Business Blunders: Heads Up

Business blunders bite. They cost money, jobs, ­reputation and solvency. And, damn, nobody ever forgets.

Above: if a tree falls in the forest: UBC dean of forestry Jack Saddler warns that ignoring the forestry sector could uproot B.C.’s economy.

Business blunders bite. They cost money, jobs, ­reputation and solvency. And, damn, nobody ever forgets.

Ask Atari. This is the company that in the 1970s thought Pong was a bigger idea than the one Steve Jobs and Steve Wozniak were touting called Apple. For that matter, ask Apple about Newton. Ask PepsiCo about Crystal Pepsi, the Wall Street Journal about Wall Street Journal Magazine, Blockbuster about Blockbuster Music. Not keeping up with the competition is another mistake: ask AltaVista about Google or Decca about the Beatles. (Once the second-largest record label in the world, Decca said no to the Fab Four but, hey, they said yes to Gary Glitter.) If you haven’t got the message yet, call Western Union. In 1876 its president William Orton chose not to spend $100,000 to buy Alexander Graham Bell’s invention, asking, “What use could this company make of an electrical toy?” In B.C. we could mention fast ferries, leaky condos and the Granville Mall. We could ask Gordon Wilson about the Progressive Democratic Alliance, Arthur Griffiths about the Vancouver Grizzlies, former-Vancouver police chief Jamie Graham about target practice. And, of course, there are some things that were never going to fly – Harmony Airways, an elected senate in Ottawa, the CFL in Shreveport. What would we give to avoid our mistakes? Name it. In that spirit, we asked several informed British Columbians (and one equally informed Ontarian) about the biggest blunders we are at risk of committing – as individuals, as an economy and as a province. And, more importantly, how to sidestep them. BLUNDER: using your house as an ATM PROBLEM: house prices plateau, interest rates rise SOLUTION: lock in your mortgage now We are living in the glow, says Thane Stenner, author of True Wealth, managing director of Stenner Investment Partners GMP Private Client LP and financial consigliere to the seriously rich. (Stenner’s group will take you on if you have a $10-million asset base, but they prefer clients with $50 million to $1 billion or more.) The glow, Stenner says, emanates, of course, from the 2010 Olympics – the torch lighting the way in what is becoming a golden decade for B.C. Our homes are worth more. Jobs are plentiful (there was 4.4-per-cent unemployment in June 2007). The provincial economy is projected to rise 3.1 per cent this year and 3.3 per cent next year. Construction is “a pillar of growth,” cheers the Conference Board of Canada. With more than 800 major capital projects worth $124.2 billion, the sector has grown for 15 straight quarters. B.C.’s mining industry had earnings of $2.35 billion in 2006, the strongest showing in the 39 years PricewaterhouseCoopers has been surveying the sector. But, says Stenner, in 1996 Canada incurred a negative savings rate for the first time since 1929, the year of Black Friday and the beginning of the Great Depression. Today we’re seeing signs of stress in the residential real-estate market, he says. “On average, household debt service levels are 60 to 70 per cent of household income. That’s high.” Stenner expects the residential market on the Lower Mainland to plateau by 2010. “We don’t see a major correction coming, but we do see a flattening of the growth curve,” he predicts. The snake in the garden is interest rates, which Stenner foresees rising over the next three to five years, by as much as two per cent. “There will be much debate over that comment,” he says, and points to the U.S., where interest rates rose a full point in the last 12 months. Stenner is already structuring his clients’ assets for the repercussions of a two-per-cent rise. “It doesn’t sound like much, but if rates go from six per cent to eight per cent, that’s a 33-per-cent increase. It applies a lot of pressure on debt-heavy households that are already pretty much maxed out.” Stenner’s advice: if you have a mortgage or property-based line of credit on floating rates, it’s time to lock in at a fixed rate on a five- to seven-year term and to start imitating his wealthy clients. These days, they’re practising restraint. BLUNDER: not going into the woods PROBLEM: B.C.’s number-one industry lacks new talent SOLUTION: change our perception of forestry “Like Rome and Venice, the city state of Vancouver is rich because of the wealth coming in from the outside regions,” says UBC dean of forestry Jack Saddler. In B.C. that wealth is the forest – by far the province’s largest export industry, valued at about $16 billion annually, an industry that directly employs 270,000 people. But the sector is not attracting tomorrow’s leaders. “There has been a shift in interest,” says Kathy Lewis, chair of the ecosystem science and management program at the University of Northern British Columbia (UNBC) in Prince George. She told the Vancouver Sun earlier this year that “students are going into environmental sciences more than into operational forestry.” “Most 16- to 18-year-olds think, ‘Oh, forestry, that’s blue-collar, low-tech, sunset,’” says Saddler. And they’re not enrolling. As a result, BCIT dumped its one- and two-year forestry programs this year. Enrolment in forestry at UNBC crashed – from 541 in 1998 to 113 in 2007. Nationally, according to the Association of University Forestry Schools of Canada, numbers of forestry students fell by half, from more than 3,000 in 1998 to about 1,500 in 2007. Part of the problem is urbanization. People just don’t want to be too far from a Starbucks, says Saddler. Another part of the problem is