An Interview with Vic Young, former Chairman and CEO of Fishery Products International Limited (FPIL)
By W. Glenn Rowe
Professor, Richard Ivey School of Business
W. Glenn Rowe is the Paul MacPherson Chair in Strategic Leadership at the Richard Ivey School of Business
Vic Young is the former chairman and CEO of Fishery Products International Limited (FPIL), a medium sized fishing company with revenues in excess of $700 million and headquartered in St. John’s, NL, Canada. He is a former deputy minister of Newfoundland’s Treasury Board and a special adviser to the province’s premier, and chairman and CEO of Newfoundland and Labrador Hydro Group, as well as the CEO of Churchill Falls Labrador Corporation. In 1996, he was inducted into the Order of Canada for his sensitivity to the plight of displaced fishery workers and Newfoundland’s economic situation, effectively advocating for skills retraining programs and for being an exemplar of corporate responsibility for leaders of industry to follow. In 2002, the Lieutenant-Governor of the province of Newfoundland and Labrador appointed Young to be the chair of the Royal Commission on “Renewing and Strengthening Our Place in Canada.” He currently serves on the boards of the Royal Bank of Canada, Bell Canada Enterprises, McCain Foods, Imperial Oil and Aliant, Inc. Young graduated with his MBA from the Western Business School (now the Richard Ivey School of Business) in 1968.
Rowe: Under the FPI Act no one shareholder could own more than 15 per cent of FPI’s voting shares alone or in concert with others. Is this share ownership restriction and other federal acts a positive or a negative?
VY: People would say to us that FPIL has this crazy share restriction and I personally agree that it was a crazy share restriction. But it was not unique in Canada, where many of our industries are structured like this; for example, our entire banking industry is at 10 percent – not 15 – but a 10 percent share restriction. You never hear anybody in the banks saying “Let’s get this share restriction on the banks removed.” In the telecommunications industry there is a 30 percent share restriction. Canadian National, which is now one of Canada’s stars, has a 15 percent share restriction. And, when CN acquired one of the major railways in the United States, they had to change the treasury of the U. S. railway in order to maintain the share restriction. PetroCanada, a fabulously successful Canadian oil company, has a 15 percent share restriction.
The FPIL restriction is not federal, it is provincial. But the point is that in the Canadian business environment, particularly in the banking, rail, oil and telecommunications industries, these share restrictions are ingrained in our system. Some people consider that these share restrictions could mean government influence but it does not. What FPIL’s share restriction did influence was the relationship between FPIL and its shareholders and how many shares could be bought. We did argue that the share restriction should be removed because there is probably no other industry in Canada where governments, by virtue of other regulations, have so much influence on an industry.
Rowe: What are some of these regulations?
VY: The federal government sets the total allowable catch (TAC) quota. It determines how much fish is allowed to be caught and who is allowed to catch that fish. In addition, these TACs are set annually so that there is always uncertainty from year to year. And this system applies to all species; for example, ground fish, shrimp, and scallop, and it is an enormous amount of regulatory control and potential influence. In all fairness to the federal government, I never saw them exercise undue influence by threatening to change our quota if we did not do something they asked us to do. However, we often disagreed with the size of the quota and who received each portion of the TAC quota.
On the provincial side, the government controls quality and the fish plant production licenses process. This means the provincial government determines who can process fish and who cannot process fish and in what communities. Similar to the federal government, I did not see any undue influence exercised; however, we often disagreed with how many fish processing plants should be licensed and in which communities they should be allowed to operate. This was particularly true for shrimp and crab plants.
ROWE: What did having these different regulations from different levels of government mean for you and your senior management team in operating FPIL?
VY: For a large company like FPIL, it meant that you had to be extremely astute in how you handled company-government relations. We were always asking the question: how do we manage these complex relationships in addition to all of our corporate responsibilities, while keeping in mind our major responsibility to our shareholders? How do we manage our way through that government maze – whether it was federal, provincial, and in the case of FPIL, municipal (because there was always tremendous pressure from municipal governments for taxes, jobs and infrastructure)? It meant that part of managing the company was managing that whole government, the social side. We were often accused of running the company with too much of a social conscience – of course, you can never have too much of a social conscience. But, if you are making some decisions that are detrimental to your shareholders for some social reason, then that would be a legitimate criticism. In our case, and our board was very adamant about this, we always tried to ensure that any decision we made was in the best interests of the shareholders, even when it might appear that we were doing it for social reasons.
ROWE: Can you give us an example of such a decision?
VY: The best example is our ‘three-plant’ strategy. On the south coast of the island of Newfoundland, we had three plants in three different but relatively close communities (Marystown, Fortune and Harbour Breton). After the cod moratorium was imposed by the federal government, we kept all three open when we only needed one. From a business perspective, one could jump to the conclusion that this was a social decision. But it was not. It is important to know that the fishery was in a crisis because of the cod moratorium. We closed twelve plants and laid off over 6000 employees out of a workforce of over 8600. We laid off more people in rural Newfoundland than … (pauses) … we are not proud of that but there were no fish and we had to make that decision. But on the south coast we kept these three plants open. Why did we do that?
