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When Alain Bellemare joined Bombardier as CEO in early 2015, he promised a new beginning that would see the Canadian plane and train maker realize its “true potential.”

Five years later, with Bellemare having announced Monday it was selling the rail division to France’s Alstom, Bombardier is starting over yet again.

You can call the company many things: a shadow of what it once was; a failed experiment in empire building; a poster child for bad decisions, poor execution and woeful governance. It is all that, but maybe most of all, it is a cautionary tale for family-controlled businesses.

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The company has been a chronic turnaround story since 2001. Twice in the past two decades, it has turned to outsider leaders, who presided over asset sales, recapitalization, belt-tightening and tough decisions to keep the company alive. After cutting short the tenure and plans of Bombardier’s first saviour, Paul Tellier, the Bombardier/Beaudoin family that controls the company has continued to back Mr. Bellemare as he carried out the near-complete dismantling of their baby to shore up the company’s balance sheet.

Long gone are the dreams of turning the commercial airliner market on its head with a 100- to 150-seat jet called the C Series, and turning its sprawling train division into a sufficiently profitable operation. Longer still gone are the ambitions to turn Bombardier into Canada’s version of General Electric, dating to a time when GE was the world’s most admired enterprise, rather than a perennial turnaround story itself.

Instead, assuming various transactions now under way come to fruition, what’s left will be a business with a single line: selling high-end corporate jets to giant companies and the ultrawealthy. If you’re an optimist, it’s a profitable and worthwhile endeavour that helps people connect quickly. If you’re not, it’s an unfashionable venture during an era of mounting environmental concerns and growing income inequality.

With the announcement by Bombardier President Alain Bellemare, seen here on Nov. 17, 2019, that it was selling the rail division to France’s Alstom, Bombardier is starting over yet again.

Christinne Muschi/Reuters

Bombardier will be an orphan in the aerospace sector – a lone business without the backup of a diversified group of aerospace and defence units like its competitors have, units that bring in steady cash flow and technology transfer capabilities through military contracts with their own governments. It will also be operating in a cyclical industry that is near the end of a very long upcycle.

After years of de-emphasizing the importance of aerospace, law and policy makers in Ottawa are faced with tough decisions. Bombardier’s shrinking already has huge implications for one of Canada’s most valuable sectors, which directly employs about 215,000 people and accounts for $25.5-billion in domestic economic activity. But aerospace’s share of GDP has slipped over the past decade and could further erode thanks to Bombardier’s dismantling.

Canada’s position as an aviation power dates to the Second World War, when this country made planes for the Allied effort far from the reach of German bombers. Ever since, “the Canadian government in one way or another has been an active commercial partner with the aerospace industry,” says Richard Dicerni, who served as federal deputy minister of industry from 2006 to 2012.

The sector has provided high-skilled, high-paying jobs, and successive governments going back decades have tried to hold on to the expertise in aerospace design and manufacturing through a series of funding programs. But Bombardier’s downsizing has already been a major blow. Its regional jet business, which once dominated high-value industrial exports from Canada, was sold to Mitsubishi, and with the Japanese government backing the purchase, many of the high-skilled jobs will likely shift across the Pacific. Years of work on the C Series now belong largely to France’s Airbus SE. If another company took over Bombardier’s corporate jet business, what would the Canadian aerospace sector look like in five, 10 or 15 years?

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But selling off the jet division to a deeper-pocketed competitor is only one of the three paths open to Bombardier. The second is that it could limp along for years with the help of government aid, maintaining jobs but otherwise not contributing much to the broader national economy – at least until the next recession hits.

The third option requires both Bombardier and the government to make a bold and risky move, on par with its push into regional jets in the 1980s, which was highly successful (for a while), or its foray into 100-seater jets, which was not. An ambitious CEO could see some potential in building a larger aerospace and defence group around business jets – which, though not great as a stand-alone entity could make a decent base for a consolidation play.

