"The quiet hijacking of corporate Canada"
by Willard Z. Estey

Canada was once one of the leaders in world trade.  It is now sliding down the list of world traders.  This is not a result of foreign aggression, nor a concentrated attack on our national economy by large corporate organizations, nor indeed is it the result of any disturbances created for us by our powerful neighbour to the south.  It is our own weakness that threatens our continued existence as an independent free standing economic entity in the world.

Let's start by considering the NOVA story.  There are other illustrations of our plight but this one is a recent and easy to understand corporate event which spotlights our nations' economic troubles under trade treaties and otherwise.

NOVA is a creation of Canadian enterprise, both corporate and governmental (the Province of Alberta).

A few months ago a series of corporate reorganizations and realignments removed NOVA as a unit in an industrial pipeline complex and set it free as an independent company engaged in the chemical industry in the Province of Alberta.  Nova sells its products from its Alberta plants throughout North America.  The company is now a public company whose shares are listed on the Toronto Stock Exchange.  Its main source of wealth is the conversion of Alberta natural gas into chemical products, notably polyethylene which it produces in several plants located in Alberta.  Polyethylene is a high volume bulk product largely sold in the United States to industrial consumers.

Recently, as a result of the continuing reorganization of the NOVA group and TransCanada Pipelines, NOVA Chemicals emerged as an independent and stand alone company of which Jeffrey Lipton is the President.  Mr. Lipton was recruited by NOVA from the Dupont Companies in the United States and is well regarded as a highly competent officer in this chemical field.  Shortly after NOVA Chemicals was set loose to make its way in the chemical industry in North America, Mr. Lipton, as President, obtained the approval of the Board of Directors of NOVA to move 69 employees of the highest income in the head office in Calgary to NOVA's new offices in Pittsburgh, Pennsylvania.  The principal explanation for this sudden and drastic move of all senior executives and officers of the company from Calgary to Pittsburgh was "the executives of the company and senior officers were spending too much time in the air".  This move was said to be necessary to maintain the requisite close contact with its principal customers.  It is not known at the time of writing how many of these officers and high ranking personnel have elected not to move to Pittsburgh nor has there been any information released about the cost of this move in termination, compensation and other expenses.

Alberta law requires that the head office of this company be maintained in Alberta.  It may be that this move offends the literal reading of that law but that is a question for others to answer.  The fact is that the Province, which is the original owner of the natural gas resource and the receiver of royalties on its removal, has not given any indication of formal approval or disapproval of the move of this vital unit in the gas and petroleum industry out of Alberta.  The fact is that the loss to Alberta of an important segment of its gas and chemical industry is serious.  The loss to Canada and the effect in its position as a leading actor of influence within the gas, petroleum and chemical industry in North America is equally serious.  So far these losses have been assessed and accepted only by a board of directors of a corporation in the private sector.

As NOVA develops in size as a large scale chemical producer its profits may well be earned and credited to a large extent to the newly established entity of NOVA in the United States.  It would appear that in the result the present production facilities will remain in southern Alberta but the nerve centre of the company, its senior executives and presumably most of the employees in the top leadership of the company, will be established in Pittsburgh.  Taxation of the resulting profits will of course be administered under the Canada-US Tax Treaty and will result in exposing those profits to taxation in the United States and in the lowering of the amount of profits exposed to Canadian taxation.  This taxation element is of lesser importance but remains a real loss to the Canadian economy.

The community of Alberta of course loses a very significant and important group of senior executives and their influence upon the large centre of population in Calgary.  The result of course is that at the end of the road Alberta will have empty gas wells and NOVA will have established a profitable enterprise whose equity will largely be accounted for in a NOVA incorporation in the United States.

Before proceeding further, let it be emphasized, that there are circumstances in the industrial community of North America that require corporate relocations and reorganization of production and sales facilities.  Sometimes this will in the end require corporate relocation of divisions or functions to other jurisdictions.  The question which is raised here is this: is it a commercial necessity in the life of NOVA to make this move of its head office to Pittsburgh or is it because of a more attractive employment atmosphere for both NOVA and its officers and executives by reason of the lower income tax rates in Pittsburgh than Calgary?  It is said that proximity to customers is the primary attraction behind this move.  The question immediately arises "how much loss has been suffered by NOVA  since its establishment because the company was not established in the US?"  As a sidelight one might observe that in the past 30 years Pittsburgh has lost all or most of its formerly great enterprises such as Gulf Oil, US Steel and Westinghouse.