perception. “Most people think forestry is cutting a tree down,” says Saddler. The solution, he says, is “to do a better job communicating what the sector’s all about.” Forestry companies and government should encourage student participation, while media could focus on the positive and show foresters as they are: stewards of the environment, working in teams with environmental scientists, biologists, hydrologists, wildlife experts, local community politicians and businesses, forest corporations, government ministries and First Nations leaders. In Saddler’s view, this is a job that makes a difference. And, given the lack of enrolment, there are lots of jobs available. Foresters are facing numerous challenges related to climate change, such as controlling infestations of the mountain pine beetle and managing biofuels and carbon credits. They are also expected to manage forest renewal (the six-billionth tree was planted in B.C.’s forests this summer), wildlife management, clean water, sustainability of forests and forest-dependent local communities, and product development, marketing and innovation. Who would have thought cedar would provide the ideal fibre for disposable surgical gowns? Who’s going to imagine, develop and manage the next generation of wood-processing plants? Who’s going to solve the continuing mountain-pine-beetle catastrophe? Billions of beetles hitched a ride on the Rocky Mountain jet stream, spreading the infestation into Alberta. Who wants to wade into the $200-million pool the federal and provincial governments say they’ll spend to debug the pine? “It’s not rocket science,” says Saddler. “It’s a lot more complicated.” Thirty years ago, B.C. exported forestry knowledge and technologies, as well as lumber and wood products. Few nations understood sawmill construction and development as B.C. did, for example. But without an influx of new foresters, their ideas and professional training, over the next two decades B.C. will likely become a have-not, with no choice but to import expertise from places like Germany, Switzerland and Scandinavia. Remember what happened to Rome after it outsourced its critical information technology (to its slaves). It fell. BLUNDER: opposing land claims PROBLEM: B.C. loses $1 billion annually in outside investment SOLUTION: do the right thing Take a look at present-day reserves and it’s clear why, in 2005, the UN reported to the world that “the condition of Aboriginal people is one of the most pressing human rights issue facing Canada.” That internationally held view is costing the province as much as $10 billion annually, says Mike Harcourt, former B.C. premier and co-author of City Making in Paradise: Nine Decisions That Saved Greater Vancouver’s Livability. Harcourt is an unabashed advocate of Aboriginal rights to language, culture and, importantly, land title. His NDP government signed into law the Treaty Commission process in 1992 that – as well as shelling out billions to settle century-old unpaid land treaties – would establish four orders of government in B.C.: federal, provincial, municipal and First Nations. The present Liberal government has continued the process with mixed results: unsuccessfully with the Lheidli T’enneh near Prince George early in 2007, successfully with the Tsawwassen on the Lower Mainland this past summer. (A land-claims treaty negotiation with Huu-ay-aht on Vancouver Island was unresolved at press time.) Settling land claims remains complex and, for many British Columbians, controversial. For Harcourt, it’s the right thing to do – not just for First Nations but for the economy of the province. Get rid of the old relationship that everyone agrees was terrible for First Nations, and replace it with a new relationship, Harcourt says. Shift from welfare reserves to self-governing and self-sufficient communities. Prosper and live equally together with First Nations peoples and restore their language and culture within the modern Canadian economy and democracy. Not only will we “start to dismantle Indian Affairs” and eliminate the annual payments made to reserves and “treaty Indians,” he says, but “we’ll have more certainty, less risk and an orderly way for decisions to be made about mining, new forestry plans, destination resorts, oil and gas, pipelines, new development in urban areas. “Look at that in business terms. Let’s say the cost of settlements will be $15 billion over a 20-year period. That money goes directly into the B.C. economy. For the economic impact, apply a simple multiplier of a minimum three-to-one; so the benefits are going to be as much as $50 billion.” Does it work? “All you have to do is go to Terrace and see the impact of the Nisga’a settlement on Terrace,” says Harcourt. “It’s saved its ass compared to Prince Rupert.” Beyond that is international investment. Harcourt recalls, “Economists in the early ’90s – I believe it was PricewaterhouseCoopers – estimated that a billion dollars in investment every year wasn’t coming to B.C. because of the uncertainty of the conflicts and risk caused by blockades and lawsuits.” He asks, “What is a billion dollars of annual investment added to the B.C. economy?” Answering his own question, he says, “For the impact on the economy, you can multiply that at least five to one.” He adds the five-to-one impact of a billion-dollar annual investment to the three-to-one effect of a billion dollars annually going back into the economy to pay for land claims, and says (his mathematics as optimistic as his personality), “Look at it pragmatically and you could argue that $1 billion a year to First Nations could mean as much as $10 billion a year for the rest of British Columbia.” If not for tolerance, Harcourt argues, land claims must be settled for the economy.

