Anger Management

En 2003, un an après qu’il eut pris les commandes de BCE, j’avais publié un long papier sur lui dans le National Post. Comme il n’avait pas voulu m’accorder une entrevue, j’avais dû fouiller un peu plus et réussi à parler à d’anciens collègues de travail et ex-consultants.

L’homme a peut-être changé, après tout ça fait déjà bientôt six ans. Mais à l’époque, tous ceux à qui j’avais pu parler me confirmait la même chose : Michael Sabia est un patron qui ne fait pas dans la dentelle.

Avec ses employés et proches collaborateurs, il crie, insulte, débite les jurons à la vitesse d’une mitraillette, un « vrai chat de ruelle », me disait un consultant en communications.

Est-ce de ce type de patron que la Caisse a besoin?

Le papier est en anglais, le voici :

Anger Management:
Michael Sabia has a hot temper. He screams. He swears. He throws spectacular tantrums. His aggressive tactics seem to work. After more than a year as CEO, he's slapped Bell Canada Enterprises out of its funk.
Still, if he can't boost the share price, it'll be the investors' turn to get hopping mad

National Post
Tuesday, July 1, 2003
Page: 56
Section: National Post Business Magazine
Byline: Rene Lewandowski
Source: National Post

Pity the poor consultant who once went before Michael J. Sabia with a report the CEO of Bell Canada Enterprises Inc. didn't like. Sabia, whose moods are notoriously volatile, often erupts in spectacular tantrums: when he gets angry, watch out. At this meeting, a displeased Sabia didn't hold back. He told the consultant, who was about to become dog meat, that the material presented wasn't satisfactory. Then, after listening to the consultant tell him he had only prepared what Sabia's employees had ordered, the BCE leader roared back: "I don't care. It's not my fault that you're as stupid as them!"

"He has no class. He's an alley cat," complains one person familiar with Sabia's style. His friends speak openly about his temper. "It is true that he uses strong language, but sometimes people must be reprimanded," says Andre Berard, the chairman of the National Bank of Canada, who sits on BCE's board.

But Sabia, who refused numerous requests for an interview with National Post Business, is also admired: for his intellect, for his preternatural ability to attend to details and for his capacity to focus on an objective, then emit laser-like energy toward it. Says his old friend Jean-Pierre Ouellet, Quebec director of RBC Capital Markets, "He does not tolerate mediocrity."

BCE investors can only hope Ouellet is right. Like Sabia, they --
particularly those who've held on to the stock for a decade and more – are impatient. They've had a front-row seat to a corporate horror show: watching what was once the most reliable company in Canada turn itself into a blundering, dull-witted, value-destroying monster. And now investors are counting on Sabia to break BCE's manic assets-purchase-and-disposal cycles and to revitalize the company by refocussing on its roots.

Sabia, who succeeded Jean Monty in April 2002, has a clear mandate: Stop the corporation's disastrous conduct. Conduct such as: Monty's hideously expensive foray into media convergence -- through a $5-billion purchase of media properties -- which had failed to justify the conditional sale of 20% of Bell Canada to an American telecom, SBC Communications (last year SBC exercised its right to demand that BCE buy the stake back at a $1.32-billion premium). Or: the alarming drain on corporate coffers by Teleglobe Inc., BCE's money-losing international voice and data carrier. Or: the ongoing problems with a creaking corporate bureaucracy that had lost touch with its customers. As a result of these difficulties and others, BCE's share price had been seriously eroded. Between May 2000 and April 2002, Bell stock lost 30% of its value.

Sabia immediately went into action. He stanched the cash drain by disposing of Teleglobe's assets and by selling off the Yellow Pages division. He also raised money through a $2-billion share issue and another $2 billion through the largest corporate debt issue in Canadian history, enabling BCE to buy back the 20% of Bell Canada it had sold to SBC. In addition, he has laid off 1,700 employees and eliminated corporate overlap between Bell Canada and BCE. So far, so good. But the next hurdles are huge and they must be dealt with if BCE is to return to investor favour. And if Sabia can't jump them? Then it'll be his turn to feel the wrath -- from angry shareholders ready to make dog meat out of him.

Sabia's displeasure often stems from others not moving fast enough. Once he has decided on a strategy, he catapults his people into action, setting intimidating, tough targets. "With him," explains Ouellet, "there are only two solutions: perfection or nothing." Where his predecessor focussed on growth, Sabia is concerned with productivity, efficiency and customer service. "He worries about details," says Berard.

