By L. IAN MACDONALD - The first time I met Michael Sabia was 20 years ago in the third-floor corridor of the Langevin Block, which the Prime Minister's Office shares with the Privy Council Office. He was then working for Paul Tellier, clerk of the PCO and head of the public service, as his top financial adviser.
"This is Mike Sabia," said the person making introductions. "He's the guy who invented the GST."
"You're the one," I said. "Do you know how much trouble you've made?"
He had, indeed, made a lot of political trouble for the Conservative government of the day. But the GST proved to be a highly efficient consumer tax, and a highly successful replacement tax for the hidden 13.5-per-cent manufacturers' sales tax. Since the seven-per-cent GST didn't apply to exports, it came off at the border, giving Canadian exports a huge competitive advantage in selling to the United States at the very moment the Canada-U.S. Free Trade Agreement was coming into force.
The GST, which came to be worth about $6 billion a year of revenue per percentage point to Ottawa, also drove exports, creating jobs and profits, creating even more personal and corporate tax receipts. Paul Martin, finance minister in the Chrétien years, would be the first to acknowledge the role of the GST in balancing the books and launching our decade-long virtuous cycle in 1997.
By then, Mike Sabia was long gone from Ottawa, gone to Montreal with Tellier, to help him engineer the turnaround of CN, from worst to first among North American railways. The privatization of CN, and its initial public offering in 1995, was one of the most successful Initial Public Offerings in Canadian history. Anyone who bought CN stock then, and held it, has done very well by Tellier and Sabia.
Then at BCE, as president and CEO from 2002 to 2008, Sabia refocused on its core competencies in telecom, selling off non-strategic investments in Telesat, CGI and CTVglobemedia, all of which previous management had overpaid for, creating a cash kitty of $3 billion. The Bell operating companies, in wireless, wireline, satellite and Internet, struggled to retain and gain market share, and the share price flatlined for years.
But in 2007, Sabia negotiated the biggest leveraged buyout in world history, in which the Ontario Teachers' Pension Fund would have taken BCE private at $42.75 a share, creating a 50-per-cent premium for shareholders over its previous price languishing in the mid-20s. The deal cratered only weeks before it was to close in December last year, under pressure from the stock-market crash and a bizarre KPMG accounting report that said there was too much debt in the deal. By then, Sabia had left the company in the hands of new management last July, at the request of Teachers.
That's his story until now. But yesterday Sabia, 55, was named the new president and CEO of the Caisse de dépôt et placement du Québec, confirming a scoop by La Presse's ace legislative reporter, Denis Lessard.
It's not immediately clear why Sabia, at this point in his life, would want to take on such a challenge, and it certainly is a steep one. "Mike likes public service, it's as simple as that," says one close friend and colleague.
He isn't doing it for the money, and in relative terms, it doesn't pay. At half a million dollars a year, there isn't the head of a single financial institution in the country who would even consider it. And then there's the grief of running an institution that is a public trust. Not only is the Caisse Quebecers' pension fund, it has, along with Hydro-Québec, become an important source of la fierté Québécoise. There's a lot of scrutiny, and a lot of heat, that come with the territory.
Especially now, with the Caisse having lost $40 billion, or 26 per cent of its value last year. Until this week's rally in equity markets, the stock market was off another 20 per cent already this year, a bear market within a bear market. So the Caisse's $120-billion portfolio, depending on its weight in blue-chip equities, is certainly worth even less today.
At his news conference yesterday, Sabia laid out a three-point turnaround plan, starting with enhanced risk management, and a better balance of risk and return, while emphasizing the importance of the team at the Caisse.
There will be complaints that Sabia is not only an outsider, but not even a Quebecer, as there were yesterday from one surprising source, the normally erudite André Pratte of La Presse, who wrote on his blog: "For several reasons, the name of Michael Sabia shouldn't even be on the list of candidates. In the first place, as is obvious, the CEO of the most important Quebec economic institution should be a Quebecer. To name someone from another province or another country is to send a signal to the world that there are no Quebecers competent enough to run a financial organization of this size."
Sad to say, I don't recognize my friend André Pratte in these words. Sabia has lived here for nearly 20 years. What does it take to make a Quebecer? For that matter, Paul Desmarais, the owner of La Presse, is from also from Ontario, from Sudbury. That should be an interesting conversation.
When Toe Blake and Scotty Bowman were behind the Canadiens' bench, all anyone cared about was how many Stanley Cups they won (13).
That's all anyone should care about now - whether Sabia can make the Caisse a world champion again.
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