Wednesday, February 14, 2018

No Love For PSP's Former CEO?

This is a bilingual comment so bear with me. André Dubuc of La Presse reports, Investissements PSP: 50 dirigeants licenciés, des millions en indemnités:
Un important gestionnaire de caisses de retraite publiques situé à Montréal a remercié 50 de ses dirigeants durant le court règne de son PDG, malgré d'excellents résultats financiers. Près de 25 millions en indemnités et primes ont dû être versés aux cadres licenciés.

Le moins que l'on puisse dire est que le mandat d'André Bourbonnais n'a pas été un long fleuve tranquille à la tête du gestionnaire d'actif des caisses de retraite des fonctionnaires fédéraux, des Forces armées canadiennes et des policiers de la Gendarmerie royale du Canada.

M. Bourbonnais vient d'ailleurs de quitter Investissements PSP pour aller diriger un projet dans le secteur des investissements alternatifs chez BlackRock, à New York, un géant mondial de la gestion d'actif.

En moins de trois ans, de son arrivée en poste le 1er avril 2015 à janvier 2018, M. Bourbonnais a vu 87 cadres quitter la boîte, indique PSP dans une réponse à une demande d'accès à l'information formulée par La Presse. Parmi eux, pas moins de 50 employés de niveau supérieur à directeur ou « manager » ont été remerciés. En 2015, PSP comptait 239 cadres de ce niveau.

Des 19 VP que comptait PSP à l'arrivée de M. Bourbonnais, 10 sont partis depuis : 3 de leur propre chef et 7 se sont fait montrer la porte.

Chez PSP, on qualifie ce taux de roulement de « conforme » à ce qu'on voit dans l'industrie financière.

Pareil nettoyage vient avec une facture salée. PSP a dû verser 15 millions en indemnités de départ aux personnes licenciées. À cette somme s'ajoutent près de 9 millions en primes qui ont été déboursées pour les employés qui ont quitté la société ou qui ont été remerciés.

Ces millions se sont ajoutés aux charges de l'entreprise. Les salaires et avantages du personnel ont doublé, passant de 107 millions en 2014-2015 à 210 millions en 2016-2017. Pendant la même période, l'actif sous gestion a crû de 21 %, passant de 112 milliards à 135,6 milliards.

CHANGEMENTS ET RÉSULTATS

M. Bourbonnais a été engagé en 2015 pour mener l'organisation à un niveau supérieur, disent des sources tant à l'intérieur qu'à l'extérieur de l'organisation. Créé en 1999, Investissements PSP est toujours en phase d'accumulation de capital, une situation qui commandait des ajustements. Son départ subit a déçu le conseil d'administration, qui est satisfait de son travail, a-t-on appris.

Des changements, il y en a eu sous M. Bourbonnais. Le nombre d'employés est passé de 600 à 800, dont 300 cadres. Il a réorganisé le groupe de placements privés, a créé la catégorie des titres de créances privées, et PSP a ouvert ses deux premiers bureaux à l'étranger : New York et Londres.

Le patron a toutefois profité de l'occasion pour faire maison nette, même si PSP connaissait des résultats financiers à faire pâlir d'envie tout gestionnaire d'actif.

Avant avril 2015, PSP avait battu son indice de référence cinq années de suite. Par exemple, son rendement avait de 15,9 % en 2013-2014 et de 14,2 % en 2014-2015. À la décharge de M. Bourbonnais, les bonnes années se sont poursuivies sous son règne. PSP a fini l'exercice financier 2016-2017 avec un rendement de 12,8 %.

PROCESSUS D'EMBAUCHE

Autre constat, PSP a pourvu des postes-clés par des personnes de confiance de M. Bourbonnais, sans faire faire appel à des firmes de recrutement.

Ce fut le cas notamment pour les postes de chef de la direction financière et de premier vice-président et chef mondial des marchés privés, respectivement attribués à Nathalie Bernier et Guthrie Stewart. MM. Stewart et Bourbonnais se connaissent depuis au moins 20 ans, à l'époque de Téléglobe.

Aucune firme de recrutement n'est intervenue non plus dans le processus menant à l'embauche de François Dufresne comme directeur principal, placements privés, et de Simon Marc, directeur général, placements privés, confirme l'organisation dans sa réponse à la demande d'accès à l'information.

PSP soutient suivre un « processus rigoureux » d'embauche.

C'est un vétéran de l'organisation, Neil Cunningham, qui remplace M. Bourbonnais au siège social de l'organisation, au 1250, boulevard René-Lévesque Ouest, au centre-ville de Montréal. M. Cunningham était auparavant PVP, chef mondial des placements immobiliers et ressources naturelles.

