BC Business
Vancouver's economy is booming, employment levels have never been higher and the Olympics are just three years away. So why are corporate headquarters fleeing Vancouver for Calgary, Toronto and Montreal?
The contrast couldn’t be more telling. In Calgary, energy giant EnCana plans to build a spectacular $1-billion, 59-storey office tower headquarters that will be the second highest in Canada. That’s assuming Imperial Oil, not yet out of the starting gate, doesn’t one-up them with its own new Calgary headquarters. In Greater Vancouver, homegrown Boston Pizza is also planning a new head office building, in either Richmond or Vancouver. This will be a modest affair by Calgary standards, between five and 10 storeys, of which Boston Pizza will occupy, at most, three floors. Be grateful for Boston Pizza. The rest of the head-office picture in Greater Vancouver is bleak. The region’s HQ status has been in decline for more than a decade, both in number of headquarters and, more importantly, in the number of jobs those head offices represent. Blame it on several factors. Consolidation is a big one; when Teck merges with Cominco, Barrick Gold takes over Placer Dome and Canfor merges with Slocan, six head offices become three. When Terasen is purchased by Texas-based Kinder Morgan and Westcoast Energy is bought by North Carolina-based Duke Energy, two head offices vanish. But consolidation and foreign takeovers happen in Calgary, Toronto and Montreal, too. Yet these cities are all outstripping Greater Vancouver in every facet of the head-office game. Why, then, such an aversion to Vancouver? Unfortunately, you’ve heard this one before. The leadership and vision needed to execute a cohesive regional economic development strategy – covering everything from a fix for our traffic backlogs to a coordinated game plan for retaining head offices – is sorely lacking in the Lower Mainland. The head-office exodus is just the latest, and perhaps the most stark, reminder of a problem that continues to dog the region’s growth. In a survey that Business Council of B.C. executive VP Jock Finlayson called “alarming,” Statistics Canada last summer put out some new numbers on Greater Vancouver’s slide. Of 3,784 Canadian head offices identified by StatsCan, Ontario holds 39 per cent, Quebec 22 per cent, Alberta 15 per cent, and B.C. 11.8 per cent (down from 13.1 per cent in 1999). “Of greater interest, and also concern,” says Finlayson in his own analysis of the StatsCan numbers, “is the trend in head-office employment.” Between 1999 and 2005, employment at the B.C.-based head offices included in the StatsCan study tumbled by 29 per cent from 18,817 jobs to just 13,441. In metropolitan Vancouver, the same picture was apparent: head-office employment there also declined by 29 per cent over the 1999-2005 period. Meanwhile, over the same time period, those employment numbers climbed by a whopping 64.4 per cent in Calgary, 19.1 per cent in Toronto, 15.5 per cent in Edmonton and 28.4 per cent in Ottawa. Montreal broke even. “Greater Vancouver stands out as by far the worst performer among major Canadian metropolitan regions in terms of what’s been happening to head-office jobs,” says Finlayson in his analysis. But what really irks him is what appears to be complacency across the region – the lack of leadership on the economic front – and Finlayson doesn’t hold back his criticism. The StatsCan survey “did not elicit much commentary from most of the municipal or regional officials in Greater Vancouver,” he says in an interview. “They’d rather spend their time talking about air quality, which is already good here, or fighting with the province. The local political leadership is really missing in action at the regional level on all the items that touch on economic development.” Colin Hansen, B.C.’s minister of economic development, chooses his words a bit more carefully, but the message about lack of leadership is similar. “Yes, that’s an issue,” he says. “I sat through a presentation in Chicago last spring by a panel made up of the mayors of Edmonton, Montreal and Mississauga, talking about economic opportunities in their munici¬palities. It would be very difficult for Greater Vancouver to present itself in a similar way, because there is not the ability to speak with one voice when it comes to economic development in the Lower Mainland.” While Hansen recognizes the problem, he doesn’t think the province can do much beyond friendly persuasion to change the approach. “It is an area where I think the province can play a supportive role, and I’ve had discussions with various mayors and others interested in developing more of a regional thrust,” he says. “But as I’ve pointed out to them, if it was to be driven by the provincial government I don’t believe it would succeed. It needs to be driven by leaders at the local and regional level.” All the region’s major municipalities, with the City of Vancouver at the front of the pack, have economic development initiatives under way as individual municipalities, but there’s no one regional voice. Hansen is hoping that the newly established Greater Vancouver Economic Council will provide part of the solution to that fragmented approach. A private-sector-driven agency formed specifically to address the lack of a ¬regional approach to economic