Some Problems of a U.S.-owned Subsidiary Operating in Canada

MR. LANGLEY:

The physical facilities and interests of General Mills are to be found in some 20 States and in 9 nations of the world, employing over 11,000 people in a fantastic variety of enterprises--chemicals, electronic components, weapon systems, missile equipment, milling, all types of consumer food products, and a wide variety of specialty products.

There appear to be few industries that this half-billion dollar giant does not serve or influence in some degree--and quite successfully too, from the look of the recently reported 47% increase in net earnings.

In 59 short years, its President has earned degrees in Economics and a Master's degree from the Harvard School of Business Administration and completed 30 very dis tinguished years of service to his country in the Air Force, becoming one of the youngest 4-star generals in the process. He has won honours and awards at every turn, including several for heroism, and also including the O.B.E., and he has made quite an impact on his company in his four brief years as a civilian.

For General Edwin Rawlings is something of an oddity--here, we do not have a case of a top-ranking military man becoming a figurehead just for prestige purposes-not at all! Recognized as a top management expert, our guest started as Vice President--Finance and moved from the office of Executive Vice-President to his present position.

A man with strong views on the importance to a nation's business climate of its governmental philosophy, we welcome him most warmly to this forum and will be most interested in his views on the status of a U.S.-owned subsidiary operating in Canada.--General Rawlings.

GENERAL RAWLINGS:

When I accepted your invitation to appear here today as your speaker, I did so with great pleasure but also with a slight feeling of trepidation. It is an honour for me, as a private citizen of another country, to be invited to address an organization whose membership comprises such a substantial segment of the business leadership of Toronto and Canada. I particularly felt honoured when I glanced over the list of your previous speakers, in whose company I feel flattered to be included.

The trepidation arises from the fact--as someone else has noted in a different connection--that Canadians and Americans are two peoples divided by a common language. In my career, I have been called many things, some of which I would not care to repeat, but I have never, to my knowledge, been called a diplomat. I ask your permission, therefore, to speak to you in the only way I know how--with complete frankness and, perhaps, even with bluntness, in some instances, but in every instance with the warm-hearted affection which I feel and which I am sure virtually all Americans feel toward the best neighbours any nation in all history ever had. I only hope that my American use of our joint mother tongue will not artificially create semantic problems where no factual problems actually exist.

That two peoples closely bound by ties of language, history and tradition can, on occasion, take widely different views of the same events is illustrated by an anecdote which

I first heard during World War II. It concerns a Welsh regiment which invited a contingent of American officers to be guests at the regimental mess. During dinner and afterwards, a number of toasts were proposed and responded to, in the course of which several references were made to "The American Revolution." Finally, one Welsh junior officer leaned over to a comrade and whispered: "What was this revolution they keep talking about?" "Oh, it happened a long time ago," his comrade-in-arms replied. "It seems the bally Americans refused to pay their taxes, so we kicked them out of the Empire. They fought a war, trying to get back in. We whipped them, of course, and they've been out ever since."

Of course, you realize this isn't exactly the version printed in our American history books. On the other hand, there is the more recent story of the American school teacher who called on Johnny to name our recently added 49th and 50th states. "Hawaii and Canada," Johnny promptly responded. "No, Johnny," the teacher replied sweetly, "Hawaii and Alaska." "Oh, well, I was mostly right anyway," was Johnny's nonchalant reply, "because, after all, isn't Canada part of Alaska?"

What Johnny probably had in mind was that Alaska has now superseded Texas as our largest American state, and the young man felt that anything larger than Texas must include practically everything. I am sure there are 18 million Canadians who would be glad to set him straight.

