The old fashioned idea that the market will reward companies built upon real value seems to have eluded many of Canada’s top business leaders.
Reaction to the Canadian government’s decision to pull the plug on the income trust party is coming on strong. It is also entirely predictable. Much of it is of the “sky is falling” nature where CEOs talk about irreparable damage resulting from the announcement. The same kind of response greeted the move to create a personal and then corporate income tax regime in the early 1900s. You could hear the voices of boardroom doom when the first minimum wage was established and, before that, when child labor laws were enacted.
Income trusts took off because they were based on a very large tax loophole. I have never held any income trust units because it has been obvious to me for some time that this party could not, and likely should not, last very long. A previous government under Paul Martin (was there really one?) made a botched effort to close the loophole. Even a basic knowledge of civics would teach that governments (especially when driven substantially by bureaucracies) are seldom able to look the other way when fresh sums are within their grasp (or about to leave it) and it ought to have been apparent to even an untrained eye that change was not far off. What’s amazing is that so many huge companies, who pay millions to lobbyists and political advisors, did not seem to grasp the obvious fact that their actions in pursuing a conversion to income trust status would likely prompt the rethinking of government policy. Having said that, I must confess my boardroom experience with many corporate advisors, especially in the fields of law, public relations and government affairs, has often left me bewildered by their frequent state of insularity.
Suddenly many companies are crying that they have lost an important edge –especially important, I would imagine, to many already richly compensated CEOs who stood to gain tens of millions from the conversions alone. The old fashioned, time worn, idea that the market will reward companies that are built upon genuine value, that reinvest for the future and are managed and governed with a competitive edge seems to have eluded some of Canada’s business leaders. Along with a real world lesson in how governments operate, these CEOs would benefit from a crash course in market economics.