Heroes Page 18

  Still, it is his role as the agent who made McDougald’s posthumous wishes come true that may be Davis’s most lasting legacy. Before his unexpected death, McDougald had often discussed with Davis his intention of passing on the Argus reins to the Black brothers. He admired in particular the stretch of knowledge and ideological depth of Conrad, plus his record of turning the Sterling newspaper chain into a profitable enterprise. The problem was that with the optimism and disdain of common mortality so typical of him, McDougald never really planned to die and made no provision to ensure the Black brothers’ succession. It was during the crucial negotiations that followed Max Meighen’s attempt to gain control of Argus that Davis stepped in to help persuade Maude McDougald and Doris Phillips (who owned 47.2 percent of the stock in Ravelston Corporation, the Argus holding instrument) that they should sign their shares over to the Blacks.

  The death of Nelson Davis robbed Canadian business of one of its last titans. His old-fashioned chivalry was no match for the computer-trained whiz kids scrambling to the top of the corporate ladders. But he was a man to go tiger shooting with. Once you earned his respect, he never let you down.

  —1979

  Paul Desmarais: King of the Establishment

  THE OLD TITAN reminisces as we sit on his front porch. “I had the great advantage of being born in Sudbury,” he says, “which is a truly bilingual community. So I could speak English and understand the English mentality. I grew up hanging around garages, drugstores and pool halls, fighting to speak French, yet going to school and playing hockey with mostly English-speaking kids.” Few Canadians are more smoothly bilingual and bicultural than Paul Desmarais. But he is French. His ancestors came to Canada from Paris in 1657 and settled in Verchères, on the south shore, close to Ville Marie at the foot of Mount Royal. In 1905 his grandfathers moved from Gatineau to northern Ontario as foremen for the CPR, supervising cuts of timber for railroad ties, and later owned a general store and a sawmill in the village of Noelville.

  The assets Paul controls add up to $100 billion; his annual income is more than $33 million. The boy from Sudbury is very rich and very powerful—and something more: he is a key political player in the matter of Canada’s survival as a nation. He is not only the dean of Canada’s Establishment, but also a bold advocate for federalism.

  His political convictions have long driven the radical nationalists wild. During the FLQ crisis, Paul Desmarais was regularly burned in effigy; he was threatened with assassination so often that the Quebec police bluntly informed him they could not guarantee his safety. None of it cowed Desmarais, who made it his business to gauge the characters of Pierre Trudeau, Daniel Johnson (Sr.), Robert Bourassa, René Lévesque and Lucien Bouchard.

  Given that history, the “porch” on which Paul Desmarais and I are talking is aptly located. This is actually the marble terrace of a twelve-thousand-square-foot neoclassic manor house designed by the kid from Sudbury himself and modelled on Thomas Jefferson’s magnificent Monticello. Desmarais built it nowhere near Sudbury, but in Palm Beach, Florida, where the climate, political and otherwise, is nothing like home. Desmarais controlled every detail, even throwing up an artificial hill precisely high enough to cut off views of the road, so that from the house, you may see, without distraction, straight out to the Atlantic Ocean.

  All the better to contemplate Europe’s gain and Canada’s loss, for during those long years in which Paul Desmarais largely opted out of his native land’s economy, he built instead a new business empire across the Atlantic. All the better to wonder, with Lucien Bouchard, the latest prophet of Quebec separation, why the boy from Sudbury, now in his seventies, has lately been bringing his money back home again, to Canada.

  Among titans, Desmarais is in a class of his own. Over the years, I have enjoyed a stormy relationship with the man, whose aptly named Power Corporation ranks as the most remarkable example of how business power can be wielded and expanded. He seldom speaks to journalists, but Desmarais did open up to me when I was researching a book. After he heard that it was printed, but before he had seen its contents, he scribbled me a note: “If it’s good, I’ll buy five hundred copies. If it’s no good, I’ll buy all the copies.”

  He never made good on his promise, which was too bad because we were ready to keep the presses rolling. Instead, he decided to sue me. At issue was my description of one of his more intricate financial manoeuvres. He instructed his Toronto legal adviser, the formidable J.J. Robinette, to demand an injunction that would have prevented the book’s publication.