- Avec William Leclerc, La Presse

QUELQUES-UNS DES DÉPARTS SOUS ANDRÉ BOURBONNAIS

JOHN VALENTINI

Ancien vice-président directeur, directeur de l'exploitation et chef de la direction financière

Départ : 2015

Ce qu'il est devenu : vice-président directeur et chef de la direction financière globale chez Fiera Capital

BRUNO GUILMETTE

Ancien vice-président principal, investissements infrastructures

Départ : décembre 2015

Ce qu'il est devenu : administrateur de la Banque de l'infrastructure du Canada

GUY ARCHAMBAULT

Ancien premier vice-président, ressources humaines

Départ : 2016

Ce qu'il est devenu : premier vice-président et chef des ressources humaines chez Fiera Capital

DANIEL GARANT

Ex-vice-président à la direction et chef des placements

Départ : 30 juin 2017

Ce qu'il est devenu : vice-président principal, marchés publics, chez bcIMC
Boy, I tell you, it's Valentine's Day but there's no love for PSP's former president and CEO, André Bourbonnais, in this hatchet job of an article, one that I would expect to read in Le Journal de Montréal right next to some article entitled "He embezzled funds to feed his cocaine and gambling habit."

"Tabarnak, maudit André Bourbonnais!" The knives came out quickly after he announced he's headed to BlackRock and it's quite evident someone fed Dubuc this information to settle a score (I suspect someone in the article was behind this but it could have been plenty of other people who wanted to settle a score).

So what's all this about? First, let me give you the gist of the article. It's all about how during the short three year tenure of André Bourbonnais, several key senior officers and many directors at PSP were fired despite good results and it ended up costing the organization a grand total of roughly $50 million in settlements, deferred bonuses and legal fees ($25 million for the senior officers that were let go, and another $25 million for senior directors and other employees that were let go over the last three years).

To be sure, there is nothing new here for me but reporters don't bother reading my blog or calling me because if they did, they would have realized this has been going on a long time at PSP and a lot of those multimillion dollar settlements were a direct result of its former president and CEO, Gordon Fyfe, who is now the president and CEO of bcIMC.

Importantly, it was under Gordon Fyfe's watch that compensation at PSP reached extreme levels before the government stepped in to cap total compensation at senior levels, and it was under Gordon's watch that senior officers signed iron clad contracts which granted them big settlements if they were fired for any reason other than performance.

From the people named in this article, John Valentini (PSP's former CFO and interim CEO before Bourbonnais was placed in the top job) and Bruno Guilmette (PSP's former head of infrastructure) made millions in their settlement. Guy Archambault was the former senior VP of Human Resources. I suspect he got a nice package too but nothing compared to other senior officers who were responsible for investments and finances.

Another person who "departed" PSP soon after Bourbonnais took over was Derek Murphy, the former senior VP of Private Equity. He wasn't mentioned in the article but knowing Derek, I guarantee you he extracted a pound of flesh from PSP when it came to his settlement (it may still be tied up in court).

Daniel Garant, PSP's former CIO left the organization and joined Gordon Fyfe at bcIMC. It's unclear why he left as he was routinely being touted as the next in line to take over the top job but if he was let go, it cost PSP millions in a settlement.

Jim Pittman, a former VP in Private Equity, also left PSP to join Gordon at bcIMC where he's now the head of private equity at that organization. It's my understanding that Jim left on his own and in good terms.

There were a lot of other people that left PSP over the last three years after André Bourbonnais took over and it was a messy and stressful process.

What are my thoughts in all this? First, I lived through my own hell when I was abruptly let go from PSP back in October 2006, and trust me, I didn't get a multimillion dollar settlement even though my lawyer at the time was imploring me to go to court to protect my future (lawyers are good at giving advice which feeds their pocket).

I don't take any pleasure watching people get fired, none whatsoever, even people who I couldn't care less about and think they had it coming. When I left PSP in 2006, the turnover rate was 36%, an astounding figure for a large Crown corporation which manages the pensions of federal government employees.

Keep in mind, this is a public pension fund with a very long investment horizon and a Crown corporation managing hundreds of billions, not some rinky-dink money management outfit where some tyrant in charge is firing and hiring people at will.

When I was investing in hedge funds at the Caisse, I would regularly look at the turnover rate because if it was high, it signalled a problem and immediately raised concerns. I don't care if it's in the font office, back office, middle office, if you see a high turnover rate, it's not a good sign and signals a cultural problem at the organization.

So what happened at PSP soon after André Bourbonnais took over? I suspect he took the job on condition that he has free rein to hire and fire people at will, which he did, and place his own people in key positions. His predecessor, Gordon Fyfe, did the exact same thing and in all these big shops, whenever a new CEO comes in, there is a period of disruption.

That's the way it goes at these big shops, the minute a new CEO takes over, they typically fire people and place people they trust in key positions. It's understandable on one level but when it's taken to an extreme, it's demoralizing and can severely impact the morale of employees.

Do I agree with every HR move André Bourbonnais did at the senior level after he took over PSP? Of course not, I think he should have kept Bruno as the head of infrastructure and even though Derek Murphy had his boxes packed once André was named CEO, I'm surprised Guthrie Stewart was named head of Private Markets (not someone who had the requisite experience for this senior job but obviously someone who André trusted and knew well and he did a decent job but wasn't really tested).