BOTTOM HALF OF THE BUSINESS JET SEGMENT

VS. TOP HALF

BOTTOM HALF OF THE BUSINESS JET SEGMENT VS. TOP HALF

BOTTOM HALF OF THE BUSINESS JET SEGMENT VS. TOP HALF

Collapse

Many former and current Bombardier insiders and executives says what’s needed is new leadership that can deliver the kind of operating discipline that’s been sorely lacking for years, a team with the corporate development capability to spot and move on promising merger-and-acquisition opportunities, and to piece them together into something bigger and better. This will also mean finding a source of capital – perhaps an aerospace-focused private equity giant like Carlyle Group or the Caisse de depôt et placement du Québec, a past partner – willing to back them. In this scenario, the founding family would finally have to give up control of the company it created in 1934, perhaps by agreeing to reduce its voting-share power like it did at Ski-Doo maker BRP Inc., where it holds a minority stake. Bombardier’s ability to attract top talent and big capital depends on it.

But if Bombardier is prepared to get serious, so must Ottawa. The company’s future hinges on what it does with this second chance and how the Canadian government responds. Ottawa can either step up with the kind of support needed to create a global aerospace player – or watch it slip further into middle-power mediocrity.


Bellemare sounded optimistic this week as he insisted Bombardier’s US$8.2-billion deal with Alstom would give the debt-crippled company a new lease on life.

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There was the Bombardier chief executive Monday, under the bright lights of the Radio-Canada TV studio, trying to explain to an incredulous host how it could have come to this. How could things have soured so quickly in five years under his watch that the company was forced to sell asset after asset, shunting 65 per cent of its revenue out the door, including the rail division, its biggest revenue generator?

All this started last summer as an effort by Bombardier’s board to examine ways to pare down more than US$9-billion in debt. “The challenge was bigger than I expected,” Mr. Bellemare said on TV. “We no longer had the financial capacity to support the debt load."

If the rail deal (which will see the Caisse roll its stake into Alstom and become its biggest shareholder) clears all regulatory and other hurdles, Bombardier will end up with just 18,000 employees and one lone class of products that only a handful of people or companies will ever be able to afford. The CEO nonetheless put his best spin on the future of an empire that once employed 70,000: “It’s a lot!” he said of the shell that remains. “We’re still the heart of the aerospace industry in Quebec and in Canada.”

Bombardier's Global 7500, the first business jet to have a queen-sized bed and hot shower, is shown during a media tour in Montreal, on Dec. 19, 2018.

Christinne Muschi/Reuters

In reality, the company also considered selling the luxury jet business and received an offer from Rhode Island–based Textron, owner of rival business-jet maker Cessna, according to two sources who spoke to The Globe. Bombardier opted to sell the train unit instead, in part due to the sensitivity of being seen to abandon an eastern Canadian aerospace footprint built over decades.

And so, nearly 50 years after making the leap from snowmobiles to mass transit to diversify its revenue base, Bombardier has ended its foray into diversification. No longer will it be able to count on train contracts to counter the ups and downs of business jet sales.

“The good news is that the financial danger linked to their debt disappears” by selling the train unit, says Mehran Ebrahimi, an aerospace specialist at the University of Quebec at Montreal. “The bad is that they’re left with only one card in their hand, and it’s vulnerable to an uncertain future.”

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Bombardier’s aerospace ambitions began in 1986, when it bought money-losing Canadair from the federal government. The country’s nascent aerospace industry had suffered under the neglect of foreign owners, and Ottawa was desperate to put Canadair, whose Canso seaplanes played a key role in helping the allies win the Second World War, in safe hands. It sweetened the pot for Bombardier, agreeing to protect against any net losses for four years.

What then CEO Laurent Beaudoin, the son-in-law of the company’s founder, got was a collection of assets that included not only the Challenger business jet, but also the CL-215 water bomber, military surveillance drones, and a servicing and parts operations. Bombardier made the most of the new workforce and engineering expertise, and deepened its military expertise in the process, expanding with the takeovers of U.K.-based Shorts Brothers and de Havilland (in both cases with government help), and Kansas-based Learjet, a maker of light aircraft geared to business travellers.