  Since the volume was already printed and awaiting distribution, the only way to deal with Desmarais’s threat was to alter the text. To await litigation would have killed the entire project. So on a rainy October weekend in 1975, a dedicated group of McClelland & Stewart employees hand-pasted seventy-five thousand paper patches of ten lines of reset type, one by one, over the offending paragraph. Desmarais later accused me of using bad glue. When I objected that we had tested it to make sure the sticker couldn’t be ripped off, he exultantly exclaimed: “A friend of mine put your book in the freezer for two weeks, and the damn sticker just peeled off!”

  Twenty years later, his dominant features seem ageless: the lively brown eyes disengaged from whatever may be occupying his mind; the long, sensitive fingers and the thumb that curves outward, signalling a hot temper. As we begin to talk, Desmarais’s infectious enthusiasm takes over. When I tell him some high-level gossip about Conrad Black, his eyes widen, his eyebrows shoot straight up, his mouth opens in astonishment and he exclaims: “Well, what do you think of that!” He is not the richest Canadian—that honour goes to Ken Thomson—but he is the most powerful because he can make his influence and ideas felt through his unmatched personal network.

  He has suffered several serious heart attacks and survived two major bypass operations. But Desmarais’s sense of fun has hardly diminished. About halfway through our sessions, he launched into the previously untold story of how he saved Power Corporation from being taken over by the CPR—and just how close he came to losing his company.

  THIS HAPPENED IN THE LATE 1970s, when Ian Sinclair was the CPR’s president and CEO. “Big Julie,” as Sinclair was known, was a primitive corporate marauder, his ruthlessness softened by a sense of humour and a grudging respect for his opponents. During one negotiation to buy the 25 percent of Algoma Steel held by Germany’s Mannesmann for $60 million, Big Julie came face to face with Egon Overbeck, then considered Germany’s toughest industrialist. Overbeck had served as a member of the German general staff during the Second World War and had been wounded in action seven times. After four hours of having his arm twisted by Big Julie, the German caved in, confessing he had met his match. (My own experience with Sinclair was typical. He at first adamantly refused to be part of the CBC’s Canadian Establishment television series based on the first volume of my trilogy of the same name. Once he’d agreed to participate, he threw himself so enthusiastically into the project that he virtually took over its production. He invited the CBC unit into so many actual CP Ltd. board meetings that he had to swear in the camera crew as “insiders” to meet securities regulations.)

  At the time Peter Thompson, one of the earliest Power partners, had a bar in his office at Power Corporation, and Montreal Establishment types would gather there on Friday afternoons to talk about what had happened during the week. Desmarais went to one of these informal gabfests and found that Ian Sinclair was there, asking heavy questions about Power. As direct as always, Desmarais demanded, “Ian, are you trying to buy my goddamn company?”

  “You either sell me Northern & Central Gas or I will bloody well buy your goddamn company,” Sinclair replied.

  Desmarais knew that he couldn’t defend himself against any onslaught by the mighty CPR, but he shot back, “It’s not for sale.”

  And so the two men decided to spend the evening talking about it and started to drink. They went to the Château Champlain, which was the CPR hotel in Montreal at that time, and dr
ank their way through a meal. Then they went up to the hotel’s roof, where there was a private club that Sinclair belonged to, and drank there. Afterwards, the CPR CEO ordered a suite in the hotel and they drank some more. It was three o’clock in the morning by the time they finished, and both men were very drunk. They went to Desmarais’s house, but he couldn’t find his key—or even his pocket—and when he finally did, he couldn’t find the keyhole, so the staggering pair of corporate heavies used their shoulders to break down the front door. A startled Jacqueline Desmarais threw Sinclair out on the street.

  The next morning, Desmarais, feeling very hung over, reserved a room at the Queen Elizabeth Hotel and told his secretary that he was going to be at an important business conference all day. He slept for most of eight hours, but not before phoning his secretary and asking her to call Sinclair to tell him that he was at a conference all day, that Power Corporation was definitely not for sale and that he’d get back to him later in the afternoon. Finally, at five o’clock, Desmarais went over to Windsor Station to see Sinclair, who was sitting behind his desk, looking green and almost comatose, the sweat pouring off him. He had worked all day, and was so upset when his eyes focused on the smiling and vibrant-looking Desmarais that he gave up the whole scheme and Power Corporation was saved.

