Category: Perspectives

In a bid to mitigate commodity price risk, Canadian energy companies are turning to technology.

The boom and bust cycle of international commodity prices is a familiar one to Canadian oil and gas producers. In fact, each of the three economic recessions in the past 25 years was accompanied by a run up in prices, followed by a sharp contraction as demand dropped.
World oil prices began another downward spiral in mid-2014. More than one year later, there is a growing concern that prices are continuing to soften, and it seems clear that recovery will be more elusive than in past cycles. That’s all the more true for Canada because the long-standing reliance on the United States as its export market is now complicated by America’s new energy self-sufficiency.
In the past, the typical response to managing commodity price risk was fairly basic: slash jobs, curtail production and slow capital spending to a trickle until the storm blew over.
But not this time.
A recent survey of energy industry executives conducted by Cisco Systems in 14 countries, zeroed in on the importance of leveraging new technology in this challenging environment. Respondents indicated they believed that as many as half of all manual oil and gas processes could be automated through the Internet of Everything (IoE is the network that connects people, devices and processes), a development that could transform the sector’s workforce. Given that half the oil and gas workforce is five to 10 years from retirement, it is an imminent opportunity to reduce overhead and drive future efficiencies.
According to Cisco Canada, oilpatch customers are achieving significant improvements by leveraging the data that IoE yields.
‘By deploying a connected oilfield, not only can IoE dramatically reduce operational costs, it will allow the industry to address safety-related events associated with unnecessary travel to remote sites,’ noted National Director of Oil and Gas Transformation, Brad Bechtold. ‘Connecting things like well heads or pump stations will allow real-time monitoring remotely, alleviating the need to send employees to do manual measurements.’
Other companies are also betting big on the benefits of harnessing data in new ways.
This year, BP is connecting 650 of its oil wells to General Electric’s cloud data platform to gain real-time access to machine and operational data sets to increase production, improve efficiency, prevent failures and minimize costly downtime. This project is expected to be deployed in more than 4,000 wells around the world in coming years.
For its part, Enbridge has assembled a Pathfinders Group, a team of scientists and business people searching the world for new technologies to deploy. Canada’s Oil Sands Innovation Alliance (COSIA), meanwhile, has brought together a number of companies to develop and share cost-saving environmental solutions. While there is little oil and gas producers can do to control prices, they can control operating costs. And in an era of thin margins and fragile demand, the steady transition from a traditional, heavy industry to one that is knowledge-driven is more urgent than ever.

Connecting things like well heads or pump stations will allow real-time monitoring remotely, alleviating the need to send employees to do manual measurements.

Prevent Failures

Improve Efficiency

Increase Production

Minimize Costly Downtime

A good, healthy company balances long- and short-term priorities.

Risk management has shot to the top of the list of corporate priorities since the 2008 global financial crisis. Strategic communications and world-class corporate governance standards are integral to every effective risk management strategy—something Carol Hansell knows all about.

As the founder and senior partner at Hansell LLP, Hansell is widely recognized as one of Canada’s leading experts in the field of corporate governance. A director, frequent speaker and instructor at the Rotman School of Business, she has provided expert, independent advice to senior corporate management, directors, shareholders and other stakeholders.
Hansell spoke to Perspectives about the current state of play in Canada’s board rooms:

 
Are Canada’s corporate boards as ‘clubby’ as they used to be?

About 30 per cent of board searches are now done by professional firms, but the rest are still done by the organizations themselves. They do tend to reach out to candidates they already know, but it’s not ‘clubby’ in the traditional sense. It tends to be that way because in addition to skills, there are issues of ‘fit’ and experience and degree of comfort with the board dynamic. It’s a very delicate process and a hard one to delegate.
 
What are some of the issues currently shaping board appointments?
Every crisis re-orders the list of skills that are most in demand.
Around 2000 and Y2K, everyone wanted an IT expert. In the post-Enron period, financial expertise was in greatest demand. When executive pay levels made headlines, HR experts moved up the list. In the aftermath of the 2008 global financial crisis, the focus is on risk management.
 
Are such demands for specific expertise typically reactive?

In Canada, the head of the governance waterfall is the banks. They report year-end financial results at the end of October, so they are out first, and often set the tone. They are also cross-listed on U.S. stock exchanges, but even though they don’t have to comply with U.S. governance rules, they voluntarily adopt the same standards because they want to be on the radar with U.S. analysts and investors. That leads them to become leaders in best practices in Canada.
 