Former Bombardier Inc., CEO Laurent Beaudoin attends the company's annual general meeting in Montreal, on May 2, 2019.

Graham Hughes/The Canadian Press

Backed by repayable federal money, Bombardier parlayed the Challenger into the Canadair Regional Jet (CRJ) and launched the country into commercial aircraft manufacturing in the 1990s. Small and narrow, with seating for 50 to 100, Bombardier sold nearly 2,000 CRJs; they are widely considered to be the company’s biggest export success.

As oil prices rose and the economics of selling small jets weighed on orders in the early 2000s, Bombardier developed the larger C Series, staking its future on a jet program that cost US$7-billion. The massive borrowing it required nearly bankrupted the company and would eventually force it to sell the train business.

The C Series is now known as the Airbus A220 after Bombardier ceded control of the program to the European giant in 2017. Since Mr. Bellemare took over, Bombardier has also sold its Q400 turboprop unit, its aviation training business and big chunks of its former aerostructures parts-making division, among other assets.

BUSINESS AIRCRAFT MARKET BY CLASS

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PROPS

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+RJ

ULTRA

VERY

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ENTRY

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BUSINESS AIRCRAFT MARKET BY CLASS

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s

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LARGE

SUPER-MID-SIZED

MID-SIZED

ENTRY-LEVEL

VERY LIGHT

Now, Bombardier’s sole focus will be the one business it believes it does best: building and selling luxury private jets under the Learjet, Challenger and Global brands, with prices that start at US$9.9-million and top out at US$75-million. “With Bombardier’s [biggest-sized] Global series jets, you’re selling to rock stars and top corporations. With trains, you’re selling to urban procurement managers,” says Richard Aboulafia of aerospace consultancy Teal Group. “Your pricing and profit expectations are completely different.”

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Armed with a strong portfolio of planes and a pool of buyers drawn to new products, Bombardier is bullish about its prospects. The company’s order backlog was worth US$14.4-billion at the end of December, and it has been beefing up its service and maintenance capability to drive more revenue.

But it’s a crowded, flat market in a relatively small sector. Total billings for new business jets amounted to about US$20-billion in 2019, according to the General Aviation Manufacturers Association (GAMA). Competing for that business are seven plane makers with 35 to 40 models between them, chasing 809 sales last year. Many of those sales depended on the whims of the superwealthy.

“It’s a ridiculously disaggregated business, and it is screaming for consolidation,” says Rolland Vincent, a former Bombardier executive who now works as director of Jetnet IQ, a Texas-based market intelligence service for business aviation. “Margins can be skinny, volumes are low. It’s a classic case for [rationalization], especially if we see a downturn. And we will see a downturn.”

Business aviation also has an image problem. As concerns over climate change grow, flight-shaming has hit the secret world of luxury travel. And that’s doesn’t bode well for sales, says industry consultant Brian Foley. "Whereas criticism of corporate executives flying off into the sunset in their private jets had always been a crowd favourite to stick it to ‘the man,’ adding the environmental card now brings a nuclear option to activists’ arsenal,” Mr. Foley wrote recently in Forbes.

AIRPLANE UNITS SHIPPED AND BILLINGS 2019

GULFSTREAM

TOTAL BILLINGS

BOMBARDIER

TOTAL

BILLINGS

TEXTRON

TOTAL

BILLINGS

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AIRPLANE UNITS SHIPPED AND BILLINGS 2019

GULFSTREAM

TOTAL BILLINGS

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TOTAL BILLINGS

TEXTRON

TOTAL

BILLINGS

DASSAULT

TOTAL

BILLINGS

EMBRAER

TOTAL

BILLINGS

AIRPLANE UNITS SHIPPED AND BILLINGS 2019

GULFSTREAM

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TOTAL BILLINGS

TEXTRON

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Bombardier is opting for money in the bank in deciding to keep its business jet unit. The franchise had an adjusted EBIT (earning before interest and tax) margin of 7 per cent last year (higher than some other rivals but less than industry leader Gulfstream). It enjoys a strong market position, with a 17.6 per cent share of unit deliveries in 2019, GAMA figures show. The company was second behind Gulfstream in total billings, with US$5.7-billion.

