Changes just window dressing
The folks at troubled Bombardier Inc. are trying to placate increasingly frustrated investors with what could only politely be described as a governance bill of goods.
In a seemingly grand gesture meant to appease critics, the once mighty Montreal-based plane and train maker has shuffled the chairs in its executive suites. Gone from the corner office is president and chief executive Pierre Beaudoin, who has been elevated to the clubby confines of the boardroom as executive chairman of the family-controlled company. He will replace his father, longtime chairman Laurent Beaudoin, who will retire after 30 years in the chair.
The newly vacated CEO corner office will now be filled by Alain Bellemare, former chief executive at United Technologies Corp., who has extensive experience in the industry. For a company that has faced growing criticism from investors and analysts over cost overruns and delays in the development of its CSeries jets, missed profit targets and a falling stock price, reaching outside its ranks for a new leader is certainly symbolic, if not inspired. But the move isn’t as substantive as it might be if this were not a company with a dual-class voting structure.
That’s what makes Thursday’s manoeuvrings merely window dressing. Mr. Bellemare clearly has a daunting task to restore Bombardier to its former greatness, but he’s ring-fenced by the fact that nothing has changed in terms of who controls the company and its strategic direction.
For one, members of the Beaudoin and Bombardier families control the company through a 64% majority ownership of its class A shares — and Laurent Beaudoin owns 24% — which gives them 10 votes for each share.
As executive chair, Pierre Beaudoin still has enormous influence over the company, especially over mergers and acquisitions and corporate financings. Not only is he a member of the controlling family, he’s not independent as a non-executive chairman would be, for example, like Thomas O’Neill at BCE Inc. or Kathleen Taylor at Royal Bank of Canada.
In his new role as CEO, Mr. Bellemare reports to Mr. Beaudoin, the guy he just replaced. Expect those conversations to be a little tense — Mr. Beaudoin may naturally be a little defensive about his legacy, while the new guy on the block may be wanting to forge his own.
And what about Bombardier’s board of directors, which by any governance standards, is in desperate need of renewal. Of the 14 sitting directors, at least three are family members, and another five have been on the board for 10 years or more. Among them is Jean Monty, former CEO of BCE Inc., who has been on Bombardier’s board since 1998; former Quebec premier Daniel Johnson has warmed a seat on the board since 1999; former auditor general of Canada Denis Desautel joined in 2003; and former Bombardier executive Jean-Louis Fontaine has been a director since 1975. None of Bombardier’s directors is described as the lead or the independent.
Obviously such longevity raises the question whether these directors can still be considered independent, especially given that they have survived despite being in the boardroom during the tumultuous years that has caused Bombardier to fall from greatness. What all this underscores is that there is no minority shareholder counterpoint or voice in the boardroom because the family controls the executive decisions. Essentially, investors are buying into the family’s ability to make decisions.
Governance reforms have outlined that best practices for boards should include independent chairs and a good mix of independent directors. Obviously, Bombardier doesn’t have the former and technically may argue it fulfills the latter. That would be debatable given that there’s growing discourse on how excessively tenured directors who sit on boards for nine years or more tend to have compromised judgments.
The bottom line: because the reporting structures at Bombardier remain unscathed by the management
Of the 14 sitting members … five have been on the board for 10 years or more
shuffle, Mr. Bellemare is reporting to the same boardroom cronies who oversaw the mess his predecessor made with impunity. Stripped down to its basics, the new CEO is on a short leash that can be yanked at the pleasure of the controlling family. It happened the last time the family reached outside its ranks when it hired Paul Tellier, one of Canada’s most admired CEOs, and he didn’t last two years in the corner office.
The younger Mr. Beaudoin made it clear he intends to carry on the family tradition in his new role as executive chair, telling analysts, “It’s a very good thing that the family has been there to invest for the long term and also be able to participate in key decisions through the years. So I think this is one of the strengths of Bombardier and we continue to support and push for the family involvement.”