John D. Redfern, Chairman and Chief Executive Officer, Lafarge Corporation, and Chairman Canada Cement Lafarge Limited
MEETING THE CANADIAN CHALLENGE
November 14, 1985
The President, Harry T. Seymour, Chairman
Distinguished guests, members and friends of The Empire Club of Canada; It is my pleasure to welcome as our guest speaker today John Redfern, Chairman and Chief Executive Officer, Lafarge Corporation, and Chairman of Canada Cement Lafarge Limited.
Since joining the Canada Cement Company as a technical sales engineer in November, 1958, John Redfern has held positions of increasing responsibility, including Vice-President of Operations in 1974; President and Chief Executive Officer in 1977; President and Chief Executive Officer of the holding company, Lafarge Corporation, in 1983; Vice-Chairman and Chief Executive officer of the U.S. operating subsidiary, General Portland Inc., in 1984; and, Chairman of Lafarge and of Canada Cement Lafarge in February, 1985.
Limited by its domestic market position, Canada Cement, Canada's largest cement producer, acquired through a $396million cash offer General Portland Inc. of Dallas, Tex., the second-largest cement producer in the U.S., in 1981.
Following a corporate reorganization in 1983, a U.S. company, Lafarge Corporation, headquartered in Dallas, became the parent of the two operating subsidiaries: Canada Cement Lafarge Limited and General Portland.
The reorganization, implemented in three distinct transactions, resulted in Lafarge Copee S.A. of France holding a voting interest of about 54 per cent. Subsequently, the shares of the parent company were listed for trading on both the New York Stock Exchange and the Toronto Stock Exchange.
In the fiscal year ended December 31, 1984, the first full year following the reorganization, Lafarge Corporation generated sales revenue of $927 million on assets of $979 million. Of the total sales revenue, Canada Cement generated 56 per cent while General Portland generated 44 per cent. A prolonged work stoppage at seven U.S. plants, however, resulted in 85 per cent of 1984 profits being contributed by Canada Cement Lafarge.
John Redfern, the architect of this somewhat unique corporate structure-a U.S. holding company, controlled from France, with operating subsidiaries in both Canada and the U.S.-was born in Ottawa, is married and the father of four children. He was educated at Carleton University in Ottawa, and obtained a Bachelor of Science degree in civil engineering from Queen's University, Kingston, Ont., in 1958.
In addition to his major corporate responsibilities in Dallas, Montreal, and Paris, our guest is a member of the Advisory Board, Center of Management Development, Northeastern University in Boston: the Board of Governors of Le Conseil du Patronat du Quebec; and the Board of Governors of Carleton University.
Ladies and gentlemen, it gives me great pleasure to introduce John Redfern, Chairman and Chief Executive Officer, Lafarge Corporation, who will address us on the topic, "Meeting the Canadian Challenge."
John D. Redfern
Thank you, Harry, for your kind introduction, and thanks also to The Empire Club for the opportunity of addressing this distinguished audience, on a subject very much on my mind. Let me hasten to assure those of you contemplating a quick exit that my subject does not deal with the finer points of cement chemistry, nor the beauty of a limestone quarry at sunset.
My concern and frustration deal with the low level of appreciation we have for our current environment, and our somewhat gloomy expectations for the future.
Unfortunately, this preoccupation not only masks our present status but, more importantly, it prevents us from taking the steps necessary to properly plan and prepare for our future. We thus are becoming bystanders instead of actors, at a most critical time. The decision is ours: Will we simply do nothing, bemoan our fate and blame others? Or, will we be active participants in shaping our own future? Taking the opportunities and advantages that Canada has been given, and collectively turning this country into the place we feel it should be, is what I call "meeting the Canadian challenge."
The main ingredient that we appear to lack is an appreciation of reality. The major contributor to this deception appears to be the post-war period. This period in our country's evolution brought together a multitude of fortunate factors that created an exceptional economic and psychological environment not likely to be duplicated in our lifetime. Not wanting to believe this fact, we continue to reach back to that era as being "reality." Like children of affluent parents, not only are we expecting a continuance of this benevolent environment, but we also have developed expensive tastes and habits, while unfortunately having no real capacity to sustain ourselves at this level.
Hence, a period that should have provided a positive structure or base on which to build our future potential has instead left us with a legacy of expensive tastes, bad habits, and an illusion of reality. Unfortunately, that era of continued growth and prosperity also convinced business, government, and labour that each had all the answers. And, when you have all the answers, you don't need to listen to advice, or change your ideas. You carry on, comforted by your own rigid infallibility.