Can you provide an example of how the governance ripple effect works?
In 2013, in the aftermath of the financial crisis, OSFI (Office of the Superintendent of Financial Institutions) issued new corporate governance guidelines with a heavy emphasis on risk management. It established a new vocabulary around risk appetite and frameworks and that became more broadly socialized across the spectrum. Still, financial statements are audited. And there’s still nothing close to that for risk.
 
Canada has a number of large, publicly traded, family-controlled businesses. What are their unique corporate governance challenges?
Family-controlled companies are very thoughtful about governance. Power Corporation and Shaw Communications have been innovative and thoughtful.
The families provide long-term stability, but people always question the dual-class share structures. But capital markets vote on the issue by buying and trading the subordinate shares—at least in the companies where they see value and sound management.
Family-controlled companies are still the exception when it comes to separating the roles of chair and CEO. Investors look for a strong lead director to offset that.
 
The Minister for the Status of Women, Kellie Leitch, has set a target of 30 per cent female directors, but are quotas the way to address this long-standing issue?
We’ve discussed this issue for years and the problem is still not solved, even though we already have the tools we need to address it.
Quotas are a very blunt tool. Nobody really wants diversity quotas—voluntary compliance is always best. That said, senior women say nothing else is working.
Term limits for directors are catching on over the past 10 years as a result of investor pressure in Canada. That does make room for women, at least theoretically. And it’s in Canada’s interest to look like other jurisdictions on these issues.
 
How has the rise of shareholder activism affected corporate governance?
The term ‘activism’ is deceptively sensational. Institutions are always consulting with management. And being engaged and active isn’t really ‘activism.’
In the case of CP, Bill Ackman changed the mindset of institutions. The year before, shareholders were highly supportive and no one expressed dissatisfaction with the board. But, they were prepared to listen. And boards need to remember that shareholders do listen. And not just to them.
A good, healthy company balances long- and short-term priorities. There are a lot of long-term investors out there, and organizations are doing better at proactively explaining their performance.
 
Are the director education programs having a positive effect on governance?
The directors’ programs are a very positive development, but it’s important to remember that it doesn’t automatically mean you’ll get a board seat. There’s often a misapprehension about that.

French author Marcel Proust is famous for his gentle remembrance of things past, his eponymous character-revealing questionnaireﾅ and his love of madeleine cookies.
Camilla Gibb (who wields a Ph.D. in social anthropology from Oxford University) is no less literary, but much less French. She is the award-winning author of four internationally acclaimed novels: Mouthing the Words, The Petty Details of So-And-so’s Life, Sweetness in the Belly and The Beauty of Humanity Movement. Her memoire, This Is Happy, has just published.
Marcel, get out of this Swann’s Way.
 

 
1. What is your idea of perfect happiness?
Paddling in a kayak on a still lake with my daughter.
 
2. What is your greatest fear?
Being destitute. And heights. Being penniless and stuck on the roof of a building that requires an exit fee would, for instance, do me in.
 
3. What is the trait you most deplore in yourself?
How long have you got?
 
4. What is the trait you most deplore in others?
Lack of empathy.
 
5. Which living person do you most admire?
Nobody has quite replaced for me Nobel Peace Prize winner Wangari Maathai, who died in 2011.
 
6. What is your greatest extravagance?
Cheese.
 
7. What is your current state of mind?
Medicated.
 
8. What do you consider the most overrated virtue?
Positive thinking.
 
9. On what occasion do you lie?
At black-tie literary events when I haven’t read any of the nominated works.
 
10. What is the quality you most like in a person?
Willingness to try the new.
 
11. When and where were you happiest?
At the library on Saturday mornings as a child.
 
12. Which talent would you most like to have?
Shocking mathematical genius.
 
13. Who are your favourite writers?
Mavis Gallant, David Mitchell, Haruki Murakami, Nicola Barker
 
14. Who is your hero of fiction?
Pipi Longstocking.
 
15. Who are your heroes in real life?
My friend Clare Pain, a psychiatrist who started a program to train psychiatrists in Ethiopia.
 
16. What is your motto?
New day, new mood. (courtesy of the 4-year-old nephew of a friend.)

Corporate growth is facing headwinds and presenting opportunity.