I could, of course, cite many other instances--some amusing and some more thought-provoking--of differences which exist between our two countries, particularly in matters of viewpoint. On the other hand, I could spend all of the time allotted to me and much more on the ties that bind our two countries together at deepest levels, beyond the reach of changing whim or transient public opinion on either side of the border. That I do not do this is because the facts and their implications are so well known to all of us as to need no elaboration: our three thousand miles of undefended border . . . our 150 years of peaceful coexistence . . . our blood brothership in two great human holocausts . . . our present partnership in the defense of peace and in the propagation of enlightened democratic ideals throughout the world. It would be possible to get quite eloquent on these matters, but frankly, I feel that both Canadians and Americans sometimes tend to attribute to themselves more credit than is deserved for this happy state of affairs. The long and continuing cooperation and mutual consideration between the United States and Canada have not been dictated by sanctimonious piety in either Ottawa or Washington, but by geography, history, the jointly shared devotion to democratic ideals and the principles of selfdetermination of peoples, and by bed-rock common sense. The great philosopher Santayana once wrote: "People cannot love each other unless they love the same ideas." The converse is also true. People who love the same ideas can argue with one another, disagree with one another, even develop considerable antagonism toward one another on specific issues. Ask any wife or husband. But in the ultimate, their interests cannot be fundamentally divergent, and when a real crisis arises they present a solid front against external threats or pressures.

I have no authority to speak on international issues, but as a private citizen I submit that major differences which divide the United States and Canada are very, very few. I am aware that some military matters have recently attracted considerable attention. More prominent have been the normal problems of business and finance. It is certainly not my place, as an invited guest in your country, to take an active stand on either side of the issues created by the budget message of your new Finance Minister as delivered to Parliament late in June, nor in developments in this area that have occurred since. I can say that such developments here are being watched with great interest and not without sympathetic understanding by many on the American side of the border.

That current economic problems, not only here but in many other parts of the world, are complex and difficult goes without saying. In 1962, the Canadian growth rate was one to excite the admiration if not the envy of many other countries of the world, the United States not excluded. Yet rapid growth, however welcome, always brings problems along with it. Technological advances tend to produce some unemployment, even in times of business and industrial expansion. This is a situation which is no stranger to us in the United States. The imbalance in earnings between agricultural and industrial areas-which is at the base of Canada's currently adverse balance of trade, particularly with the United States-is also familiar to us. Your desire to protect your own national interests against foreign encroachment in all vital respects is also fully understandable from the human point of view. In this latter area, particularly, there are traps and pitfalls into which other nations with similar problems have fallen but which those who know Canada feel confident Canadians will avoid. Your long history and firm tradition of level-headed progress, public stability and economic as well as political justice stand as assurance to all the world of Canadian ability to work through complicated problems to enlightened solutions. It is entirely possible that your efforts to find new answers to old problems within your own country may be a guide to us in facing problems of our own.

I speak with some personal interest on this point. As I'm sure you all know, the company of which I am President operates a subsidiary here in Canada, with our only Cana dian plant located right here, at Rexdale-in the outskirts of your Greater Toronto Metropolitan Area. Though our operation represents only a very small part of the total foreign capital investment in your country, it is important to us. What is also important to us is the reputation as good corporate citizens which we have tried hard to earn in every community in which we operate in the United States and which we hope to merit in equal degree in your own community.

I have recently seen two photographs. One was a picture of the Rexdale area in which our plant is now located, taken just before the building of our present General Mills facility began approximately 10 years ago. The other was taken within the current year. The change in what the photographs show is significant, and I feel that there are few of you here who would not regard it as beneficial. From the front steps of our building in Rexdale one now looks in every direction to factories, plants and warehouses of all sizes and descriptions. A little more than nine years ago there was very little here to be seen except cornfields and pastures-more pleasant to the eye, perhaps, but far less promising with respect to the future of Canadian economic growth. All this might have happened without our help, of course, but the fact that we were pioneers in this area is attested to by our telephone number-an impressive CH 4-1111.

Since 1954, General Mills' contribution to the Canadian economy has been substantial. In that period, we have spent in Canada more than $58 million Canadian dollars. This includes nearly $27 million for materials, approximately $41/2 million for land, buildings and equipment and about $27 million for labour, professional services and other expenses.