As far as John Valentini and Guy Archambault, the writing was on the wall. John was vying to become PSP's next president so there was no way he was going to be kept as the CFO and Guy wasn't André's choice and had a mixed track record at PSP. So I wasn't shocked to see them let go but all it took was one phone call from Gordon Fyfe to his friend and mentor, Jean-Guy Desjardins, and they both landed nicely on their feet at Fiera Capital where they enjoy senior jobs after getting a big settlement from PSP.

Knowing Gordon, he coached them and orchestrated all this from Victoria. In fact, one senior director who was let go from PSP and had conversations with Gordon shortly after he left PSP told me that Gordon asked him "Was everything I did at PSP so wrong?". Goes to show you, there are big egos involved at the top jobs at some of these big shops and Gordon didn't take too kindly to Bourbonnais's management style (I'm sure the feeling is mutual).

Anyway, what really irks me in all this is that while I believe in competitive compensation at Canada's large pensions, I also believe they've taken it to an extreme and these multimillion dollar settlements are a gross abuse of a system which tries to maintain no government interference.

Sure, an argument can be made that senior officers need protection from a new CEO who can fire them at will, and no doubt in some cases they definitely do, but when you see $50 million in settlements over the last three years, you wonder what the hell was going on and why are settlements for senior officers so egregious even by private sector standards.

It's nuts. Not only do they get multimillions in compensation if they deliver on their targets, they can also collect multimillions if they get fired for any reason other than performance.

And remember, they are managing billions from captive clients, not hustling to market themselves to get new clients like most fund managers do.

The people in Ottawa are paying close attention to all this. The civil service union contacted me earlier today telling me they were shocked when they read this article and wanted my thoughts.

Of course, anyone working hard, putting in long hours for an honest day's work is reading this thinking these senior officers at PSP and other shops have it really good. And they're right, they most certainly do.

There is another André not mentioned in this article, André Collin who was Neil Cunningham's predecessor at PSP heading up real estate investments before leaving to join John Grayken's Lone Star where he's now the president of the fund. That André now enjoys hundreds of millions in compensation and has become one of Canada's richest people running this powerhouse real estate fund (not saying he didn't work hard to get the top job at Lone Star but nobody ever asked how he was hired away from PSP after investing billions in Grayken's funds, a small governance issue that was conveniently ignored).

All this to say that André Dubuc's article was a hatchet job that fails to look into the entire history at PSP which led to these millions in settlements. I agree, there are a lot of things André Bourbonnais did wrong and he abused his power to a certain degree but the truth is they all do, it's a free-for-all at the senior levels of these big shops and there is a tremendous amount of backstabbing that takes place.

Still, it's easy for me to be highly critical from the outside, truth is when you're the president and CEO, you have a lot of stress and the pressure to perform is intense. You need to place key people in senior positions, people you trust and and can count on in good and bad times.

And while I don't agree with all his moves, André Bourbonnais did manage to diversify his senior management team and place women in high positions, something Gordon never thought about or didn't take seriously (they both didn't hire any people with disabilities and I'm not holding my breath that this will ever change).

Lastly, let me be clear here, André Bourbonnais isn't my friend and neither is Gordon Fyfe. Nobody is my friend. I write things the way I see them and I'm brutally honest which is why so many people read this blog. I don't have a monopoly of wisdom nor do I pretend to know everything about what's going on at these large pensions, but I have a ton of life experience and a perspective that I think is sorely lacking at these big shops.

There are a lot of people working at PSP and other big pensions who think they're entitled to getting big compensation and big bonuses. Enjoy the ride while you can because one day you will realize what I learned long ago, you're not entitled to anything, you have the privilege of occupying a chair and your focus should be entirely on your pension's mission statement and delivering solid long-term results. That's it, that's all.

Below, an old (2009) conversation on CEO compensation with an assistant professor of finance at the University of Maryland's Robert H. Smith School of Business, Michael Faulkender. It's obvious pensions and settlements figure prominently into compensation of senior executives but we need to examine this more carefully and strike a fair balance, especially at Canada's large public pensions.

Update: A former pension fund manager turned fund manager shared this with me after reading this comment:
It sounds like some top pension executives abuse their privileged position more than others.

Your point about managing captive funds is very important. Large pension plans obviously need to pay to attract top talent, but should C-suite executives compensation be several multiples of that of the front-line asset managers that work under them? Shouldn't top pension executive's pay be more closely geared to the fund's investment performance relative to its target return (rather than internally devised benchmarks)?
His comments got me thinking maybe they should publish average and median compensation at these large pensions and the ratio of CEO's compensation relative to the average and relative to front-line asset managers that work under them.

As far as top pension executive's pay being more closely geared to the fund's investment performance relative to its target return (rather than internally devised benchmarks), I believe most big pensions have implemented a compensation system that is geared to the overall fund's investment performance over a four or five-year period.

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