We were anticipating that the fish stocks would recover much faster than they did. In addition, we anticipated that if we attempted to close two and put all of the fish into one plant the other two communities would make a case to the federal government that there was enough fish to allow all three communities to survive, not thrive, but survive. If the federal government agreed with the communities, they could give FPIL a TAC that would be equal to what we had put through one plant when we had all three open, and they could have given the rest to other fish companies. The federal government never threatened to do this but it seemed highly probable to us that it would do it especially if the fish stock recovered. So, we considered that the best long-term protection for our shareholders was that we continue to get our share of the larger quota and to keep these three plants open. In hindsight, given the way the fish stocks did not recover, someone could question that decision, including myself. But no one knew the fish would recover so slowly. If you go out five, six, seven years, our shareholders would be better off in the long-term for some short-term pain of keeping the three plants open. For our board it was strictly a long-term shareholder decision.
ROWE: How did you implement this three plant strategy?
VY: We had to reduce their operating periods down to eighteen weeks. We had to explain our plan to the federal and provincial governments, to our unions, to the communities, and to our employees and we did not keep the three plants open equally. One year we shut down the Harbour Breton plant and operated the Marystown and Fortune plants. We did this when we just did not have enough fish to keep all three operating. It was a lot of coordination, explaining – it was a huge effort the explaining – very sensitive, but still a business decision. We had to be very sensitive to our environment which was highly charged politically, and even more importantly, highly charged by people whose lives are at stake. You have to be very careful dealing with people whose livelihoods are at stake every time you make a corporate decision. The decision might be the right one but if you do not implement it with sensitivity you are dead.
ROWE: Could you comment on how the federal government’s Employment Insurance (EI) program helped?
VY: In our early years, very little! Our biggest problem was that we were operating 52 weeks a year and we could not give people time off. In the latter years when we were struggling to keep plants open it helped in the following way. Given that we wanted to operate the three plants and we could only operate them for eighteen or twenty weeks per year, it meant that when we closed plants our employees still had an income stream. Without that, heaven knows how difficult the decisions would have been. The EI system is, of course, Canada-wide and is absolutely crucial in a seasonal industry. It has been changed and tightened, and this made some of our decisions more difficult but it did not change our decisions. I would say that we took advantage of the EI system. It made our very difficult job easier, but that is the same for any seasonal industry.
ROWE: Can you expand on the provincial fish plant licensing process and its impact – whether it was negative or positive?
VY: As a processor, we would argue that the fewer plants that you have the more efficient they will be and the higher the probability that they will be sustainable in the longterm. The province looked at its licensing authority as a way to create jobs in conjunction with the EI system. Assume you had a plant operating in the crab industry for twenty-five weeks. It is still very seasonal but there is the thought that two plants could be operated for fourteen weeks each and double the number of people employed who could go on EI after fourteen weeks instead of a fewer number after twenty-five weeks. This is true but it puts at risk, not only the industry, but more importantly, the very people you are trying to help. The provincial government was marginalizing everyone down to a fourteen or fifteen week operating period, based on the crab stock that existed at that time. This is what the provincial government did – they issued an additional seventeen licenses. This meant that everyone working in a crab processing plant was on the EI margin which means that any reduction in the crab TAC quota reduces the number of weeks of work below that required to receive EI. This would put these people off the EI system onto welfare.
Then the people who will be hurt the most are the very people the provincial government allegedly said they were helping. The government has taken the crab industry and the inshore shrimp industry and put both, including the people, at risk. FPIL had to operate in that system and we had to say to people who used to work twenty weeks, this year it is eighteen, this year it is sixteen, and this year it is fourteen – whatever it took to help them receive EI. Not because of anything we were doing but because of the provincial government’s fish plant processing licensing process.
ROWE: I suspect that did not create wealth for FPIL.
VY: No, it did not. It does not create wealth for anybody. In that sense the fishing industry is so badly mismanaged it is accomplishing the opposite objective to what people set out to do. The spreading of wealth to the point where you marginalize everybody means that it is very difficult for companies to make a sustained profit. It is very difficult to increase shareholder value. The most frustrating part of it was that the politicians were helping people in the short-term, but they were creating a huge potential for collapse in rural Newfoundland in the long-term. That potential still exists today. All it needs is a reduction in the shrimp or crab TAC quota and the province of Newfoundland and Labrador will be in a rural mess. I am not blaming just the provincial government. We have all made such a mess of the fishery … (pauses) …but the province has made a mess of the processing sector and the feds have made a mess of, not so much the harvesting sector, but of the science on which the harvesting sector is based.
ROWE: Could you comment on making sound business decisions versus being socially conscious in the environment you have described?
VY: First of all, I can say that there was never any undue influence by either level of government. We got calls- lots of calls – but never calls that suggested or implied any kind of threat. But it was a very difficult environment. With respect to a social conscience, there has been a misinterpretation. We treated the governments, the communities, the unions and the employees with the utmost respect because we believed that this was the right thing to do. In addition, it was in FPIL’s best interest to do so in this hugely sensitive, highly charged environment. Well, then people would say FPIL has a social conscience and that would be interpreted as impacting how we made decisions at the board level. People would picture someone on our board saying: “If we do A we will make $3 million in profit but we will be very unpopular. If we do B we will make $2 million in profit but we will be very popular. Let’s do B.” That just never happened. And the day it did happen, you would have to say I should not be here because I am making decisions in the best interests of the communities or employees and against the best interests of the shareholders.