An important question will be raised as to how much attention has been paid by the new corporate management to the interests and concerns of the owner of this prime reserve, namely the Province of Alberta.  What evidence is there that the company has suffered by reason of lack of proximity to market for its chemical products.  This may be much more than a mere question of fact.  It is a question, the answer to which will resound through the halls of industry and commerce in Canada and perhaps elsewhere in North America in the days ahead.

This type of reorganization threatens the future of Canada as a small market economy.  Calgary is now the clear leader in Canada of a large gas and petroleum industry.  It is the jurisdiction of ownership of the principal product consumed by NOVA Chemical.  Alberta has been a primary supplier of gas and petroleum to North America for many years.  Is this move the forerunner of the descent by Canadian companies to the level of providers of unimproved raw materials only?

Moves of the nature taken by NOVA are not new to this community.  Sometimes the moves originate in an acquisition by a company located outside Canada and sometimes it occurs as a consequence of growth by a Canadian enterprise upon entry into the United States market.  For example, the Moore Corporation, the world's largest manufacturer of business forms, is operated by its President from offices in a suburb of Chicago and who comes to the Toronto headquarters of this Canadian corporation for its regular monthly meetings.

Another version of such corporate moves is to be found in the fate of Gulf Canada Resources Limited which moved its headquarters from Calgary to Denver, Colorado in 1997 under its then American President.  It should be noted that this escape to Denver has been reversed by the new President of Gulf, who has moved some twenty executives back to Calgary.  "Proximity" apparently lost its pull.

Companies being acquired by foreign interests frequently lose their Canadian head offices.  Two recent moves of this nature are Newport Credit and MacMillan Bloedel.  It is very likely that each of those companies will see their head offices moved to the United States.  To assess the gravity of these circumstances as a threat to the industrial and commercial progress of Canada, one should ask the question who will be next.  Northern Telecom, a Canadian company of long standing, is now run on a split basis with senior executives, including the President, in the head office of the company in Ontario and another significant branch of the company is headed up by a senior executive located in California.  The bulk of its products are marketed in the communication business in the United States.  Northern Telecom also has a rapid growth subsidiary, Nortel Networks, with an official head office in Canada but an effective world headquarters in Dallas, Texas.

 Will it be Canadian Pacific next owning and operating as it does significant railway mileage in the United States by which CP has been drawing freight in larger proportions with reference to Canadian operations in recent years.  It would be an irony of history if the railroad which bonded our country together in the first place sees its headquarters moved south.  This would be a significant loss of jobs in Canada. 

The question remains: what is the true basis for these transfers or reorganizations, the effect of which is to move out of Canada significant earning power and the taxation of senior employment of advanced technological positions.  On the other hand the escape from high Canadian tax rates for both the corporate employer and the employees is an obvious cause for some of these departures from the Canadian community.

What reaction should there be in Canada both political and economic to these losses to the Canadian industrial establishment?  It is fair to say that the commerce of Canada as an industrial nation with a small domestic market for its products is in danger.  In short, if a significant number of these transfers of head office locale can be shown to be a necessity for the welfare and survival of the corporate enterprise then Canada faces a real threat to its continuation as a vertically integrated economy trading in the world markets for goods and services, particularly to the United States.  Business enterprises who export a significant part of their merchandise into the Untied States represent a very large proportion of Canada's manufacturing industries.  This loss would be a body blow to Canadian industry.