Until we exorcise these misconceptions from our collective psyche, we will continue to float in a world that disappoints us, as it does not live up to our imaginary standards.
How should we commence our efforts to see things as they as they really are? Perhaps we could start with the dictionary definition of the word "reality." It is defined as: "actual existence, true state of affairs, a real thing, an actual fact."
That seems simple enough, but, to apply some practical reality to the interpretation of reality, let me quote from T. S. Eliot (The Hollow Men): "Between the idea and the reality, between the motion and the act, falls the shadow." And, (Burnt Norton) "Humankind cannot bear very much reality."
These quotes provide some insight into the difficulty of first defining reality, then having it accepted.
Next, let me demonstrate that this defining and adjusting to reality affects each one of us.
Think back twenty years with me. We were so confident then (some even called us smug); Canada was growing; jobs were plentiful; our material standard of living was consistently rising. We were the preferred corner of the world, and the future was ours. Bigger was better; complex was in; consumption was the order of the day; manufacturing was to be the key. We had space; we had materials; we had technology; we had youth. Positive changes came faster and faster in education and medicine. We took the high road as peacekeepers while others provoked wars. Does all this sound familiar?
In those days, as Canadians, we might have acknowledged that once we were conceited. But having overcome that flaw, we were now perfect.
Our view of Canada today is at odds with that of 1965. We are constantly being reminded of the ecological damage we are inflicting on our country. Our education system seems to turn out students who do not find work. Our politicians are `under pressure and underperforming. Our health system cannot keep up with the demands. Our incomes are not keeping pace with inflation. Marriage statistics tell a sorry tale. There is a feeling of concern and despair that things will likely get worse.
Comparisons between these two eras make twenty years ago seem as quaint to us now as the Victorian Era appeared to us in the Sixties.
Instead of causing us to take positive and direct action, the current confused environment allows actions to be taken that common sense normally would not allow. We pay people half a wage not to work; support losing industries rather than winners; promote weaker areas of the country over stronger sectors. Somehow, soon, this has all got to stop. We have to face reality.
Is the situation so bad that we must go to such lengths to avoid it, or are we simply over-reacting? If we start with the basics, we seem to be blest with the key advantages the rest of the world wants:
• a democratic government
• basic freedoms
• competitive educational, judicial and medical systems
• a safety net of social benefits
• a sound physical infrastructure
• abundance of natural resources
• a peaceful history
• a favoured geographic position next to the world's most attractive market.
At this point, a little cold weather aside, most people in the world would opt for the chance to join our ranks, no questions asked. Our problem is that most of us take all of these advantages for granted. If you doubt th? point, just talk to any New Canadian. One has to do with -gut before he can realistically set priorities. I believe, however, that, under pressure, most of us would admit that Canada is a preferred place to live, and a country that has more than its fair share of pluses.
Presuming that we can market this realistic view of Canada and are prepared to concede that perhaps we are not that badly done by, what are some simple steps to take in achieving our goals and potential and, thus, "meeting the Canathan challenge."
The first step has already been taken, if we can introduce a note of optimism in our potential. Optimism leads to trust, trust leads to collective risk-taking, and collective risk-taking leads to success. Without the ability to accept risk and challenge, each of us retreats to the safe haven of the status quo and the protection of his existing niche.
Secondly, we must stop the verbal gamesmanship going on around us, with individual groups jockeying for privilege at the expense of others. We must seek to provide clarity, rather than confusion.
Free trade is bad/good? Reducing deficits is bad/good? Are we bankrupt? Or, can we afford indexing? (This type of double-talk reached a new high when The Wall Street Journal announced: "The New York Stock Exchange successfully withstood two bouts of good news today!").
Can we expect to achieve a consensus when we are inundated with conflicting advice?
Thirdly, as the book In Search of Excellence advises: "Keep it simple." Too often, we try to be too sophisticated, too complex. For example, there is no reason why we should not apply to our problems the same type of rules and thinking we would follow as members of a successful family. Strangely enough, they do not appear out of place if you apply them to a city, a province, or a country. For example:
• you cannot continually spend more than you earn;
• you have to clearly communicate and obtain a consensus on collective goals;
• a shared decision is reached after much give and take, and benefits from each family member's feeling of participation and contribution to the decision;
• rules must be collectively developed, respected and altered as required;
• each participant should share equally in good times and bad.
None of these statements is original, shocking or difficult to understand; just straight common sense. But, somehow, when it suits us, we let complexity and size "confuse" us to the point of thinking that "Perhaps I should get more," "My case is different," "I know of others who get more," etc.
Fourth, don't try to fight change, as we will be battling forever. Change is always with us-sometimes for good, sometimes for bad.