ROWE: Speaking of the shareholders, there was a period where FPIL did not pay dividends to its shareholders but where employees still received the best earnings in the fishing industry. Was this a fair distribution of the wealth relative to the shareholders?
VY: That is a very fair question but it was not related to the FPI Act as some would believe – it was related to our history. When I joined FPIL in 1984 we were in the middle of a seven-month strike and we were bankrupt. We wanted to settle the strike but we also wanted some stability. To obtain the latter we asked for a four year wage agreement with virtually no increases over those four years. To settle the strike we offered a profit sharing plan. In 1985, we lost a bunch of money – there was no profit sharing. In 1986, we made $30 million so there was significant profit sharing, and, in 1987, we made $58 million. In addition to the ten percent profit sharing, we gave our employees an award of excellence of $1 million. We considered that this period of profitability was a window of opportunity to take FPIL public. The government and the employees resisted the idea. After all, we were owned by two governments and a bank – what better security was there?
To encourage the employees to support our decision to go public, we said we would grant them $7 million from the $200 million we would raise from the IPO. It was not much per employee but it did help us get over the psychological loss of the governments and the bank as our owners. We told employees, “You will be owners in this publicly traded company.” The original idea came from one of our board members, Frank Stronach, the founder and then CEO of Magna International. We agreed at board level that profit-sharing was in the longterm best interests of the shareholders. It helped break the psychological barrier.
Our philosophy was that we did not want to be paying a wage rate that was low compared to other manufacturing companies. Our objective was to have the best seafood company in the world and to bring a new psychology to every employee. In 1986, 1987 and 1988 we were the most successful seafood company in the world – then we lost the fish and there was no dividend. Now it is important for people to understand what then happened – the struggle, struggle, struggle for survival. From 1987 to 1995, we laid off 6000 of 8600 employees, closed ten of nineteen plants, reduced our fleet of ships from 66 to 12 – but we survived by turning ourselves into a seafood trading and marketing company. We had some lean years but improved revenue almost every year. We maintained our profit-sharing with our employees because we considered that this would be best for longterm shareholder wealth increase. We returned to profitability in 1996 and then, in 1999, after four years of solid profit growth, we were able to pay our shareholders a dividend again.
ROWE: Does operating in different jurisdictions where you have to manage the impact of various governments affect the ability of the CEO, senior management team and board of directors to create wealth?
VY: I would say yes! Ideally, you would spend 100 percent of your time on shareholder wealth creation in the business environment. How are you going to increase sales? How are you going to increase earnings per share? Every governmental influence is a diversion away from spending that time figuring out ways to increase shareholder value. But no CEO operates in that type of environment. In the fishing industry, which is a very challenging and exciting industry, it could be argued that we spent too much time on managing relations but you need to keep your eye on that ball. It would be the same in the banking and telecommunications industries. You take your eye off what your environment is telling you not to take your eye off, and you are dead. In the fishing industry, you have to spend so much time on government relations there is no good complaining about it – just keep your eye on that ball. If you do not, you will be overly diverted from creating shareholder wealth with a crisis because you took your eye of that ball.
ROWE: What advice would you give to people who are considering going into industries similar to the fishing industry in terms of the regulatory system and government involvement – industries such as banking, oil and telecommunications?
VY: My advice would be very simple and very clear. Embrace the challenges of that environment because you cannot change it. You are always trying to change it, but you cannot change it significantly overnight.
Telecommunications has huge challenges with the Canadian Radio-television and Telecommunications Commission (CRTC); the banks have huge challenges with the powers of the federal Minister of Finance with respect to mergers; and, many industries have government regulatory challenges. That does not mean undue influence – just a very difficult environment. Take another industry, the beef industry. If we get one sick fish in our industry, I do not think we would close – we probably have a lot of sick fish out there. Talk to the farmers in Alberta and what they have to deal with if they get one sick cow.
So, if you cannot embrace government regulation as part of the challenge of what you do, if you cannot come to work every day saying this is unbelievable but I am going to tackle it and do a darn good job of it, and if you come to work every day and say this is not right it is diverting me from doing my job, do not get into one of those industries because you will be very frustrated. If you are in one of those industries, then treat it as much a part of your challenge as increasing sales, decreasing costs, increasing shareholder value and be motivated by the challenge. Ask yourself: how well do I handle this part of the business, because if you do not and, through your frustration, you take your eye off it, you are dead. And then you will blame it on that external environment instead of saying, I took my eye off the ball because I am frustrated by it.
Bankers do not take their eye off the Minister of Finance and people in telecommunications do not take their eye off the CRTC. They embrace that challenge. So my answer is: If you cannot enjoy and embrace the challenges and you are going to be frustrated by them, go and find some industry where … by the way, you are not going to find it … the challenges might not be government, might not be regulatory but they will be something else. My advice: just embrace it, enjoy it and roll with it.