The spreading unease about the proposed takeover of Nexen Inc. by Chinese energy explorer CNOOC Ltd. extends deeply into Canada's corner offices.
In the most recent C-Suite survey of corporate executives, 50 per cent of respondents said they somewhat or strongly oppose the deal if it has no special conditions, while 42 per cent support it.
The survey also underscores a deep geographic divide among those at the top of Canada's corporate world. Fifty-six per cent of executives in the West support the deal without conditions, while only 35 per cent of those in Ontario are onside.
Many executives said they would like to see specific conditions placed on the takeover, including controls to ensure the company's strategy is not determined by Chinese state interests, reciprocal arrangements to allow Canadian firms access to the Chinese market, and strict rules on employment and environmental behaviour.
Steve Letwin, chief executive officer of gold mining firm Iamgold Corp., said he is not surprised at the divided opinion on the merits of the takeover, among both executives and the public. "It is natural for Canadians to be opposed to deals that are driven by state-owned companies [from countries] that potentially don't allow Canadians reciprocal rights," he said.
Mr. Letwin, however, supports the Nexen deal and thinks market forces should prevail.
"I don't support government intervention in any business," he said, noting that Nexen has only 25 per cent of its assets in Canada, and CNOOC will be keeping most of Nexen's head office functions in Calgary. In addition, "Nexen wasn't exactly performing all that well, and it looks like [CNOOC] is willing to put some capital into the company and have it grow."
The government should intervene in only limited cases, he said, such as when a takeover "has some potential harm to our freedom," or if the purchaser has a terrible environmental record.
Most executives concede that Ottawa needs to have the power to intervene, in this case or others, where the ownership of a major company is at stake. More than two-thirds of those surveyed said the federal government must keep its powers to disallow foreign takeovers of major Canadian firms by applying a "net benefit" test.
James Cohen, CEO of Winnipeg holding company Gendis Inc., said the size and nature of the Nexen deal means it should be examined closely by Ottawa.
"It's pretty tough to stand in the way of the global economy," he said, but at the same time when it is an area of national interest, such as energy, "I don't see anything wrong with the government taking a look at it."
Still, many C-Suite respondents were critical of the current review process, with 44 per cent suggesting that the vague "net benefit" rules are hampering investment in Canada.
"It is important to have clear ground rules," said Guy Nelson, president of Winnipeg-based steel fabricator Empire Industries Ltd., describing the current system as "highly subjective."
The country needs "a more definitive agreement on what terms foreign investment can come to Canada," he said. "The last thing we should be doing is to have prime ministers come and go and interpret net-benefit clauses differently."
The surveyed executives said the most important factor that should be considered in determining the value of any foreign takeover is the impact on employment. Reciprocal access to the other country's market came a close second.
When it comes to the sectors or commodities that are the most valuable to Canada over the long term – and might therefore need special consideration – executives cited oil and mining at the top of the list. But water, agricultural land, potash and banking were close behind.
The fact that it is a Chinese company making the bid for Nexen is clearly a factor influencing some of the opposition to the deal. Almost 40 per cent of the executives surveyed said they would be more supportive of the proposal if it was a U.S. company making the offer, and more than half said they would like it better if a Canadian firm was the potential buyer.
Cameron Bailey, CEO of Calgary-based oil and gas producer Fortress Energy Inc., believes government oversight of takeovers should be more concerned with concentration of ownership, rather than nationality.
If a single foreign owner wants to take a large stake in a resource sector, giving it dominance, that could be a problem, he said. But if foreign investors "are competitive and are developing our resources in a timely manner and providing us with the proper economic rent, then we shouldn't be too concerned about it."
Mr. Letwin, the Iamgold CEO, said it is no surprise executives feel more comfortable with U.S. or Canadian purchasers, but it is important that the country be open to investments from all nations – the way Canadians are welcome elsewhere.
Iamgold operates in many international jurisdictions including Burkina Faso, Mali and Suriname, and it would be unfortunate if "those governments didn't allow Canadians to invest and grow our business," he said.
Mr. Letwin is also concerned about the chilling effect that might result if the Nexen deal is not allowed to proceed. "If they stop this one, you've got to wonder if the Chinese are really going to start backing off investing in this country."
The quarterly C-Suite survey was conducted for Report on Business and Business News Network by Gandalf Group and sponsored by KPMG.
The survey interviewed 152 executives between Sept. 5 and Sept. 21, 2012.
Respondents represent ROB 1,000 companies from across Canada in the manufacturing, service and resource sectors. The margin of error is 7.9 percentage points, 19 times out of 20.
Each quarter, a $1,000 charitable contribution is made on behalf of a survey participant. For the June survey, donations were made to the Crossroads Hospice Society, and the Canadian Cancer Society of British Columbia and Yukon, on behalf of Michael Lee, chief financial officer, Diamonds North Resources Ltd.