To truly maximize the benefit from the good times, we must take advantage during the bad to redesign or adjust the structure. In fact, positive adjustments primarily happen in bad times. For example: would we have become as energyconscious or efficient without the Organization of Petroleum Exporting Countries (OPEC) crisis? The U.S. was able to create 24 million new jobs in the supposed no-growth decade of 1974-84, from a wide range of new and small businesses started by people who could not find work with the large corporations. If times had not been tough, would businesses have been as anxious to open their books and explain the reality of their earnings, competition and markets to the employees? Would labour leaders be recommending ways to improve returns and accept more flexible work rules? Would politicians be saying that the private sector must be the engine that drives the economy, and that government should reduce its involvement and interference?
This change we complain about should not be resisted but viewed as an indication of successful and orderly transition. Governments, rather than protecting areas and industries that are non-competitive, should direct their attention elsewhere. The Atlantic Monthly had an interesting observation on this question when it stated:
"The post-war growth of California had done more for the people of Appalachia and the Midwest than any targetedassisted program. The Government could best discharge its obligations by removing barriers to mobility, that prevent people from migrating to locations of economic opportunity."
Truthfully, North America only became great because people, unhappy with their lot in life, moved to this continent, in most cases with great effort and much risk-taking.
In addition to general rules, there are many specific actions required to be taken by us, individually and sectorially. As I subscribe to the belief that "to be acceptable, painful choices must be self-inflicted," I will talk as a citizen and business ' person, on two areas of current concern, and how I would be prepared to be treated in the course of their solution. Let me start with the old standby question of the budget deficit. In 1984-85, our Federal Government ran a deficit in excess of 35 billion dollars. (In 1965 we had a surplus of 231 million). Today, we are providing less than 65 cents of each j dollar we spend.
As a citizen, I believe that governments are away behind the general public on the question of a balanced budget. If we go back to the family-rules concept, no family that I know expects that you can continue to spend more than you earn. Why do we think it will work, just because you change it to billions? The Globe and Mail in its Morning Smile, a week ago, had an appropriate comment: "Isn't it a shame that future generations cannot be here to see all the wonderful things we're doing with their money?" The Government knows, without question, that we have to achieve a balanced budget over a reasonable time period.
However, there are conflicting realities at work here. If a government makes the right budget for the economy, it's political suicide. If it makes the right budget for politics, it's economic suicide. The answer obviously is that we must educate the public to the reality of our situation and see that, as a minimum, more than 51 per cent pass this course in basic economics. We can only move the budget from a political context to an economic reality, to the extent that we are prepared to educate and involve the voting public.
A minor attempt was made in the last budget to introduce reduced indexing of pensions. A move in the right direction, but not well handled. Personally, I am convinced that we cannot afford indexing. As in the family rules, all members of the family should share equally in the ups and downs. No group should be sheltered from reality, whether it is the working sector demanding inflation plus compensation, or the retired sector demanding inflation-proof pensions, unless all can benefit equally. Again, speaking personally, when the time comes from me to go on pension, I do not believe that the monetary priorities of the Government of Canada will enable it to rate me high enough to pay me any pension monies. And it will do so in a "no stigma" individual manner, through the judicious use of computers and my tax return. Even if I suspect that this will be the case, it would be far better for me and others, if the Government clearly outlined this reality now, rather, than springing it forth from a secret budget when I am 68. I can appreciate the concerns our pensioners feel, but I also know that we can only spend what we earn. (In fact, even that must now be significally discounted, to pay back the debt already borrowed from the future).
Another topical question is that of international trade in general, and our trade with the U.S. in particular. From my business viewpoint, this is a subject of interest and relevance. Back in the 1970s, at Canada Cement Lafarge, we had a basic decision to make. Do we grow by going into a new type of business, or do we expand internationally? We made the decision to expand internationally in 1981 by acquiring General Portland Inc., the second-largest U.S. cement producer. (Incidentally, most other Canadian cement companies have followed similar paths). In doing so, we became the largest North American cement producer, and were positive that we could be competitive and prosper. There quickly followed three major adjustments to our plan:
First: the North American cement market contracted to a 20-year low in demand; secondly: interest levels rose to unprecedented heights (with our having heavier debt levels than usual as a result of the acquisition); thirdly: cement rapidly switched from being a domestically supplied product to that of an international commodity.
It has been a tough four years but, fortunately, our results
have improved each year. Our plants are competitive with an open border between Canada and the U.S., and we have the flexibility, strength and size to meet international competition and succeed. Had we not been toughened in this real-market environment, today, instead of actively seeking international markets, we might be hiding behind our borders and calling for help. It is our feeling that we can aspire to being the best in the world only by competing for this position and winning-not by isolating ourselves in a spreadout 25-million-inhabitant market and asking for privileged treatment. We feel the Canadian cement industry has taken an aggressive stand and proven it to be the correct one.
