When grappling with a complex problem, my late friend George S. Petty, one of the the North American forest products industry's greatest builders and entrepreneurs, used to say "There's no such thing as black and white, only various shades of grey."
As usual, the press coverage and pundit reaction to the vitally important question of Canada's economic competitiveness was only black and white. In reality, it is anything but.
Bank of Canada Governor Mark Carney took a lot of flack last week from some of the titans of corporate Canada for articulating a fact: that companies have a lot of "dead money" on their balance sheets. Carney wants excess cash to be used for productive purposes or be returned to shareholders.
Some of them took exception to Carney's unsolicited advice on what they can and should do with their cash. Their message was that he should stay out of their business and focus on his.
They have a legitimate gripe. Boards and CEOs have a fiduciary responsibility to their shareholders and employees to be very judicious with their money. And if they have high cash reserves, by definition that means that they have been. Under normal conditions, bloated balance sheets with excess liquidity is a sign that they are not maximizing their corporate assets. But these are far from normal times.
Added to the contextual mix are the aftershocks of the financial meltdown of 2008. Carney told his audience that global trade fell 10 per cent and industrial production by a whopping 18 per cent. Canadian manufacturing output dropped about 20 per cent and auto production alone a staggering 70 per cent. On a worldwide basis, an almost incomprehensible 28-million jobs vanished almost overnight, including 430,000 in Canada.
So, some corporate executives could understandably be excused for taking umbrage to Carney's observation. What happened to the world economy was enough to make even the most swashbuckling chief executive think twice about the taking risk. It's easy to see why some elected to hoard and build their cash piles.
One of the toughest -- and certainly most important -- jobs of a CEO is to allocate capital efficiently and effectively. While finding productive uses for excess cash is never as easy as it looks, it also infinitely more pleasant than the alternative. But even under these extraordinary and unusual economic circumstances, directors and senior management of well-run firms continuously investigate opportunities to expand and grow. They constantly evaluate risks and make decisions systematically based on rigorous analysis. The good ones weigh a variety of factors and invest in projects when and where they can make a reasonable economic return. They will also properly hold back on doing that until they can identify suitable opportunities for investment.
All of that said, I doubt that the corporate cash surplus was on Carney's mind. My guess is that he was getting at a larger issue: Canadian companies take caution to an extreme and do not think and act more globally. Governor Carney may have been too polite to say it, but many senior executives and boards in Canada are slow, bureaucratic, self-satisfied, defensive and extremely conservative.
Many are not owners and entrepreneurs who are real builders, or directors and CEOs who have bought and paid for shares -- not stock options -- in the firms they run. They have real skin in the game. I'm referring to the bonus-focused manager who doesn't own a single share in the company he runs, but is packed with stock options. These are the people who think in three month increments without the reflexes and instincts of owners, and appetite for risk of entrepreneurs. They are primarily career caretakers. At their core, they are traders, not builders.
What Canada needs more of are corporate leaders who have the drive, the fire in their belly, and broad-gauge thirst and sophistication to conquer the world. Many Canadian companies are dangerously comfortable having all their eggs in the U.S. trade basket. This complacency comes at a high, but invisible, cost. It comes at the expense of establishing a presence in the growing and dynamic emerging economies where the risks are higher, but the rewards are spectacular.
If Carney was too tactful to say this, I'm not: We're too dependent on the United States, too insular in our perspective, too narrow in our worldview, and too insecure of our economic place in it.
That can and should change. After all, we have everything it takes to compete and win.
If anything, the recession highlighted how truly interconnected the global economy now is. Our prosperity depends on trade. The more of it we do with an expanding network of trade partners, the better off we are. Yet we just don't do enough beyond the United States, which is, effectively, our home market. That's a serious problem.
Carney gave us some startling numbers: The Bank of Canada estimates that the U.S. economy will be $1 trillion smaller in 2015 than what had been forecasted before the crisis. Persistent weakness in the U.S. economy has resulted in Canadian exports being a whopping $30 billion lower than projected. Meanwhile, only 9 per cent of our exports going to the fast-growing emerging-market economies, and the Bank says that Canadian export performance has been the second worst in the G-20 over the past decade. Since 2000, our share of the world goods export market has fallen from about 4.5 per cent to 2.7 per cent.
And we call ourselves a "trading nation"? Nonsense! Carney fittingly observed: "We are overexposed to the United States and underexposed to faster-growing emerging markets."
University of Toronto's Roger Martin has written that Canada is a productivity laggard, at least relative to the United States, by far our largest trading partner. The productivity gap that Martin and co-author James Milway describe in their book, Canada: What it is, What it Can Be is profound and structural. On a per capita basis, the difference is almost $9,000. "Our competitiveness gap is a prosperity gap, and it matters to all Canadians. Lagging competitiveness means lagging prosperity," they write.
There are many facets to competitiveness and prosperity, but they go hand in hand. Governments have a role to play in fostering competition, keeping taxes low, lessening the regulatory burden, building world-class infrastructure, investing heavily in education and training, in providing incentives for R&D and capital investment, and developing trade pacts with as many countries as possible.
Companies must get out there and explore the world, places like Vietnam, the new Asian Tiger, where 100-million people need everything from roads, hospitals, power, rail, hospitals, to telecommunications. Canadians can provide all of it. To do that in Vietnam and places like it, we must think bigger and act bolder. Taking intelligent risks is part of a CEOs job, too.
The easiest thing in the world is to do nothing. That's not the Canadian way. Our business sector is comprised of builders. Canada's corporations have a world of remarkable opportunity in front of them. But we must make a concerted choice to invest in exploring and seizing them.
Their shareholders will be better for it. And so will Canada.
Mr. Veniez is Chairman and CEO of Vancouver-based Pink Lotus Infrastructure Inc., a private Canadian corporation that helps finance and build large infrastructure projects in the Socialist Republic of Vietnam.