Ememies of the heir beware
My old classmate from Upper Canada College, Ed Rogers, was featured in a story in the Globe on the weekend. This gist is that Ed has been waiting a long time to assume the throne of the Rogers empire, but he does not a lock on the top job:
Five years after taking the reins of the company’s cable division following a stint at U.S. cable operator Comcast Corp., Edward believes he is now up to the task. This hotel room, as his father turns 75, is the closest he will come to getting up on a soapbox and proclaiming, in a rare interview, that he wants to lead the company.
The problem is that so many others don’t think he’s the man.
A few years ago this was expected to be a crucial time in the evolution of Rogers Communications Inc., the largest cable and telecom conglomerate in Canada. Ted Rogers hits his birthday milestone on Tuesday. That was the age he had given for his retirement as chief executive officer.
But that was before Ted subsequently tore up those plans, deciding instead to leave his departure from the company open-ended. Like moving out of a leased apartment, Ted’s new plan is to give the board six months’ notice when he decides to vacate the company. He insists that he harbours no immediate plans to go.
As is the way in most family businesses, succession is often a carefully managed process, and the eldest son is usually a logical candidate when it comes time for the torch to be passed.
You can’t swing a co-axial cable on Bay Street these days without hitting someone who would rather see Ted’s second-in-command Nadir Mohamed take over, backed by impressive growth in the wireless division that has made Rogers a leader in that field. Meanwhile, 37-year-old daughter Melinda is another key contender. And Ted has done everything he can to keep all doors open, even as concerns about his health loom.
I cannot say I had good relations with Ed Rogers way back then. I thought he was a spoiled rich kid, and I don’t think he thought much of me in return. But a lot of water has passed under both our bridges, so far be it for me to criticize the man based on how he behaved as a teenager (I certainly would not want that judgement on myself). It does please me that father Ted made Ed work for it:
The two [Rogers children] have also taken much different paths professionally. Melinda went to business school, Edward came up in â€œthe school of hard knocksâ€ as his father puts it, doing Joe-jobs at Comcast, then being slotted into lower-profile management jobs at Rogers when he came back to Canada.
â€œHe hasn’t had an MBA like Melinda has, but on the other hand, when you’re CEO of a company both are important â€“ education is important, but as each year goes by job results are increasingly important.â€
Ted acknowledges he has been tough on Edward. Soon after his son graduated from the University of Western Ontario, he arranged for him to learn the cable business at Comcast, based in Pennsylvania. There he was a nobody. â€œI said, â€˜Give him every shit job. Make him understand what it’s like to have to work,â€ Ted says.
But seriously, folks, without the pedigree would he be where he is today? All of this points to the role of inherited wealth in Canadian society. It does not show up much in the research or statistics but in UCC country, it is a huge part of the story of the elites. I have a lot of respect for people who have worked hard to build something up, and do not begrudge them their riches (as long as they shut up and pay their taxes in recognition of the country that allowed them to get rich in the first place). But these rites of succession bother me to the core, and make me think that we need some meaningful ways to transfer back wealth to the pubic sector to ensure the right conditions exist for the next generation of entrepreneurs who may not have the advantages of growing up rich (or even middle class).
There is potentially a feedback onto economic performance as well. In a research paper some years back, Canada’s penchant for passing on the reins down the family tree was dubbed “The Canadian Disease”:
Countries in which billionaire heirs’ wealth is large relative to G.D.P. grow more slowly, show signs of more political rent-seeking, and spend less on innovation than do other countries at similar levels of development. In contrast, countries in which self-made entrepreneur billionaire wealth is large relative to G.D.P. grow more rapidly and show fewer signs of rent seeking. We argue that this is consistent with wealthy entrenched families’ having objectives other than creating public shareholder value. Also, the control pyramids through which they are entrenched give wealthy families preferential access to capital and enhanced lobbying power. Entrenched families also have vested interest in preserving the value of existing capital. To investigate these arguments, we use firm-level Canadian data. Heir-controlled Canadian firms show low industry-adjusted financial performance, labor capital ratios, and R&D spending relative to other firms the same ages and sizes. We argue that concentrated, inherited corporate control impedes growth, and dub this the Canadian disease.’ Further research is needed to determine the international incidence of this condition. Finally, heir-controlled Canadian firms’ share prices fell relative to those of comparable firms on the news that the Canada-U.S. free trade agreement would be ratified. A key provision of that treaty is capital market openness. Under the treaty, heir-controlled Canadian firms’ labor capital ratios rose, while the incidence of heir-control fell. We suggest that openness, especially of capital markets, may mitigate the ill effects of concentrated inherited control. If so, capital market openness matters for reasons not captured by standard international trade and finance models.