On the general question of trade with the U.S., again, real- , ity must be the order of the day. Already the battlelines have j been drawn and opinions range from free trade being the salvation of Canada, to free trade being the elimination of whole sections of the economy. There is a wonderful quote taken from The Myth of Free Trade which goes:
"As in the caucus race in Alice in Wonderland, nobody particularly minded that all the participants were playing the game according to different rules-as long as there were prizes for everyone!"
We must face the facts: there will not be prizes for everyone in this race, even though we are all playing by different rules!
One must assume that any deal concluded between us and the U.S. will be framed in the context of the U.S.'s best interests, as well as our own. Our importance will rise and fall with the fortunes of the next General Agreement on Tariffs and Trade (GATT) discussions, as the U.S. is looking to achieve a positive trade environment via the two routes. Progress with GATT will reduce the emphasis on the Canadian deal and vice versa. Therefore, the arrangement we favour must be saleable, attractive and essential to the U.S. interests. Despite public knowledge of our need to have the U.S. markets open to us, we can also provide essential benefits to them. These would include: access to our materials and markets; our participation in improving their security; and our ability to provide them with a practical example of their desire and willingness to have their markets open to fair trade. To exchange access to our market for the opportunity to enter one ten times its size, seems to provide very good odds. Too many of us only want to enter the game if we are guaranteed against all downside risk.
Should we have any illusions about the reality of our U.S. trade, we can learn from a recent disclosure from the Ontario Legislature's Select Committee on Economic Affairs. It confirms that the U.S. is one of the few markets in which we can be competitive. That Ontario is already tied to the U.S. markets and higher trade is essential to its future financial health. Ontario has no option but to be actively involved in maximising Canada-U.S. trade. Failure to do so would see a drop from existing levels of Ontario-U.S. trade rather than the potential of guaranteed access and the possibility of higher levels of trade. (And keep in mind that all this international trade talk remains basically theory, unless we can first determine a way to eliminate interprovincial trade barriers and protectionism).
We sometimes tend to think the trade question is only a problem for us. Perhaps you would be interested in hearing some comments from the Report of the President's Commission on Industrial Competitiveness. The ideas expressed could, and, in fact, do apply to Canada equally as well:
What is the private-sector role? Government cannot legislate success. America's ability to compete lies primarily within the private sector. Thus, business should establish world leadership in the commercialisation of product and process technology, raise investment levels in productive assets and the development of employees, seek new ways to create a consensus on goals within our business organizations, and broaden its perspective to include the possibilities of world markets and the certainty of global competition.
What is Government's role? Government should take the lead in highlighting the importance of competitiveness and should nurture an effective consensus-building dialogue among leaders in industry, labour, Government, and academia. Government should provide a stable fiscal and monetary policy that ensures steady, non-inflationary growth, an environment that nurtures and protects technological innovation, an educational system that prepares our people for the future, a free and fair world trading environment, changes in anti-trust and export administration policies to reflect the new global environment, and policies to help American firms and workers respond to changing technologies and markets.
What must we all do? We must recognize the challenge and its significance. We must equip ourselves with the skills '- required in the work-place of the future, adopt a flexible at`: titude toward changing markets and technology, and work together to strengthen the competitive performance of American industry.
This is the U.S. viewpoint, despite its size and strength. Failure of Canada to follow a similar path will leave us as an isolated, industrial market of 25 million people competing against tougher competitors who are operating from a market base of 200 million people, or more.
We could continue to examine a series of basic issues, one by one. However, I believe they would only add to our conviction that clinging to the status quo is out, and the ability to seek out change, and base our decisions on reality, is in. - In summary, we can conclude that there are real problems to face. However, we as Canadians do so from a very favourable base, and not from the disadvantaged position that we, sometimes like to assume we must bear.
We must brush aside current confusion and indecision, and let our talents and advantages be effectively put to work to prepare our future. It will require commitment and sacrifice but the objectives and potential results will justify such an effort. These choices and decisions are being faced by every country today. All of us must actively resist the shortterm paths that lure us from reality, sometimes promoted with short-term tranquilizers. This is a decision that can't be put off. We must get out of our chairs, roll up our sleeves, and get to work. There will never be a better or easier time to successfully "meet the Canadian challenge."
The appreciation of the audience was expressed by Col. Robert H. Hilborn, a distinguished Past President of The Empire Club of Canada.