  The anecdote tells a lot about Desmarais, but to conclude that he built his empire by bluff would be wrong. Desmarais is extraordinarily well focused and seldom rushes decisions. When he has a significant choice to make, he’ll pick up the relevant file, examine the issue from every angle, put it aside until the patience of those around him has been tested beyond endurance, then postpone the decision one more time. Desmarais allows schemes to marinate, like pickled herring.

  Desmarais is always being accused of having cashed in on his good fortune, but luck had nothing to do with it. “It’s the kind of luck,” explains Jim Burns, Power’s deputy chairman, “that strikes only when the coordinated planning, arithmetic, preparation and patience of the dozen minds that constitute Power Corporation are transformed into action by opportunity.”

  For the most part, Desmarais has expanded his company— and captured its original assets—through reverse takeovers. This is twentieth-century capitalism’s favourite parlour trick: the target company pays for its own demise. “What you do,” Desmarais explains, “is sell your assets to a company and with the proceeds buy the shares of the company that just acquired you.” Simple. It’s the minnow swallowing the whale, with the whale’s consent. In other words, it’s a leveraged buyout under a less notorious label.

  “Paul has the knack of making people believe in his vision, even when it’s against their self-interest,” I was told by one observer of his methods. “He is probably the only businessman in Canada who can make a pitch to a board of directors for the takeover of their own company and leave them in heat.”

  On May 10, 1996, when Desmarais turned over the offices of chairman and CEO of Power Corporation to his sons, Paul Jr. and André, it was a genuine transfer of power. The two younger Desmarais are now running the company. But they don’t own it. Their father walked out of that emotional 1996 annual meeting the same way he walked into it: with his controlling 64.7 percent of votes and 30 percent of equity shares of the company (that give him solid control) firmly tucked into his trouser pocket. Power Corporation of Canada has 12,213,693 participating preferred shares issued, with 10 to 1 voting rights. Paul Desmarais holds all of these. While his sons are in charge, it’s Paul Senior’s phone calls that cast deciding votes. He is chairman of the board’s executive committee and holds the proxies. He plays at being retired, or as he says with an appropriate smirk, “semi-retired.” But the eight bulging briefcases in his living room say otherwise.

  Paul Desmarais is still Le Patron.

  IS IT SOMETHING shrewd or needy in the man that makes him prefer the company of politicians? He collects them like rare butterflies. Most Desmarais receptions and boards of directors resemble parliamentary reunions. At one of his New Year’s Eve parties at Palm Beach, his guests included Brian Mulroney, Pierre Trudeau and former Ontario premier Bill Davis, not to mention Dinah Shore, Estée Lauder, Douglas Fairbanks Jr. and former Trudeau counsellor Jim Coutts.

  “To hell with people who say I do it for political favours,” Desmarais says pointedly. This, obviously, is a strong incentive, but it’s not the whole story. He enjoys being part of history as it is being made, especially when heads of government consult him on various policy options. He loves being in the know. Since he regards himself as a platinum patriot, he sees nothing wrong with trying to influence national policies his way. While Desmarais treats political leaders with deference, it is the kind of deference due sleepwalkers—sleeping giants who must be led, ever so gently, lest they wake up to the fact.

  Conrad Black explains Desmarais’s affinity for politicians differently. “I suppose we’re all unlicensed psychiatrists,” he once told me. “Paul has a liking and envy for the positive way politicians can get up and easily present themselves to an electorate and stand there commending themselves to the voters’ good consideration. Paul really, in an odd way, is intrigued by politicians and always has been.”

  Whatever the reason, Desmarais has known every PM since Mackenzie King, and despite his later Liberal connections, was particularly fond of John Diefenbaker. When he was a student at the University of Ottawa, his father would come from Sudbury once or twice a year to the nation’s capital on business. Young Paul had recently written to Diefenbaker, asking to see him, and had received an invitation to lunch. “I was talking to my father, boasting how well I knew Diefenbaker, while we were at the Château Laurier Hotel, when the elevator door opened and there was Diefenbaker. My father said, ‘Would you present me?’ So I said, ‘Sure. Mr. Diefenbaker, I’m Paul Desmarais. I’m from Sudbury, and I would like you to meet my father, Jean Desmarais, who is a lawyer in Sudbury.’ Dief, using his usual mangled French, said, ‘John Des Mair, you’ve got a fine son here. I’m having lunch with him next week.’ After that, I thought Diefenbaker really put the water in the ocean!”

