Paul Tellier, left, and Dick Evans
Karl Moore: This is Karl Moore of the Desautels Faculty of Management at McGill University, talking management for The Globe and Mail. Today, I am delighted to speak to Paul Tellier, former [chief executive officer]of [Canadian National Railway]and of Bombardier, and Dick Evans, who just retired recently as the CEO of Rio Tinto Alcan.
Good afternoon, gentlemen.
Dick Evans: Good afternoon, Karl.
KM: There was an interesting question from one of the MBA students, Paul, that you talked about, saying: "As CEO, what is more important, the external or internal?" Where should you focus your time and energy? What is your response to that question?
PT: Well, it is not a black-and-white situation; obviously, it is both. You have got to understand your business, you have got to spend the time required to run the business and to make sure that you have assembled the right team. This is where it all starts, that your vision is clear, that you have clearly stated priorities, and so on. You need the team.
At the same time, you have got to focus on the external world. What the others are doing to you, or what they may be doing to you. I include in this governments and so on and so forth, so it is very important to be sensitive to what is going on in the outside environment, and so on, and to try to prevent either what competition can do to you, what governments can do to you, and basically be involved to make sure that the decisions that are taken, are taken in a well-informed fashion, and that your interests and the interests of your shareholders are protected as best as possible.
KM: A lot of business people say that they want to get government off their back, to leave them alone, not wanting any more of government. What you are saying is to actually engage government, to help shape policies.
PT: I do not think that it is possible for any business in today's world to ignore governments. I mean, you have the CO2 problem, you have the packaging problem, you have, in this country, the official languages, labelling, and so on and so forth. I mean, whatever business that you can think of, I do not think that there is any CEO who can say "I do not care about governments" whether it is at the municipal or provincial or federal level. You have got to interface with governments today in business. Therefore, you have got to learn the rules of the game and you have got to know how these governments work so that you can interface effectively with them.
KM: Government is much bigger than it was two years ago and, much to our surprise, [the increased involvement of government in the economy]was started by a Republican in the U.S. [former president George W. Bush]no less. Do you think that we have got to turn back, fairly soon, the role of government? Has it gone too far at this point?
DE: I think that you need to make a differentiation between equity-ownership, which I think is what you are referring to with the banks, and the role of regulation and setting law.
I think that on the equity-ownership side, I think this is a temporary phenomenon. I do not think that either government or private enterprise expects or wants government to stay as an equity holder in the banks and insurance companies and in other enterprises. This is really to get through the transition.
In terms of regulation, I think that in retrospect, and there is a lot of debate on this, in my opinion, regulation was lacking. Regulation does matter and it did facilitate excessive risk-taking, together with excess liquidity and together with practices - pay practices and other practices that were risk-taking practices - that were allowed to sort of build up gradually over time, creating greater and greater risk. I think that the shift to greater regulation is one that is going to be with us probably for several decades. I also think that the crisis was serious enough and we came close enough to the edge that there will actually be meaningful regulation change in terms of capital requirements, in terms of reporting requirements, in terms of oversight responsibilities.
KM: Both of you were CEOs and made a great deal of money. When we look at the CEO compensation, do you think that some CEOs - not yourselves, but some - were overpaid? Or is that something that just the role of the market paid quite a bit and that is fine?
PT: Well, yes, there were some excesses but let's face it, the compensation of the last five to 10 years was, to a very large extent, influenced by the movement of the stock market. Therefore, if a CEO sits down with his board and there is an agreement on the objectives to be achieved and the objectives are achieved and, for instance, stock options - the mid-term or long-term incentive plan - are part of the package, if the stock price goes up 25 per cent, as was very often the case over the last decade, well obviously when it comes the time to exercise these options, the payout is quite significant. Over all, I don't think that - there were some excesses, as I said - but over all, those who got paid significant packages, were as the result of the performance, their performance and the benefits that the shareholders got as a result of that performance.
DE: If I could Karl, I think that there is a difference in cases where the CEO has benefited, or the officers or the board have benefited, disproportionately to the shareholder. Now, where both have benefited, I think that you have less excesses but where, and some of this is in the financial industry where you had CEOs or officers benefiting greatly because of excessive risks that they had taken, but they never paid for the risk. They basically got their payout and were gone. No down side. It is asymmetrical risk-reward. This, I do think, was one of the factors that caused greater risk taking because, if you won, you won hugely; if you lost, you did not go below zero. The idea of having a more deferred period of holding before these payouts get made, I think is a very prudent and reasonable approach to deal with this. That will wash out this disconnect between shareholders taking the hit and CEOs getting excessive payouts.
KM: This has been Karl Moore of the Desautels Faculty of Management at McGill University, talking management for The Globe and Mail. Today, I have had the great pleasure of talking to Dick Evans, former CEO of Alcan and Paul Tellier, former CEO of government in some ways [as Clerk of the Privy Council from 1985-1992]and then CN and Bombardier. Thank you gentlemen, I would love to do it again.
PT: Thank you.
DE: Thank you.