In recent months, considerable discussion has occurred in Canada concerning what constitutes "good corporate citizenship" within your borders, with particular reference to considerations felt to be important to Canada in judging the value to your national growth of foreign-owned enterprises. In view of the fact that, in 1960, more than two-thirds of all foreign investments in Canada came from United States sources, we might as well simplify our discussion by assuming that the profits now to be discussed apply with special force to American investments, and so to the investment of General Mills.

First among these points, as I have seen them listed by your Prime Minister and others, is that raw materials should be purchased and processed to the greatest possible extent in Canada. I cannot speak for other American operations in your own country, but I can say that the availability of abundant and highest-grade raw materials used in our operations-mainly grains-was a major reason why we came to Canada with a manufacturing facility in the first place. Our operation simply would not make sense unless, with only a very few minor exceptions, it was carried through from start to finish exclusively within your borders. Naturally we buy Canadian wheat on the Canadian market, process and package it through the employment of your very fine Canadian labour and ship it by Canadian carriers to the Canadian market. Except for the importation of American dollars, a very few highly specialized American-built machines and a handful of American management personnel, this is an all-Canadian operation.

Another point raised is that active pursuit of export markets should not be limited by the parent company. I am happy to say that we continuously look for opportunities to export from General Mills' Canadian plant. Thus far, those opportunities have been limited. We shall continue to seek them vigorously, however, and our management in Canada has been instructed to regard exports as a prime objective. We hope that our Canadian operations may some day enjoy certain export advantages over our United States operations in some areas of the world market.

Still another point made is that foreign-owned companies operating in Canada should make the greatest possible use of Canadian engineers, architects and other professional people, including advertising agencies and market experts. We have and do use Canadian professional people to the fullest extent in architecture, engineering, legal representation and in a multitude of other ways. We are represented in Canada by an all-Canadian advertising agency and spend substantial sums annually with Canadian market research organizations. In this respect, we feel that only by contributing to your economy where and when feasible can we expect to benefit from improvements in your economy as reflected in our own sales and profits. Beyond this, we are well aware of subtle differences in such matters as psychological attitudes, buying habits and taste preferences, which would, if ignored, adversely affect our enterprise here. We feel that no one knows Canadians like Canadians, and no one knows as much about doing business in Canada as those who have lived in and helped to create the Canadian business climate. In a word, we do not feel that we know as much about your country and your people as you do. The help of Canadians in guiding our efforts to please Canadian customers has been and is invaluable to us.

Another aspect of good corporate citizenship mentioned by many Canadian sources is that fullest opportunity should be provided for Canadian employees at all levels, including managerial, scientific and technical personnel. Here there is simply no problem for General Mills. Canadian employees enjoy exactly the same opportunities to rise to executive and managerial levels from our Rexdale plant and offices as from any in the United States. Our company does not know the difference between Canadians and Americans where individual brains and ability are concerned.

When we started at Rexdale, we brought about 10 American employees. Today, we have only three. From the most recently hired maintenance man to high levels of management, our plant is manned by Canadian citizens, Canadian-educated and Canadian-trained.

Meanwhile, 10 Canadians have joined General Mills in the United States, taking positions in engineering, accounting, bakery service and home economics. One of the 10 has already returned to become plant superintendent at Rexdale. Others will come back over the years to help with our Canadian enterprise. Our reason for being in Canada is to make a profit. Other things being equal, a Canadian has an advantage in our eyes over an American in a Canadian operation.

One idea advanced in the recent budget message to your Parliament, would, if implemented, seriously affect our Canadian company. I refer to the matter of tax advantages offered to foreign-owned subsidiaries in which Canadians hold at least 25 per cent of equity stock. In your own reaction to this message, difficulties inherent in the plan have already been aired in considerable detail by Canadian spokesmen, particularly members of your business community who are aware, I am sure, that "all that glitters is not gold." General Mills, of course, will abide by any decisions of your people and your government. We rely upon the good sense and the traditional level-headedness Of the Canadian people to find an answer which protects your interests without inequity to others, who have come here in good faith under previously existing regulations. To my mind, particularly in view of the tremendous wealth of untapped resources which exist in this northern half of the continent, the important thing for your future is to ensure the greatest possible active employment of venture capital within your boundaries. Re-shuffling of capital already at work does not create new wealth. The greatest promise for the continued and accelerated prosperity of Canada lies in the creation of new opportunities. I am sure that the implications of what I am saying are obvious, and are not lost on this business-minded audience.