  One of Desmarais’s favourite collectibles is Pierre Trudeau, who remains on Power Corporation’s international advisory board. They became close only after Trudeau reached office, but plans for his candidacy had first been hatched in early 1968 at the offices of Power Corporation, at Friday-night meetings presided over by then-Power vice-president Claude Frenette. In August of that year, two months after Trudeau had swept the country, the new PM flew to visit Desmarais at Murray Bay, where he has a summer home. When Desmarais picked up the PM at the airport in one of his two Rolls-Royces, Trudeau casually inquired what it was like to drive a Rolls. Desmarais promptly stopped the car, got into the back seat and, as Trudeau took the wheel, exclaimed, “This is the first time I’ve ever been driven by a prime minister!” Who says he’s not a power groupie?

  The first time Desmarais met René Lévesque, who later became the province’s first separatist premier, was comically strange. “I wanted to talk to him when he was a minister in the Lesage government because we were thinking of buying the Dosco steel mill in Cape Breton. But René didn’t understand financing very well. So I called him and said, ‘I’d like to come and see you.’

  “He said, ‘No, I can’t meet you.’ And I said, ‘Why?’ And he said, ‘It’s none of your goddamn business.’ ‘I have to see you.’ ‘Well,’ he said, ‘I can’t. My evening is taken.’ I said, ‘I’ll go wherever you are.’ So finally he said, ‘I’m babysitting at my house in Outremont.’ So I said, ‘Well, I’ll come and babysit with you.’ He said, ‘No, no.’ And I didn’t even know if he had any babies or what, but he was sitting. Anyway, finally he said, ‘Okay, come over and see me. I’ll give you half an hour.’

  “So I went over. It was a very modest home, and we’re sitting in this living room and he said, ‘Would you like a cup of coffee?’ I said, ‘Yes, thank you.’ So he got up and he made the coffee. We kept on talking, and it finally got to b
e seven o’clock, and he said, ‘Would you like a little bit of cheese?’ I said, ‘Yes.’ ‘Would you like a beer with that?’ I said, ‘Sure.’ So we had beer and cheese and crackers. And we kept on talking, had more cheese, more beer, more crackers, and we talked about all kinds of things. I stayed there till around midnight.

  “And by that time, I said to myself: ‘My God, this guy is a real socialist! If he ever gets control, there will be nothing left in this place. I’ve got to get the hell out of this province. ‘ I went home and called my partner, Jean Parisien, and I said, ‘Jeez, I’ve just finished talking to René Lévesque. Boy, is that guy a goddamn socialist!’”

  True to his thoughts after his initial meeting with Lévesque, Desmarais stopped making major new investments in Quebec and Canada once the separatist politician was elected as premier, and in fact did not make a major domestic investment until the spring of 1997, when he bought control of London Life.

  Another unhappy experience was Desmarais’s winter meeting with Conrad Black. He tried to console him—but it backfired badly. “I was in Paris and Conrad was really in the dumps. He was trying to buy this newspaper in the United Kingdom, and everything was not going right. So I called him in Toronto from Paris.

  “‘Well,’ he said, ‘I’m trying to do this and do that and the banks won’t lend me the money.’ ‘Look,’ I said, ‘I’m going back to Montreal next week. I’ll come and see you and we’ll get more details about what the hell you’re doing.’ I saw all this mess and I figured I’d better talk to him and see what I could do.

  “Anyway, I flew into Toronto when it was snowing. I don’t remember the date. I get to the airport, couldn’t get a car, had a hell of a time. Finally, I got a taxi and arrived at his place. It was seven or eight o’clock. His gate is half open, so I had to get out of the car—I’m in my shoes in the snow—and push open the gate. We get to his house and there’s snow against the front door. I bang on the door; no answer. I was mad. All of a sudden, the door opens and it’s his kid, Jonathan, saying, ‘How do you do, sir. Come in, Mr. Desmarais. My father is waiting for you in the library.’