Companies run by families often operate as if they have a genetic right to ensure their DNA infuses the executive ranks forever. Once in a while, their offspring add value. More often than not, they fail to do so, yet the kids stay in power while shareholders pray for miracles.
So it is with Bombardier. The aerospace and train giant – Canada's premier technology and engineering company – has been a sorry story of mismanagement and value destruction for years, in good part because its gamble on the C Series passenger jet proved reckless. In 2008, Bombardier was a $9 stock. In 2013, it was a $5 stock. Today, the price is a few pennies above $2.
Yet Pierre Beaudoin, the Bombardier family member who oversaw the near collapse of the company, refuses to leave. True, he had the good sense to step down as CEO in 2015, when he was replaced by Alain Bellemare, a Canadian aerospace veteran from United Technologies. But he stayed on as executive chairman, blurring the lines between CEO and chairman and leaving shareholders wondering who really had final say on big decisions – Mr. Bellemare, the hired gun, or Mr. Beaudoin, the family guy.
On Thursday morning, after a shareholder revolt, Mr. Beaudoin dropped "executive" from his title, relegating himself to chairman.
Chairmen still have considerable power. Once again, Mr. Beaudoin is being rewarded for shabby performance. If there is one company in dire need of an independent chairman, it is Bombardier. Even Bombardier's biggest outside shareholder, Caisse de dépôt et placement du Québec, thinks so. It pushed for a non-family chairman after hammering the board for a "lapse of governance" on the board's ill-timed decision to hike executive compensation even as shareholder value evaporated.
The Beaudoins and the Bombardiers, who control 53 per cent of the company's votes even though their equity stake amounts to only 13 per cent, are evidently convinced that Bombardier is still a family company and that blood lines cannot be crossed. That argument no longer holds, because Bombardier has many stakeholders and two of them are the taxpayers of Canada and Quebec.
In effect, Bombardier is becoming a ward of the state. Families who are forced to accept lender-of-last-resort funding to keep the factory lights on should relinquish certain rights, like voting, executive and board control. Or so you might think.
Until recently, Bombardier was a remarkably successful and innovative company that gave the world the snowmobile, the regional jet – the minivan of the sky – some of the aerospace industry's finest long-range private jets, and train and metro systems that were bought with alacrity by urban and national governments around the world. Yet Bombardier always had a little help from its government friends.
Writing in The Globe and Mail early this year, author and subsidy tracker Mark Milke wrote that Bombardier (including its de Havilland subsidiary) has probably received $4.1-billion in federal and Quebec aid over the past 50 years. The figure excludes the amounts that may have flowed in from other provincial, and foreign, governments. The figure is almost identical to Bombardier's current market value.
Recently, Bombardier has dug deeper into the trough. In February, it bagged $372.5-million from the federal government in the form of a "repayable contribution" – repayment details to come (Bombardier had asked for lot more).
Last year, Ottawa pumped $54-million into a Bombardier-led consortium that's working on next-generation electrical and aerodynamic systems. At the same time, the Quebec government invested $1.3-billion in the ailing C Series project in exchange for 49.5 per cent of the project. In 2005, the feds announced a $350-million contribution to kick-start the C Series, whose sales have been underwhelming (in a separate, private deal, the Caisse invested $1.5-billion in Bombardier Transportation, the train division, in exchange for a 30-per-cent stake).
By this week, Bombardier's big investors had lost their patience. The Caisse, Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan, among others, revealed that they would not vote for Mr. Beaudoin's re-election to the board. Mr. Beaudoin, who is the grandson of Bombardier founder Joseph-Armand Bombardier, took the hint and gave up his management role.
The honourable and decent move would have been to step down as chairman, too. In spite of Mr. Bellemare's fine work in sparing Bombardier from collapse – he admitted Bombardier was on "the brink of bankruptcy" in 2015 – the company is losing money, burning cash and may not make it. To survive and thrive, it needs to keep all options open, including the sale of all or some of the aerospace division. As long as Mr. Beaudoin keeps the family blood flowing through the board room, the Bombardiers and Beaudoins will have a bias to put the family, not the company, first. Mr. Beaudoin should go.