Michael Sabia has what it takes to do the job

Quebec's battered pension plan will be in good hands

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by L. IAN MacDONALD
The Gazette, Wednesday, March 18, 2009

René Lévesque once described a Quebecer as "someone who lives here and pays his taxes here." By that standard, Michael Sabia meets the test of being a Quebecer, having lived and paid his taxes, as well as raising his daughter here for the last 16 years. He's an Italo-Ontarian-Québécois. This is why we have words like allophone. He might not have been born in Quebec, but even better, he chose Quebec.

You wouldn't think, in the 21st century, this would be part of the conversation about Sabia's qualifications to be president and CEO of the Caisse de dépôt et placement du Québec. But then, you can always count on Bernard Landry, who doesn't have the decency to disappear, for a little linguistic profiling. "It has nothing to do with where he was born," said the former premier of Quebec, "it's his national culture, which is Canadian." Worse than an error, his appointment is "a fault, almost a provocation."

For our francophone majority, this is worse than embarrassing, it's mortifying. When a Quebecer becomes, for example, CFO of Google, or CEO of Pratt &Whitney, that's an understandable source of pride. But let someone come here from another province or country, and the path to the top is denied? On the morrow of St. Patrick's Day, Jean Charest might remind us that his mother's name was Rita Leonard, and that she often told her children: "Always keep a place at the table for welcome strangers."

There are valid reasons to argue the merits of Sabia's appointment, but where he comes from isn't one of them, as my friend André Pratte of La Presse graciously acknowledged in a "big mea culpa" on his blog for having set foot on this slippery slope in an earlier posting last Friday before the announcement of Sabia's appointment.

Pratte and other critics of the appointment, including his colleague Alain Dubuc, have mainly focused on process questions, particularly whether Sabia's appointment was made by the Caisse's board of directors or whether it was simply rubber-stamping Charest's choice.

Well, this is a case of two mints in one. The board made the appointment, but it came from the premier. And why wouldn't it? It's the same at Hydro-Québec and other crown corporations. In Ottawa, the CBC board names the president, but the CEO of the public broadcaster is the prime minister's appointment, and everyone understands that.

In this instance, Charest appointed a new non-executive chairperson of the Caisse board, Robert Tessier, who met last week with a nominations committee which recommended Sabia to the full board last Friday. One of the committee members was himself a new board member, Jean-Pierre Ouellet, former head of RBC Dominion Securities in Quebec. In the mid-1990s, when Sabia was CFO of CN, Ouellet was the railway's chief legal officer. To some critics, this constitutes a conflict, as if knowing someone from a previous life, and having some idea of his qualifications, is a conflict of interest.

It's not as if Sabia had been appointed before the new chairperson of the board was named. That would have raised legitimate governance questions. A couple of vacancies for outside directors remain, an opportunity for Tessier and Sabia to loosen the iron grip of Quebec Inc., on the direction of the Caisse. Its massive losses of 26 per cent, or $40 billion, last year were way beyond the average hit taken by other Canadian pension plans in the meltdown of equity and real-estate markets. It's also quite clear that it's worth billions less today because of further losses in the stock market.

In any event, process isn't the issue. You can't, in all logic, deplore a vacuum of leadership, and then deplore the process of filling the vacuum. In other words, you can't suck and blow at the same time.

Tessier and Sabia should make an interesting team at the top. Tessier is a Quebec mandarin, a former deputy minister of the Treasury Board, who knows the Grande Allée inside out. He went on to run Gaz Métro, and while it would be hard to lose money running a utility, it was very well run on his watch.

Sabia's appointment has also been criticized because he doesn't have a background in managing investments. Except that, as a rising star of the civil service, he devised the GST as a consumer tax and a replacement tax for the old manufacturers' sales tax.

CN, which had the worst operating ratio in the North American railway industry when Sabia went there as CFO under Paul Tellier, eventually posted the best operating numbers in the business. CN's Initial Public Offering, rolled out by Sabia, was hugely successful, and the stock has since split three times, with 10 increases in the dividend. If you bought the IPO and held it, you've increased your investment by 10 times.

Criticism of Sabia comes down to his six-year tenure as CEO of BCE, the country's largest holding company. The stock price languished for years before the Ontario Teachers' Pension Plan made a bid to take it private in 2007. But Sabia organized the auction and negotiated the largest leveraged buy out in history, which would have returned a hefty premium to shareholders. That the deal didn't close last December wasn't Sabia's fault - by then he was five months gone. But by the way, BCE increased its dividend twice on his watch.

What does he know about running a pension plan? The Bell operating companies have 70,000 employees. They have a pension plan. I'll bet it didn't lose 26 per cent last year.

 
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