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What Quebec Inc. could learn from the activist playbook

In the black comedy Wag the Dog, the twisted spin doctor played by Robert De Niro fakes a war in Albania to divert the public's attention from the sex scandal that threatens to sink an unnamed president.

There is, quite sadly, a real war in northern Mali. Villages are falling back in the dark ages as the voices of the famed Malian singers are silenced. But this unfolding drama has provided little distraction for the embattled Quebec companies that are attempting to deal with their management-made crises under high scrutiny.

Quebec would be crushed if it were to lose the Cirque du Soleil, SNC-Lavalin or Rona, businesses that have long figured amongt the province's most admired companies. In the past week, the three firms fought back with turnaround plans while trying to put a brave face on their corporate disasters. Not all fared well.

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The Cirque du Soleil's aerialists came crashing as the company laid off 400 workers or 8 per cent of its work force. While the 2011 tsunami that hit Japan's coast shut down its resident show in Tokyo, the Cirque's sprawling productions, uncontrolled costs and increasingly tired creations were no acts of God. Co-founder Guy Laliberté and his right arm Daniel Lamarre did not explain themselves in public, which came across as sheepish.

SNC has already antagonized its shareholders with its disappearing millions and the criminal accusations that two of its former executives are facing. Yet when its new president Robert Card relocated the executive office of its most important business unit to London, the move was decried in Quebec by concerned politicians and business leaders.

The nuts and bolts empire of Rona, widely seen as a business dud, was in fact the most skillful in getting itself out of tight spot – for now at least. It can thank its biggest shareholder, the Caisse de dépôt et placement du Québec, which drove the extreme makeover at Rona's board.

The Caisse recruited a seasoned director and turnaround expert, Robert Chevrier, as executive chairman. And Mr. Chevrier's arrival, followed with four new directors, was instrumental in convincing Invesco Canada Ltd., Rona's second biggest shareholder, to drop its gun. There will be no distracting proxy war to replace the board.

This hands-on approach, which the Caisse describes as "active" but short of "activist," marks a departure for the pension fund manager. While the Caisse was always attentive, it didn't get its hands dirty.

The Caisse appears to have concluded that the best way to protect Quebec Inc. headquarters and to develop the province's economy may not be by asking the government's investment arm to buy shares or by adopting protectionist laws. It is by nursing the companies back to health – even if through electroshock therapy.

It is an interesting gamble. Yet the Caisse could never have brokered a truce with Rona and its disgruntled investors if it had dealt with an inflexible activist investor looking for a quick buck. Invesco is no Pershing Square Capital Management of the feared Bill Ackman.

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Nor would such a strategy have necessarily worked if American retailer Lowe's Cos. had made a formal and binding takeover offer for Canada's first hardware retailer, as opposed to a mere proposal. Such an offer would have been harder to dismiss.

The Caisse's intensive-care approach to save Quebec Inc. from exodus has it limits. Especially when the "threat" comes from within.

At SNC, it was Mr. Card who hired a top British executive and located the global business for hydrocarbons, mining and environment in London.

The reasoning is faultless. SNC needs to increase its international business, namely in the United Stated. And it must strengthen its management structure to rid itself of the representatives and agents it has used in all parts of the world to land deals through some questionable arrangements.

The problem is in the execution. Many SNC executives will now have to report to London, as if no global business could be carried out of Canada, a recognized leader in the fields of energy and mining.

Quebec business leaders don't care if Mr. Card can't order his steak frites in French. But to see the century-old Montreal firm start drifting away is unsettling.

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The Caisse might stick to its mere "active" role. But if it wants to promote the Quebec economy and its business champions like SNC, of which it is a shareholder, it might want to take a page from the activist investor book and be a little more brash.

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