Naeem Noorani INTOLERABLE: Naeem Noorani hates the word “tolerance.” He prefers the word “inclusion” and says business should take note of the province’s new look

BLUNDER: not embracing diversity PROBLEM: retailers aren’t reaching B.C.’s newest demographic SOLUTION: take a lesson from B.C. car dealers “Tolerance,” says Naeem Noorani, publisher of Canadian Immigrant Magazine, “now that’s a word I hate.” The magazine’s Burnaby offices share the same floor as the Vancouver campus of the University of Phoenix. The halls are busy with visible-minority students ­– living proof that the continuing wave of ambitious, educated and multiracial immigrants, and children of immigrants, is washing over once-mostly-white B.C. You can’t imagine that any of them are looking for mere tolerance either. Noorani, whom everyone calls “Nick,” is an affable and optimistic entrepreneur who speaks from experience. He is author (with his wife, Sabrina) of the definitive immigrant handbook, Arrival Survival Canada, a regular guest on the “Ask Nick” segment of CBC Radio One’s The Link, and host of a weekly program on Radio Canada International that reaches potential immigrants worldwide. He and Sabrina launched Canadian Immigrant in 2004 with $10,000 after they lost their jobs, and mortgaged their house twice to keep the magazine afloat. Circulation began at 3,000 and climbed to 20,000. Last year Noorani sold the monthly to the Toronto Star. He won’t say for how much, but he’s no longer talking about mortgage payments; his vision for his next endeavour is global. An immigrant himself, originally from Mumbai, Noorani is keen to point out that he is living the Canadian dream. “Let me understand,” he says from behind his desk, riffing about tolerance. The view from his windows is an empty lot soon to become another Burnaby business tower, a reminder that on the Lower Mainland everything is changing. “You will tolerate me? No. I didn’t become a Canadian to be tolerated.” Noorani similarly disapproves of the evolution of the meaning of “multiculturalism.” In his view, the word tends to isolate and ghettoize immigrants. Noorani prefers his alternative: “I am a firm believer in diversity and inclusion,” he says. “I believe in the tapestry, in the hues and colours that make up this glorious nation of ours. By using that phrase – diversity and inclusion – we include immigrants, First Nations, the socially disadvantaged and people with physical and other handicaps. You cannot have exceptions. I don’t want to be an immigrant who only talks about my community. I want to talk about all of us in Canada. I want to talk about us.” “Us,” of course, is often resistant to this change. Our parents carped that immigrants get the best jobs because they’re willing to work for less. Our prejudice is more sophisticated and disguised now; we have people such as Daniel Stoffman arguing in the Toronto Star, on July 14, 2006, that “unless Canada cuts immigrant numbers, our major cities will not be able to maintain their social and physical infrastructures.” Our national immigration policy vacillates so much (changes of government aside), that it’s no wonder there have been seven different federal ministers of immigration in as many years. Yet change is inevitable. Canada is greying; we need immigrants to fill jobs and pay taxes to support our health care and pensions. According to the 2006 census, immigration accounts for two-thirds of Canada’s population growth. We’ve been importing foreign talent by the quarter-millions annually for the past 10 years. This year about 275,000 immigrants will enter Canada and attempt to integrate, many of them doctors and engineers who will find work in Vancouver as cabbies. Not many of us reach out. Our guilds remain restrictive; prejudices in our hiring practices subtly persist. Noorani, ever optimistic, sees some change. “RBC, to me, is a beacon in corporate Canada. [RBC president and CEO] Gord Nixon said that he found a bias in the bank’s recruitment. When HR people asked an immigrant’s place of education and that place was unpronounceable, at least to recruiters, the application was moved aside. What RBC did was to move that question to the last phase of the interview. It helped eliminate bias and focused on the prospect’s skills.” Quite