That foreign capital, wisely invested and appropriately regulated, can contribute to the growth of a dynamic and forward-moving economy such as yours is well demonstrated by United States history. When we first became an independent nation, we fell heir to great territories and tremendous wealth in natural resources far beyond our original development capabilities. Probably most Americans are unaware of the tremendous debt we owe to European investors in providing the financial sinews necessary for the speed with which we developed into an integrated and highly industrialized continental economy. Canada today stands with vast potential. If history is to repeat itself, we Americans may soon look with envy at the tremendous forward thrust of your economy, which might easily become one of the wonders of the economic world.

In all the foregoing, I have remained deliberately general, in order to avoid touching on matters which others are better qualified and more advantageously placed than I to discuss. On one other matter, I should like to be a trifle more specific, though even here I shall merely lay a point of view before you for consideration, without any effort on my part to influence your judgment.

This touches on a matter of geography. Basically, certain problems arise on our North American Continent because politically the dividing lines run east and west, whereas economically they run north and south. This accounts for some of the problems which plague an eastern manufacturer in Toronto or New York when he seeks to tap the rich and growing markets of British Columbia or California. His product must be shipped 3,000 miles or so from the site of manufacture to the site of consumption, with tremendous penalties in freight and delivery time, no matter on which side of the border a given plant operates.

This problem is highlighted for us by our own situation. Our many General Mills customers in British Columbia must be served from the Rexdale plant which I have been discussing, and yet General Mills has in California a manufacturing facility capable of serving consumers of Western Canada much more efficiently, and at lower cost, if artificial barriers were reduced or swept away. In the East, our Rexdale plant would undoubtedly expand rapidly in capacity and in the number of dollars poured into your community if it could be used as a source for meeting the needs of consumers in the eastern United States, thus relieving strain on our present Buffalo facilities. The reasons why this cannot be done may make sense from political and nationalistic viewpoints, but they do not make sense economically. The upward thrust which occurs when economic law is given precedence over political considerations is illustrated by developments of the past few years in the European Common Market. I am aware that Canada needs protection in many areas because of the disparity in industrial and economic size of our two countries. But I have a strong presentiment that if our respective governments and our respective business communities began to give time and thought to the possibility and means of stimulating and unclogging northsouth trade channels and a de-emphasis of existing east-west lines of demarcation, something of increasing importance to the whole North American Continent might ultimately ensue. I present this thought for what it is worth, and in full awareness that it not only raises practical problems but also runs counter to many traditional viewpoints.

So far, I have made only one brief reference to the military alliance which exists between our two countries, as one of the firmest bulwarks of world peace in which we all live under the shadow of world catastrophe. I shall not expand upon this topic now. The reasons why your country and mine must rise above any minor frictions, irritations or temporary clashes of interests in order to protect our joint survival are starkly obvious. I know how often those professionally charged with the defense of the United States have said to themselves and others: "Thank God we have Canada on our northern border." I hope and believe you will never have reason to regret that you have us to the south, rather than someone else. Our geographical position, not to mention our jointly inherited dedication to freedom and the dignity of man, give us no choice but to stand together.

Our ability to work together has been demonstrated in two World Wars, in the United Nations, in the North American Treaty Organization, in Hemisphere Defense and may some day be expanded, according to recent indications, by participation of Canada in the Organization of American States.

Let us hope that present clouds may some day be lifted and the ominous threats that make Canadian and United States solidarity essential may disappear, so that our close cooperation may continue in peace. Meanwhile, in the absolute, your country and mine have to be friends in all most important ways. Everything we jointly hold dear ... even civilization itself . . . demands it. Thank you.

Thanks

Thanks of this meeting were expressed by Past President Harold R. Lawson.