Wednesday, August 27, 2008

What kind of corporate culture does it instill, when your controlling shareholder is breaking its own rules?

Ontario Teachers' Pension Plan is a major shareholder of Maple Leaf Foods, owning 33% of the company's equity.

As with Maple Leaf Foods, Ontario Teachers is breaking its own rules, by controlling more than 30% of the votes of BCE. Canadian legislators wisely did not want any one pension fund exerting too much influence over Canadian companies or constrain them artificially. Teacher’s does not have the financial capacity to own 50% of BCE. By over-reaching in its investment in BCE, Teachers’ had to resort to destroying the credit worthiness of the company at the cost of $1 billion to its present bond investors and at the cost of dramatically increasing the company’s cost of capital and in turn, BCE’s competitiveness. This financial incapacity on the part of Tecahers’ has resulted in the company reneging on its obligation to pay promised dividends to its shareholders of some $1 billion, the firing of 2,500 employees and the announcement of a capital-light investment plan that will do nothing to see Canada advance in the delivery of state of the art telecommunications.

Teachers’ also leaned on many groups to support its application before the CRTC. One such party was Maple Leaf Foods. It is interesting to read what Micahel McCain highlighted in his letter to the CRTC about what was of primary investment concern to Teachers’:

“Teachers’ recognizes our need to invest in marketing, advertising and community involvement.”

That statement is most insightful for what it doesn’t say, as Teachers’ seems to prefer fluff like marketing and advertising, over the real stuff like investments in product safety and world class facilities, not worthy of mention by Michael McCain to the CRTC.

Here is the full letter

January 18, 2008

Robert Morin
Secretary General
Ottawa, Ontario
K1A 0N2

Re: Broadcasting Notice of Public Hearing CRTC 2007-19

Support for the application by BCE Inc. (BCE) to effect a change in ownership and control

As President and CEO of Maple Leaf Foods, I am pleased to submit our company’s support for the application of BCE for a change in ownership and control of the company to a group of investors that is lead (sic) by the Ontario Teachers’ Pension Plan.

Maple Leaf Foods is Canada’s leading food processor, supported by our flagship consumer brands – Maple Leaf, Schneiders and Dempster’s and a family of strong regional brands. We are market leaders across our businesses and intend to sustain strong profitable growth through meeting customer and consumer needs for the highest quality, most nutritious and innovative food products – from farm to fork.

A factor in our company’s success and leading position, Ontario Teachers’ Pension Plan has been a major investor in Maple Leaf Foods for more than 12 years. Although Teachers’ initial investment was a private equity investment alongside the McCain family, their long term investment focus has been illustrated by the fact that they remain a significant investor in our company today, years after the initial public offering of our company.

Teachers’ focus has been one of supporting strong Canadian companies over the long term, rather than expecting a small quick result. Teachers’ supported our executive team and board of directors in our successful efforts to strengthen the business and improve its value, especially our growth strategy which includes strategic acquisitions. Their vision, long term value creation horizon, and keen respect for all our stakeholders has been foundational to Maple Leaf Foods.

Teachers’ recognizes our need to invest in marketing, advertising and community involvement. With 73 per cent of our $6 billion in annual sales generated in Canada, Maple Leaf Foods has a high profile and strong presence across the country, especially as a major Canadian media buyer. We donate one per cent of our pre –tax profits to worthy causes in the form of both cash and in-kind gifts.

We believe the Teachers’-led investment team will provide BCE with the resources it needs for continued and renewed success, as it has, and does, for Maple Leaf Foods.

Yours sincerely,

Michael H. McCain

1 comment:

CAITI said...

Ottawa wanted U.S. to accept more lenient meat inspection regime


From Friday's Globe and Mail

August 29, 2008 at 4:37 AM EDT

OTTAWA — The Canadian government strongly opposed tougher U.S. rules to prevent listeria and lobbied the United States to accept Canada's more lenient standards, internal documents reveal.

Briefing notes prepared by the Canadian Food Inspection Agency for an April 7, 2006, meeting with the board of directors of the Canadian Meat Council outline how both industry and the Canadian government were frustrated with the increased precautions the United States was demanding.

Specifically, Canada opposed daily inspection visits and the testing of finished products for Listeria monocytogenes.

Further, the documents show the CFIA agreed to the meat packing and processing industry's request to end a 20-year-old practice of having inspectors issue reports and rankings on facilities. The Canadian Meat Council complained the reports were ending up in the hands of reporters through the Access to Information Act, leading to bad coverage.

Jim Laws, the executive director of the council, which represents Canada's meat packers and processors, said yesterday that he believes he attended the meeting.

He said Canada dropped the inspection reports and rankings as part of a host of changes brought in on March 31.

"It was an archaic way of rating plants that was not logical," he said. "Part of the concern was that this information, it was available to the public ... it was indeed causing our members some grief."

Mr. Laws said the industry has always lobbied for Canada to adopt the U.S. standards to avoid having two sets of rules.

The government documents indicate Canada's meat producers were frustrated that they must add more stringent safeguards to their production lines when producing meat for export to the U.S. market.

"Industry would prefer a single set of standards for both the Canadian and American market," states the document prepared by Dr. Richard Arsenault of the CFIA, anticipating what meat council board members would tell CFIA at the meeting. "[The CMC] will also express their frustration about the recent [United States Department of Agriculture] imposition of product testing for Listeria monocytogenes and of daily visits in U.S.-eligible meat processing plants."

Agriculture Minister Gerry Ritz, who is responsible for the CFIA, hinted this week that Canada might move toward U.S. practices of preventing listeria, such as the pasteurization of packaged meat. But the documents reveal the CFIA lobbied the United States to adopt Canada's rules.

"The CFIA is working at bilateral levels to convince the USDA that its system is equivalent to theirs in order to minimize the need for extra import rules," the document says.

The U.S. Department of Agriculture has not backed down from its requirement that all producers of ready-to-eat meat must pasteurize or boil products in the package to kill Listeria monocytogenes, add chemicals to prevent the bacteria, or allow more rigorous plant inspections. It was unclear yesterday which option Maple Leaf took to comply with U.S. standards.

However, it does not appear those higher U.S. standards were enough to prevent the current outbreak.

Canadian plants approved to ship to the U.S., which include the Maple Leaf plant in Toronto that was the source of the outbreak, must meet the USDA standards. The CFIA said yesterday that products from that plant are the same regardless of whether they are for Canadian or U.S. consumers.

Paul Mayers, associate vice-president of the Canadian Food Inspection Agency, acknowledged there is a different standard for Canadian meat plants that aren't approved to ship to the United States.

"There are some additional requirements that may come into play in relation to export certification of products," he said, but insisted all meat in Canada is safe. "We focus on a single level of hygiene and safety for all consumers of products produced in Canada."

The briefing notes were obtained by researcher Ken Rubin through the Access to Information Act and outline Canada's objections to the U.S. rules, which were imposed in response to a deadly listeria outbreak in 1998.

"The CFIA does not agree with this [USDA] approach, and disagrees with a number of specific USDA requirements (e.g., daily visits, finished product testing for Listeria monocytogenes), [but] it has implemented the required changes to maintain Canada's access to the important U.S. market. The CFIA will only be successful in convincing the USDA to return to previous arrangements if Canadian operators can demonstrate that they are operating in full compliance with all USDA rules," it states.

In addition, the document indicates the industry successfully lobbied to end inspection reports and rankings of its facilities.

"The [Canadian Meat Council] has sought changes to the existing system because ratings and reports are used by the media through the Access to Information Act ... and there is a misperception that products coming from a 'B' or 'marginally acceptable' facility are less safe." ***