development, the council points out in its business case that Greater Vancouver is virtually the only region in North America that does not have an effective regional approach to economic development. Unfortunately, at the moment, the council is going nowhere. Launched just under a year ago, it’s still without a CEO and is waiting for federal and provincial funding before it can begin to address the problem. Elve del Bianco, a researcher at Vancity Savings Credit Union (one of the private-sector sponsors of this organization), is ¬helping the board of directors get it up and running. “We should start moving in mid-January,” he says, conceding that the council is behind schedule. “This is taking longer than we anticipated, but this is a very fractured regional area with 21 municipalities in a catchment area of Whistler to Chilliwack. Everyone is lined up at the pool; it’s just a question of who will jump in first.” Someone needs to. Finlayson thinks the need is urgent: “To be brutally candid, regions like Houston, Phoenix, Calgary, Ottawa – all with less desirable quality of life attributes – are much more effective. They are out there trying to attract these kinds of companies and jobs. As a region we are not, and that’s got to be part of the explanation [for the head-office slump]. In a global economy Surrey, Port Coquitlam, or whatever – are meaningless.” Should we care about this? Life is good, the provincial economy is booming (for now, anyway), employment levels have never been higher and the Olympics are coming. Do we really need more head offices? [pagebreak] PricewaterhouseCoopers senior tax manager Ian Heine, writing in the International Financial Centre B.C. news¬letter, says yes, unequivocally. “Head offices are a key indicator of economic health,” Heine writes in the newsletter. “They’re anchors, consuming local services, providing primary sponsorship for charities and creating economic clusters. Heine doesn’t like what he calls an “alarming characteristic” of B.C.’s economy: few businesses that start here stay when they mature. The Business Council of B.C.’s latest analysis, citing a study done for the provincial government, quantifies the head office benefits: “A $1-million increase in the output of the ‘head-office sector’ in the province translates into 12 new jobs. The ratio of output/jobs is higher for head offices in B.C. than for industries such as pharmaceuticals, motion picture and video production and computer systems design.” Minister Hansen sees some light ahead, and points to the province’s newly established marketing efforts, particularly in the Asia-Pacific region. The idea is to promote B.C., and Greater Vancouver in particular, as suitable locations for North American regional head offices for Asian companies. The Vancouver International Airport is the key to this strategy, Hansen says. “It’s the closest major airport to any of the major business centres in Asia. There are issues around fifth-freedom rights [which allow a carrier to pick up passengers in a foreign city while en route to another destination] that make Vancouver an even more important hub for international air travel, and you can’t overlook the importance of that in terms of making Vancouver an attractive location for the North American head offices.” Hansen also cites the recently signed trade-and-investment agreement with Alberta as a catalyst for oil and gas companies to be headquartered in B.C. Prior to this agreement, an energy company located outside Alberta had difficulty operating in Alberta. Looks like it’s too late for EnCana (by far the biggest spender in the B.C. oil patch) and likely Imperial as well. Whether or not any of these factors will reverse the decline remains to be seen. Finlayson believes the numbers probably won’t get worse, but he also doubts they’ll get better unless Greater Vancouver’s often-feuding municipalities find a way to work together on marketing the “Vancouver” brand name that many of them resent. There’s a world of catching up to do and, as Hansen points out, effective marketing is what it is all about. “The world isn’t going to come to us; we have to get out and let the world know.” Most frustrating for Finlayson and others in the business community is that this is not a new problem. Greater Vancouver’s head-office slide has been documented now for more than a decade, with little more than lip service paid to the need for action. Meanwhile, Calgary basks in a national spotlight as major energy companies try to one-up each other in the office-building stakes. Just a pretty face Greater Vancouver has often been criticized for relying too heavily on its natural attributes as the main draw in attracting commercial enterprises to move here, or to stay anchored here once they are established. That might explain, at least in part, the dramatic decline in Greater Vancouver’s standing as a head-office mecca. Companies like Placer Dome, Westcoast Energy, Terasen, Intrawest and Creo (Catalyst Paper could be next) make the headlines in Vancouver when they disappear from the ranks of head offices, either through foreign takeovers or consolidation across a sector. But a month rarely goes by when other mid-level companies don’t make the news with a similar departure, or at least the threat of a departure, adding to the local angst about just where our headquarters economy is going. A couple of recent examples: In mid-October, Sierra Systems Group Inc. announces its shareholders will accept a US$93-million takeover by Golden Gate Capital, a San Francisco-based private equity firm. Nearly a year ago, Golden Gate also acquired Ontario-based GEAC Computers for US$1 billion. A year earlier, MDSI Mobile Data Solutions Inc. announced a similar buyout, this one by U.S.