If Ottawa was a management team, investors would call for change

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During my days as an equity analyst and now as a portfolio manager I am often asked what the most important factors are when investing. I would have to say the answer is the quality of the management team in charge and the environment they are operating in — you can have an Olympic gold medal swimmer, and it won’t make a difference if there are sharks in the pool.

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For those looking for some examples, they needn’t look far, as there are some powerful lessons right out of our nation’s capital. Last week’s release of the Fall Economic Statement, which revealed a growing and massive deficit and was preceded by the resignation of the Finance Minister, is a case in point of some serious flaws in the management team currently overseeing this country.

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When a company’s chief financial officer resigns it’s a glaring red flag, but imagine how bad it must be when you lose two? That’s essentially what this government has endured with the resignations of Bill Morneau and now Chrystia Freeland.

While it is normal to have ministerial change, more than two thirds of Justin Trudeau’s 2015 cabinet have since been fired, defeated or outright resigned. That represents significant turnover in the senior management team overseeing the country.

At the same time, real GDP per capita has been in a steady decline and now below that of the second quarter of 2018 – that’s six years with zero growth by that measure. And the Canadian dollar has fallen below 70 cents to levels not seen since 1998. This is a time when a steady hand is needed at the economic tiller.

Now, imagine a company borrowing money at such a pace that they doubled their debt over six years and delivered zero growth at little benefit to their shareholders. Well, this is what happened in Ottawa.

We are governed with economic ineffectiveness and internal dysfunction, all under the guidance of a leader that one could argue has accepted no accountability or is even willing to acknowledge the economic underperformance we are experiencing. This reminds me of management teams who don’t look out for their shareholders.

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It has reached the point where the only way out may be what investors call a full restructuring. This means: getting rid of the entire management team and the board of directors; cutting the administrative excess, regulations and non-essentials; rebuilding the balance sheet by attracting new capital partners and, most importantly, finding ways to improve our competitiveness, perhaps by looking at our core strengths.

In our case, this means harvesting our vast resources, and then using the tremendous cash flow and wealth from them to diversify into other areas and building expertise in technology, research and development (R&D), reshoring and global engineering and infrastructure. Once we do this, we might be amazed at the people and capital we will attract.

Change is never easy when you have an entrenched management team, as sometimes it takes a hostile takeover or an outright bankruptcy. Fortunately, we have a term limit that will allow for change by October 2025. We just have to wait and see what remains at that time.

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We are all shareholders in this great nation of ours. It’s time we exercise our proxy and start investing for a better future: one that will grow, pay dividends and have a management team working for us and not themselves.

Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

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