But it’s exceedingly difficult to sell a US$70-million Global jet to a customer when your stock price is $1.50 per share, says a former Bombardier executive who spoke freely on condition he not be identified by name. Wealthy individuals buying these aircraft want a relationship with a healthy manufacturer, he adds. That makes it imperative for Bombardier to resolve any perceived existential threats, especially when it’s asking for multimillion-dollar deposits.

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A view of the administration building of Bombardier in Henningsdorf, Germany, on Feb. 18, 2020.

Paul Zinken/The Associated Press

The company also has to plan for future product investments or risk eroding the business. In that sense, repairing the balance sheet was a necessary step as the company gears up to redesign its aging mid-sized Challenger line, says a senior executive involved in the Alstom deal.

Refreshing its product line is essential in a market that is stable but has barely grown over the past decade. The historical correlation between luxury jet sales and U.S. corporate profits appears to be cracked. Companies have posted strong earnings in recent years, but private jet sales haven’t followed.

Sales of large-cabin, long-range jets that can cross oceans have held up better. During the 2008-09 recession, sales of the priciest big-cabin jets kept growing, fuelled largely by buyers in up-and-coming countries like China, while the cheaper products declined sharply. By beefing up its offerings in the higher end of the market, Bombardier is betting it can insulate itself from any future downturn.

That means much of Bombardier’s business jet future is pinned on its all-new marquee Global 7500 aircraft, the biggest, fastest and most expensive private jet the multinational has ever built. The 19-passenger plane, which Bombardier spent billions developing, can fly non-stop from New York to Hong Kong, and has four living spaces, a full-sized bed and kitchen, and dedicated quarters for the crew. The plane is sold out through 2022.

betting on the global 7500

Much of Bombardier’s business jet future is pinned

on its all-new marquee Global 7500 aircraft, the

biggest, fastest and most expensive private jet the

multinational has ever built.

Price:

US$75M

Passengers: up to 19

Height:

8.2 m

Engines:

Two GE Passport

Cabin height:

1.88 m

Length: 33.8 m

Maximum

speed:

Mach 0.925

Maximum

range:

14,260 km

Max. operating

altitude:

15,545 m

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: bombardier

betting on the global 7500

Much of Bombardier’s business jet future is pinned on its

all-new marquee Global 7500 aircraft, the biggest, fastest

and most expensive private jet the multinational has ever

built. The plane, which can fly New York to Hong Kong

non-stop, has four living spaces with a full-sized bed and

kitchen as well as dedicated quarters for the crew. The

plane is sold out through 2022.

Price:

US$75M

Passengers: up to 19

Height:

8.2 m

Engines:

Two GE Passport

Cabin height:

1.88 m

Length: 33.8 m

Maximum

speed:

Mach 0.925

Maximum

range:

14,260 km

Max. operating

altitude:

15,545 m

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: bombardier

betting on the global 7500

Much of Bombardier’s business jet future is pinned on its all-new marquee

Global 7500 aircraft, the biggest, fastest and most expensive private jet the

multinational has ever built.

Price:

US$75M

Passengers: up to 19

Height:

8.2 m

Engines:

Two GE Passport

Cabin height:

1.88 m

Length: 33.8 m

Maximum

speed:

Mach 0.925

Maximum

range:

14,260 km

Max. operating

altitude:

15,545 m

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: bombardier

Bombardier shared some internal data with The Globe in 2018 that bolsters its confidence in the health of the high end of the market. The company’s research shows the number of high-net-worth individuals (those with a minimum of US$100-million in assets) climbed by 10 per cent from 2015 to 2017, outpacing economic growth. More specifically, the number of billionaires worldwide increased by about 15 per cent, to 2,754, in 2017, according to research firm Wealth-X.