Let us look at the other side of the coin.  It is difficult to understand that if the foregoing is the reality here it is not true elsewhere in the world.  For example, Nestlé, a world scale operation, has its head office in Switzerland, far removed form its largest and strongest market, the US.  The same can be said for Shell Oil, Lever Brothers, and many others, all big exporters into the United States market who do not have their headquarters in the United States.  There are many corporate enterprises headquartered in Toronto by reason of the fact that their executive and sale personnel have ready access by an abundance of air transportation and other communication facilities to all parts of the US, particularly the north-east and central US.  It is idle to argue that Pittsburgh is better served by air and other transportation services to the principal sectors of North America than Toronto, for example.  The Toronto traffic flow is incomparably larger than Pittsburgh.

But all this is to lose sight of the main point here in issue.  Should Canada adopt a more restrictive approach in the granting of access to finite resources or should Canada reform some of its financial practices such as high tax rates, ownership restrictions and other negative measures?  Is this country better served by making the commercial atmosphere more attractive to entrepreneurs abroad in the hope that investments in Canada will follow and bring with it new employment opportunities in this country.

Most serious of all questions raised in this debate is "have we contracted away under the several trade treaties to which Canada is now party, the right to require that our natural resources not be exported as raw material but be processed in this country so as to produce the end product for export and sale abroad with high labour content?"  Our national interest is best served by increasing employment when raw material is processed to the consumption level in this country.

Even more serious is the question as to whether our governments in the past fifty years have been profligate in their borrowing and spending practices.  This question arises immediately upon realization of the magnitude of our national debt and that of the provinces as compared to outstanding public debt in the trading nations of the world.

This large national debt is best measured and appreciated when one realizes that the debt servicing by the payment of interest is just short of a billion dollars per week taken into account provincial and municipal debt.  The requirement of servicing this enormous debt has necessitated a level of taxes in corporate, individual and realty terms greater than almost all other nations with whom we compete in world trade.

The sagging value placed on the Canadian dollar by the world financial markets places our industrial base on sale to the rest of the world and at bargain prices.  We delude ourselves when we believe a low value of our monetary unit is a permanent advantage which will assure us of world competitiveness in international trade.  Monetary  valuation in the world money market imposes a lower standard of living on our workers than is enjoyed by workers in the major trading nationals with whom we compete.

Then there is the brain drain debate.  Canadian industry faces the difficult task of acquiring and retaining executive and professional talent in Canadian plants because of the attraction offered to Canadians in foreign work places, particularly in the US.  The conditions already noted above have all contributed to the attraction of Canadians in business to move abroad by first joining foreign owned enterprises in Canada and then rising through the ranks in that organization to head offices and plants outside Canada.  Others leave the country and go abroad by direct emigration upon graduating from Canadian universities or upon completion of trade apprenticeship in Canadian plants.

Put simply, the most serious issue now facing us is whether economic independence is drifting away from Canada.  If it is we must realize it is because of our weakness in the matters enumerated above and not because of the strength of our foreign competition.

Conclusion

The age of the multi-national corporate enterprise is upon us.  Canadians cannot abolish or suppress this phenomenon.  The employment of Canadians in the final processing of our natural resources before export must be made an attractive proposition to foreign controlled companies buying our natural resource products.

The result without strong Canadian reaction will be the loss of our status as an independent sovereign state trading in the world markets.  This is a combined answer to the question about the consequences of the loss of Canadian executive control through head offices in Canada; and to the larger picture which raises the question "is the nation unravelling as a world trading power in the present day world of intense international trade?"

These issues are never far from the surface in all our debates.  How do we ensure the existence of conditions which will enable smaller Canadian companies with the small Canadian market as their initial base to survive and grow to the size and strength of the competitors they will encounter in the world market.  It cannot be done by bald protectionist measures.  Above all, Canada must be seen as something more than a source of raw materials.

This is not a call for a commission of inquiry.  That route is too slow and expensive.  The issues discussed above would simply find their way through the bureaucracy and back to the staff of the cabinet minister who may be wholly unconnected to the problems facing the Alberta gas industry.  The result would be that matters and issues raised here would be shelved until the next election.  What this subject calls for is immediate action in the House of Commons which would by commonplace deposition provide a base of information upon which the cabinet could quickly erect the regulatory and fiscal measures required to put this country back on the main line.  The simple actions taken by the NOVA company have forced this nation to face a bedrock indigenous Canadian problem.

Time is not on Canada's side in this struggle.