-based Avista Capital Partners. The transaction was completed just over a year ago, putting one of the province’s homegrown success stories under complete U.S. control. In both cases, there is no hint that a headquarters move is in the offing. In fact, Sierra specifically stated at the time of its announcement that the company would remain in B.C. But with effective ownership of both companies now in the hands of U.S.-controlled private equity funds, loyalty to this province isn’t likely to account for much if some aggressive marketing from a U.S. city fills the vacuum created by Greater Vancouver complacency. The story is different for biotechnology company AnorMed, the Vancouver-based cancer-drug specialist. After an intensive bidding war, biotech giant Genzyme Corp. of Boston was the victor, and will swallow the Vancouver company whole. The odds of Genzyme transferring its head office from Boston to Vancouver are, well, not high. There are companies headquartered in Vancouver that are determined to stay here despite the prospects for being a tad lonely in future years. Bruce Aitken, CEO of Vancouver-based Methanex Corp., the world’s largest producer of methanol, has eschewed the push to relocate. Vancouver works for the company, whose executives frequently travel to Asia, one of its fastest-growing markets. The city has also proven a real drawing card for senior execs who like the climate and outdoorsy lifestyle, he says. [pagebreak] Lululemon Athletica, B.C.’s latest high-growth darling, sees its Vancouver head-quarters as essential to the maintenance of the company’s corporate culture. Says company founder and Vancouver native Chip Wilson: “It’s the Stanley Park seawall, Grouse Mountain, and the endowment trails, and Wreck Beach and Robson Street.” Bottom line for Lululemon is lifestyle, and that’s what keeps the company here – for now. Media relations spokesperson Sara Gardiner says the importance of that lifestyle crystallizes when employees from other locations come here for the first time. “People come here from the rest of the company for training and a visit,” she says. “And they finally get our culture: they see all of Vancouver living the lifestyle that we’re promoting.” Sure, for now. But for how long? A year ago the company sold a significant minority interest (48 per cent) to Massachusetts-based based Advent International, a US $10-billion equity fund with interests all over the globe. Two Advent executives now sit on Lululemon’s board of directors. Add to that the fact that Lululemon’s new CEO, Bob Meers, is the former head of Reebok International, and he’s a native New Englander. The first of five New York City stores opened in October and expansion is underway in New England. (Meers has a goal of 200 stores across the U.S. by 2010.) Will that provide enough pressure to relocate the Vancouver HQ? On the U.S. East Coast, perhaps? An unabashed Vancouver-phile, Chip Wilson concedes there are financial and logistical challenges to the Vancouver headquarters. “Distance from the big eastern consumer base, the length of flights to the east and the eventual need for an eastern warehouse for quick deliveries, and the need for an eastern office that could outgrow the Vancouver office – all are challenges,” he says in an email exchange. Boston Pizza is a Greater Vancouver head office company of long standing, and officials also cite the West Coast lifestyle, among other benefits, as the principal reason for a continued headquarters presence here. This, despite a future growth strategy that is eastern-based. “We’re definitely staying here,” says CEO Mike Cordoba. “Our founders grew up and built the business in B.C. – we’ve always said we’re a B.C.-based head office. We have offices in other parts of Canada like Mississauga and Laval, and in Dallas, Texas. But the two guys who built it [Jim Treliving and George Melville] are B.C. guys and they want to stay B.C. guys. I also think once you commit, you stick with it.” On that note, Boston Pizza is actively looking for a site in either Richmond or Vancouver to build a new office building, in which it will occupy two or three floors. But there are challenges. “As big as you are, you still have issues in finding people,” Cordoba says. “Sometimes people who live in Toronto believe that’s the best part of the world and you can’t unlock them from that. The cost of living here hurts – it’s an expensive place to live.” The overall business climate, Cordoba says, has improved despite the fact that labour costs in B.C. remain higher than in other jurisdictions. Of course, being a privately held company, as Boston Pizza is, allows you to pay a little more attention to your heart than to your wallet. And when it comes to maintaining the corporate HQ presence in Vancouver, heart seems to be the biggest factor. But as the latest exodus reveals, heart – and good looks – won’t be enough.