Bombardier already sells jet to many of these individuals and is trying to woo more of them. Its own research shows 18 per cent of billionaires and 28 per cent of the biggest public companies use a private jet or own one outright. That suggests big untapped interest.

There’s a potential complication for Bombardier, though: it’s about to become the industry’s only major pure-play luxury jet manufacturer. Gulfstream, which competes with Bombardier on big-cabin jets, is owned by General Dynamics, a major defence contractor that makes submarines and the M1 Abrams tank. Cessna’s parent, Textron, owns Bell Helicopter, which builds military choppers. France’s Dassault Aviation and Brazil’s Embraer also build military aircraft. That means everyone but Bombardier has other businesses to help offset corporate jet operations and feed research and development. That could leave Bombardier exposed when the economy slows and it needs to make the next multibillion-dollar investments to keep buyers interested.

But Mr. Bellemare says Bombardier has proven it can successfully compete without that military-related element. In the next breath, however, he says it’s simply “a reality” that governments around the world support their aerospace industries with well-articulated strategies and investment. “I wish that in time people would realize why this is,” says Mr. Bellemare. “It creates tremendous value for a country.”

That value is less obvious when it comes to Bombardier, especially as it has shrunk for reasons both self-inflicted and imposed. So are both Ottawa and taxpayers ready to continue as silent partners in a company that has failed to live up to its end of the bargain?


Seventeen years ago, then Bombardier CEO Paul Tellier went on the offensive to try to shoot down the company’s reputation as “a poster child of corporate welfare,” as he put it. Speaking to a Bay Street audience that had applauded his turnaround of Canadian National Railway, he said “it’s getting under my skin” that critics are “always … coming out with some nasty remarks [implying] we are at the public trough.”

The speech did little to sway public attitudes in Bombardier’s favour. For decades, governments have played a critical role in helping Bombardier build itself into a global player.

Bombardier built the foundation of its aerospace business by buying manufacturing operations in Ontario, Quebec and Northern Ireland with government assistance. It has received heavy research and development support and tax breaks from Ottawa and Quebec, and export financing help from Export Development Canada. It secured more than US$1-billion from the two governments to get the C Series airliner to market.

Its perception as a favoured industrial child of Ottawa also rankled Canadians outside Quebec – its success in securing a maintenance contract for CF-18 fighter jets in 1986 so infuriated Western Canadians, it inspired the birth of the Reform Party.

The Bombardier FV-Dosto double-deck train 'Ville de Geneve' of Swiss railway operator SBB is seen at the central station in Zurich, Switzerland on April 29, 2019.

Arnd Wiegmann/Reuters

“Bombardier presents a public perception problem as a company that is continually requiring government support, and that plays to regional tensions between Quebec and the rest of Canada,” says one senior federal government official who is not authorized to speak publicly.

In many ways, that’s not fair.

Bombardier operates in one of the most heavily subsidized industries in the world. Boeing, Embraer, Airbus and Canadian flight simulator maker CAE have also benefited from financial aid or military contracts from their home governments.

And in some respects, Bombardier’s track record is better than others – it repaid in full the $141.8-million it received through the federal government’s Technology Partnerships Canada program in the 1990s, and provided an additional $44.6-million, according to government records.

Like it or not, the growth of Canada’s aerospace sector has come with support from government. ”None of this happened by accident, and it can be lost if we ignore it,” said a 2019 report authored by former Quebec Premier Jean Charest for the Aerospace Industries Association of Canada (AIAC).

Regardless of Bombardier’s path forward, there will be implications for Ottawa. If the company remains a pure-play business jet maker, Bombardier will no doubt continue tap both Ottawa and its home province for R&D funding and export financing.

Allowing the company to be sold – industry observers say foreign defence giants Northrop Grumman Corp. and Lockheed Martin Corp. are natural buyers – could weaken a sector whose contribution to Canada’s gross domestic product has already shrunk by 4 per cent since 2012, according to the AIAC.

