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The Nexen building is seen in downtown Calgary, Alberta, July 23, 2012. (TODD KOROL/Reuters)
The Nexen building is seen in downtown Calgary, Alberta, July 23, 2012. (TODD KOROL/Reuters)

Foreign acquisition pledges have a short shelf life Add to ...

As CNOOC Ltd. continues the behind-the-scenes work of pushing through its $15.1-billion bid for Nexen Inc., it is navigating the thicket of pledges needed to convince the federal government it will bring a “net benefit.”

One of those, if past experience is a guide, will likely involve promising to keep a cohort of Canadians in its local senior management team, the small group whose decisions guide the company’s actions. Having Canadians in senior management can be an important way of ensuring a company continues to abide by the country’s standards. Those commitments can be an indication of how well Investment Canada pledges are maintained – and provide a window into the corporate shifts that occur when a foreign company takes over.

Plus, Ottawa is watching. Investment Canada, on its website, says “the degree of Canadian participation has taken on more weight in the review process.”

But keeping a group of highly-paid Canadians on staff isn’t always a priority. In fact, they can be punted when foreign companies move in, says Robert Skinner, who has served in senior positions at Statoil and Total in Canada, and helped negotiate Investment Canada pledges – legally known as “undertakings.” He is critical of the process, which typically involves the government checking up on pledges at the 18 month mark, followed by a final report three years later.

“After that, Industry Canada ignores you; you can do as you like,” he says.

He points to senior management. A company might “start out all jolly and happy learning from the locals.” But once the final reporting is done, “virtually every company brings in their own to run the place,” he said. “It’s just too complicated to try to understand the quirkiness of the locals.”

Though there aren’t a lot of jobs involved, it’s a problem for Canada, Mr. Skinner explained, because it limits the influence and advancement opportunities for Canadians.

What’s clear from a survey of foreign-owned energy companies in Canada, however, is that such policies are tremendously mixed. And companies also take different approaches. Total’s Canadian leadership is half French. But “the expectation around those numbers is that they go up in favour of Canadian content as the organization matures,” said spokeswoman Elizabeth Cordeau-Chatelain.

Foreign companies also have good reasons to bring in some leadership from overseas to connect the local subsidiary with its head office culture and policies. And the opportunity to work abroad is often an attraction for Canadians rising through the ranks of a foreign-owned company.

Still, the senior leadership composition reveals a weakness in the Investment Canada process: so-called “net benefit” pledges often aren’t long-lived. For example, a spokesperson for Investment Canada said the majority of auditing on those pledges happens just a year and a half after a transaction.

An evaluation “is ordinarily performed 18 months after the implementation of the investment, or earlier as required,” Stefanie Power said in a statement. “Efforts are often made to align monitoring activities with the investor’s annual reporting cycle to facilitate the reporting of timely and accurate information.”

At a glance
The makeup of management teams at Canada’s foreign-owned energy companies

BP: 14 per cent foreign

Imperial Oil: 60 per cent foreign

Husky: 13 per cent foreign

Devon: no foreign

Marathon: 66 per cent foreign

Harvest: 45 per cent foreign

Shell: roughly 20 per cent foreign

Apache: 11 per cent foreign

TAQA: 25 per cent foreign

ConocoPhillips: 42 per cent foreign

Total: 50 per cent foreign

Statoil: 60 per cent foreign

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