aside from social or moral values, it’s just good business to embrace diversity and inclusion, says Noorani. He points out immigrants have become demographically important. “If your company does not reflect the demographic of the people in the street, you’re not in touch. If you’re not hiring people of different backgrounds and learning about their consumer behaviour, how are you going to market to them?” The leadership model? Noorani will tell you the best example is B.C. car dealers. “They have done a great job in integrating immigrants into their workplace,” he says. “You can walk in and choose a Vietnamese, a Chinese, a Punjabi sales person. I cannot stress enough how important this is when you’re selling to people who are challenged by language.” BLUNDER: expecting an Olympic afterglow PROBLEM: costs are unknown SOLUTION: to be decided About that 800-pound gorilla – B.C.’s biggest potential success or blunder, the 2010 Olympics. Mike Harcourt, who originally questioned the value of Expo 86, says he “absolutely supports” the Games and its economic contribution. On the other hand, financier Thane Stenner cautions us not to expect the economic afterglow that followed Expo. “Vancouver has already been discovered,” he says, reaffirming his forecast of higher interest rates and a flat residential housing market. At odds with both of them is Kevin Wamsley. Former head of the International Centre for Olympic Studies at the University of Western Ontario, Wamsley has been studying and attending Olympic Games since Sydney in the summer of 2000, in an attempt to understand the Games’ history, sociology, philosophy and anthropology. He says bluntly, “Hosting the Olympics in Vancouver was a mistake in the first place.” In Wamsley’s view, the obvious choice in Canada for the 2010 Olympics was Calgary. “The facilities are there. They need to be upgraded, certainly, but that would come at a far lesser expense. But the IOC is interested in moving the Games around to generate commercial and spectator interest.” Not that Wamsley blames Vancouver: “Awarding Olympic Games to different cities and essentially forcing those cities to build for the Games is a problem endemic to the Olympics,” he explains. “We spend billions of dollars hosting and putting up new facilities all over the world and nobody uses them. What’s the point? We have Calgary, Salt Lake City and now Vancouver – a triangle of Olympic-calibre facilities in the west. That doesn’t make sense to me in terms of how many world championships can be hosted.” When these facilities break down, as Cal-gary and Salt Lake City are finding, “who’s going to pay the bills?” Wamsley asks. That little amount of money these Olympic cities set aside isn’t going to cover it, he says. The Games have long since exceeded initial budget projections. Every new revised budget is challenged. Most recently, the cost of security has come under scrutiny. The cost was established in an “interim” budget by the Vancouver Olympics Organizing Committee at $175 million, but critics note that security for the 2006 Games in Torino totalled $1.4 billion. While the new Canada Line is not technically within the Games budget, it is a key component of the Games infrastructure, paid for by the same B.C. taxpayers. In public meetings, TransLink assured opponents that building the subway would not include overtime or Sunday construction; nightly and weekend shifts are now business as usual on Cambie Street. Wamsley compares the Vancouver Games to Athens, “where they had to work night and day just to complete the projects. They found out the Olympic clock moves pretty fast in the last couple of years leading up to the Games.” Comparison to Athens, of course, is not what anyone wants to hear. Much like Vancouver, Athens created the largest number of public projects in its modern history. The city was transformed, but at what cost? Wamsley told the Ottawa Citizen last year, “For a country like Greece, with a very small population, they’re going to be saddled with that [$16.6 billion] debt for a very, very long time. I don’t know how you could rationalize spending that much money over 16 days.” Will the Games be a blunder or a bonanza? Who really knows? “Predictions are hard,” Yogi Berra once said, “especially about the future.”