Whether Bombardier’s founding family would want to sell is another question. If it doesn’t, Bombardier might have to bulk up its own technological capabilities to survive. “We’re going into this very crazy world in the future where defence is on the increase, and not to participate in that segment – you miss out,” says Mr. Vincent, the former Bombardier executive.

WORLD DEFENCE SPENDING: TOP COUNTRIES/REGIONS

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WORLD DEFENCE SPENDING: TOP COUNTRIES/REGIONS

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He believes Bombardier will move in that direction, making strategic acquisitions of its own. If it can find a financial backer, it could even turn the tables on Textron and attempt to take it over.

It’s not such a far-fetched idea. The world is awash in an estimated US$2-trillion of private equity money waiting to be put to work, and private capital providers are cobbling together industry leaders in many sectors almost overnight. In the past year alone, the Caisse has funded acquisitions of much larger rivals by emerging tech giants in its home province, including payments provider Nuvei Corp. and pipeline testing firm Eddyfi NDT Inc.

But several observers worry that if there’s renewed ambition to rebuild Bombardier and reinvigorate aerospace, it won’t be matched by support from Ottawa.

During the Liberal governments of Jean Chrétien and Paul Martin, Ottawa poured an average of $300-million a year into aerospace through the Technology Partnerships Canada program. Under the Harper government’s Strategic Aerospace and Defence Initiative (SADI), that shrunk to less than $150-million.

The Trudeau government replaced SADI with a catch-all Strategic Innovation Fund that also supports Canada’s automotive and tech sectors. That rankled the aerospace industry, though government insiders argue the latest program has committed more money to the sector in its first two years – an average of about $220-million annually – than SADI did.

But aerospace clearly has less profile in Ottawa these days. It got a single mention in innovation, science and industry minister Navdeep Bains’s most recent mandate letter, and an application for aerospace to be part of the federal government’s $950-million supercluster program was rejected by an independent selection committee because it wasn’t deemed “transformational” enough.

Robert Brown, a former CEO of both Bombardier and CAE, worries that without a comprehensive program of support for the domestic aerospace sector, Canada will increasingly lose its standing in the global market.

“In G7 countries, industrial-military capability is an important element of their national security policy. They support national companies through R&D and program development in the aerospace and space divisions, which flows through to commercial products," says Mr. Brown, who was once an associate deputy minister in what is now the Department of Innovation, Science and Industry.

“Currently in Canada there is no government program to compensate for the support that foreign competitors receive through defence funding," he adds. "Given the major change in the landscape of the Canadian aerospace industry, it’s important that government and the industry sit down and determine a way they can approach how they are going to support Canadian companies so they can compete globally.”

One way that could happen is for Ottawa to loosen up procurement practices so more Canadian suppliers can get in on giant defence contracts. But that has been a long-standing point of tension between elected officials and public servants, says one former senior government insider: “The way we handle defence procurement in this country is Boy Scoutish."

“Procurement ministers of all political stripes have attempted to modernize procurement in the hopes of advancing Canadian economic interests,” the source adds. “However, the rigid interpretation of trade rules by public servants results in a greater emphasis on the fairness of the process versus desired economic outcomes.”

But would taxpayers stomach more public money being used to fuel a bold new strategy for Bombardier? They’ve seen that movie before, and here we are. They watched as Bombardier let poor management, bad governance and slack execution fester until the only choice left was extreme dismemberment.

And so, if Canada is going to support Bombardier 2.0, it could come down to this: demanding the Bombardier-Beaudoin family relinquish the power it holds over the company through super-voting shares and commit to finding the best executives it can to turn the company into something great.

That’s something Mr. Tellier pushed for unsuccessfully years ago and that has arguably hindered the company’s ability to win back investors. With the third generation of the founding family now in charge of Bombardier’s fate – and of their declining wealth – it’s bound to become a key conversation around both the board table and the dinner table.

Editor’s note: In an earlier version of this article, it was stated Richard Dicerni works as head of the Alberta civil service. In fact, he has retired from that job.
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