As business risks go, managing growth is always among the trickiest. This is particularly true at a time when Canada’s resource sectors are in a slump, capital markets are wavering, political lines are blurring and the timeline for domestic economic recovery is unclear.
No surprise then, that at the end of June Canadian mergers and acquisitions declined for the fourth consecutive quarter, hitting a two-year low. Resources—specifically energy and mining—contributed more than half of that decline.
That’s not to suggest there’s no rebound in sight: as commodity price pain continues and more energy companies confront their debt, opportunistic buyers, including pension fund and private equity investors, are likely to pounce. Although there is currently little pressure to buy assets, the first few deals are likely to trigger some intense competition, unlocking a new cycle of consolidation and growth. Everyone is trying to time the bottom of the cycle—and just how low oil prices will go.
Although big-ticket deals and new share issues are still getting done selectively—especially in the real estate, REIT and infrastructure space—there’s little doubt that recent circumstances will recalibrate how the survivors frame their financial recovery.
While the flashy deals that make blazing headlines and ‘transformative’ expansion have subsided, at least temporarily, the old-school, low-key merits of organic growth may regain some of their lost cachet.
For example, companies that have a short-term focus on cutting costs can allocate some of those savings to longer-term initiatives, such as innovation and efficiency. Those who defied the Bank of Canada’s 2013 exhortation to spend their ‘dead money’ cash reserves will be particularly well-placed. Without question, those who truly incorporate social licence and enhanced accountability into their recalibrated business model will shine the most.
Navigator has clients on both sides of the current dynamic: we counsel the hunters and the hunted. (Not in the same transactions, of course. That would be nasty.)
As professional advisers and outsiders, we derive the benefit of learning from close proximity to the challenges and opportunities that drive our clients. And when we’re at our smartest and most strategic, we apply some of those lessons to our own business.
This is particularly true when it comes to growth, something we’ve spent much of the past year doing.
We’ve built a new research team headed by Chris Kelly and Anne Kilpatrick. We acquired Playbook Communications, along with Mike van Solen and his team. We’ve enhanced our social media capabilities by repatriating Joseph Lavoie, who spent the past two years working in the Prime Minister’s Office.
Veteran broadcaster Don Newman has amplified our voice, and Sally Housser, an NDP stalwart and former press secretary to Alberta Premier Rachel Notley, has strengthened our voice—and our pitch!
We have also opened an office in London, positioning Navigator to better serve the growing number of Canadian clients who are doing business in the U.K. and European Union. Heading the practice there is Ashley Prime, formerly of the British Foreign Service and most recently the British Consulate General in Toronto.
It’s an exciting time. Changes in our own sector have allowed us to attract the best in the business. A strong culture and shared values have helped us come together as a cohesive team very quickly.
In the end, the only risk that’s even greater than that presented by growth is failing to grow. And even then, it’s always a balancing act: art meet science.

Navigator has opened an office in London, positioning itself to better serve the growing number of Canadian clients who are doing business in the U.K. and European Union.

Playbook: A boutique public affairs firm based in Toronto and Ottawa

Digital: Navigator welcomed the return of Joseph Lavoie from PMO

Our Voice: Sally Housser brought a fresh view to Navigator Alberta

Time After Time

The Apple Watch is Apple’s entry into the wearable technology market and is its first new product ‘category’ since the death of Steve Jobs in 2011. The Apple Watch is advertised as a device that improves fitness routines and makes connecting to work and social networks easy and efficient.

Pros: Users say they love the sleek and sporty design, the easy-to-use operating system and interface.
Cons: A steep price tag of from $449 to $1,459; complaints about short battery life; limited apps (so far); the dreaded Dork Factor.

Stream, You Stream, We All Stream… for TV

Online video streaming services such as Netflix, CraveTV and Shomi have revolutionized the way people are watching television. These streaming services, which all offer different content, make it possible to watch anything, from live news and sports to TV reruns, at your convenience, and on any device.

Pros: Canadians now have unlimited access to a catalogue of movies and TV shows for a fixed monthly price.
Cons: Compulsive binge watching. Yes, it’s a thing.

On the Right Track(er)

Assuming you actually want to know your heart rate, the number of steps you’ve walked and your body mass index at various points in the day, the Fitbit wraps around your wrist and pairs with a smartphone to provide that information—and much more.

Pros: Easy to use; several different models and price points.
Cons: Some users question the product’s accuracy in collecting data; everyone can tell you’re a step counter.

A Core Business for Apple

The success of Apple Pay in the U.S. market has generated enthusiasm about plans to launch the mobile payment service in Canada this fall. Apple Pay allows iPhone, Apple Watch or iPad users to make credit or debit card purchases in stores by waving their device over a wireless reader.

Pros: Ease; convenience; cool.
Cons: Do you really need spending money to be more painless?

Self-balancing Scooter

It may or may not help with your daily commute to the office, but for around $600, you can get yourself one of a growing number of personal transportation devices that has wheels. Essentially an electric skateboard. So, unlike a Segway, it may actually boost your cool factor with teenagers. Well, until the Hendo Hoverboard is widely available.

Pros: Rapper Wiz Khalifa was arrested for failing to disembark from his hoverboard at border security.
Cons: It’s heavy and the battery runs down quickly.