance plus the $3.4 million commuted value of his pension plus the value of his Nexen shares, TOPS, STARs and PSUs (don’t ask, just know that they are all calculated off of the share price which just went up by 60%). Furthermore, these numbers reflect Mr Reinhart’s entitlement at the end of 2011. That amount will increase substantially by the time the CNOOC takeover is finalized in early 2013. The other senior executives are entitled to smaller payouts but the amounts are still in the millions.
Like all smart businessmen, the senior executives will consider the pros and cons. If they stay they’ll end up working for a branch office of the Chinese government. If they leave they’ll collect millions and move on to other lucrative jobs in the oil patch.
Three guesses what will happen. The existing management team will run for the exits and be replaced by other managers who are willing to work (with less autonomy) for the “new” Chinese state-owned Nexen. These managers may be skilled but it will take time to replace the experience that walked out the door en masse.
This brings me to Ms Redford’s second condition: CNOOC must agree to comply with our environmental laws. The fact that the Alberta government feels compelled to ask a company operating in Alberta to obey our laws shows how little faith the Redford government has in CNOOC.
Her concern is justified given China’s appalling environmental and human rights record and the fact that the new managers just hired by CNOOC will be responsible for enforcing compliance on the part of their bosses in China.
How did we get ourselves into such a pickle?
The blame rests squarely on the shoulders of the federal government. Its lack of foresight about the role of foreign investment in the development of our natural resources has left all Canadians exposed to the actions of businessmen who equate “net benefit” to Canada with a 60% bump in share price.
Luckily the majority of Canadians refuse to become “bitter fools” (to use Finckh’s terminology). They’ve expressed their opposition to CNOOC’s takeover of Nexen at every opportunity. We’ll know in 30 days whether they’ve succeeded.
*William Mac The Businessman, 1991, p 64
**Nexen 2011 Management Proxy Circular
Your article, along with most other discussions on the potential for a China based state owned company buying a piece of our resources continues the incessant ringing of alarm bells in my head. A recent edition of the Economist suggests that any state owned company, especially those of the Chinese government can enjoy “…a range of unfair advantages.” This can only tilt the playing field of other non-state owned companies where they struggle to stay afloat. The Harper government (I would prefer to hope that it is “our government”, not his) is supposed to be reviewing the implications of allowing this transaction to occur. Most governments have such a regulation and it is not unusual to ensure that such reviews occur. In fact, the Chinese government recently added such national security requirements to their consideration of foreign investments. However they also added the terms economic security and social stability to their list of concerns which provides “easy cover for protectionism” (Economist, Oct. 6, p.54). I am sure it would not welcome others coming to China to undertake a similar business transaction.
Perhaps President Obama got it right when he upheld a ban on a Chinese firm from owning wind farms in American on based on security grounds. I presume that evaluation would not have included all the special patents that will get swept up with the Nexen takeover, so this has to be even more egregious.
Roy I checked out that article in The Economist. Very illuminating, especially this bit: “In addition to sheer size (and a nod and a wink from the antitrust authorities), SOEs (state-owned entities) enjoy a range of unfair advantages. In return for guaranteed profits and state backing, official banks lend to SOEs at a third of the cost of credit available to private companies (those that can get official loans at all). The government showers a range of tax breaks and subsidies on state firms, and favours them in procurement contracts. Unirule, a Chinese think-tank, reckons not having to pay for the land SOEs sit on was a subsidy worth some 4 trillion yuan ($640 billion) in 2001-09.” How will our private companies compete, let alone succeed when the playing field is tilted so firmly in CNOOC’s favour?