Sabia, age 49, is an intellectual who loves to discuss politics and economics and is a self-described "shit disturber." After graduating from Yale with an M.A. in economics, Sabia began his career with the federal government, first in Finance and later the Privy Council Office. He was instrumental in structuring the Goods and Services Tax for the Mulroney government. In Ottawa he built contacts and learned how to use power in both public and private spheres. In 1983, he followed the Clerk of the Privy Council, Paul Tellier, to Canadian National Railway, where they transformed an ossified Crown corporation in the most successful privatization in Canadian history.

Sabia once recounted that when he and Tellier arrived for their first executive meeting at CN he "could smell the formaldehyde -- the boys were stiff!" With characteristic bluntness, he said CN was a "basket case, the definition of hopelessness." He bullwhipped managers into meeting monthly financial targets -- if they couldn't, then they were gone. He worked so hard on the CN privatization that one New York banker later speculated: "I think his wife forgot what he looked like."

Memo to Hilary Pearson of Westmount, Que. (Mrs. Sabia): Your husband is gawky and owlish in eyeglasses and has frizzy hair that would look windblown in a sub-basement. Though hardly a beauty, in 1995 he made an impression despite some stiff competition. In the same week that he was talking up CN's IPO in New York, Victoria's Secret models circulated throughout Wall Street in support of the lingerie company's IPO. A Goldman Sachs man praised Sabia for holding investors' attention with nothing more than professionalism and a strong pitch.

With his reputation for helping to turn around a clapped-out railway, Sabia seemed a natural choice to turn around a clapped-out telephone company. And clearly BCE needed help when Sabia arrived in 1999 as CEO of the now-defunct Bell Canada International before becoming executive vice-president of BCE. Originally, the plan was for Sabia to use the post to gradually prepare for the final ascent to CEO Jean Monty's office. But the situation had become so bad at BCE that, after a series of stormy board meetings, Monty was suddenly out and Sabia was in.

In the early '90s, Monty had been celebrated for his attempts to bring a narcoleptic utility out of a century of regulated monopoly into the age of telecommunications competition. The convergence adventure masked two serious problems at BCE. The first: The once reassuringly lucrative staple of every widows-and-orphans fund, Canada's bluest chip had faded into a blue-rinse dowager's existence in its headquarters on Montreal's Beaver Hall Hill. Over the last 20 years, the performance of BCE's shares lagged behind that of the S&P/TSX composite index. The second problem is BCE's history of wrong-headed and sometimes weird acquisitions made over the last two decades, culminating in two multi-billion-dollar deals: Monty's purchase of the 77% of Teleglobe BCE didn't own for a shocking $7.4 billion and his sell-off of 20% of BCE to SBC for $5 billion so he could assemble Bell Globemedia, which became home to CTV, The Globe and Mail, Internet provider Sympatico and e-commerce software company Bell Emergis. But Monty never managed to overcome BCE's utility mentality, which made it a place where you usually had to follow a complex series of approved procedures to get anything done.

Monty's final months in early 2002 were an ignominious embarrassment. The convergence craze was over, and Bell Globemedia's value had collapsed, prompting a $545-million writedown. Toward the end Monty never seemed to have a clear idea of how to capitalize on the synergies the media units were supposed to bring to Bell.

When Sabia was named CEO, investors were relieved. The share price shot up 20%, to $27.55. "You will not see broad visions, grand strategies," Sabia said last December. "We're going to become a predictable earnings generator but a period of some uncertainty is ahead of us." That's for sure. Sabia's first 15 months at the helm have been marked by strong action, most of it positive. Foremost has been a run at fiscal stability by cleaning up old messes and cutting costs. The disposal of Teleglobe's assets following Monty's decision to write down the holdings by $7.5 billion was, of course, the most notable. But he also settled a long-standing pay-equity claim by Bell clerical staff that stretched back to the 1980s, paying $178 million in cash and pension benefits. (It would have been ironic had he not done so, since his mother, Laura, was a former president of the National Action Committee on the Status of Women.)

On the cost side, Sabia has lowered capital expenditures as a percentage of revenues to force managers to make better use of existing capital. Sabia's targets have dropped from 21% of revenues last year to 18% this year. In addition to last year's massive layoffs, he has recently dumped 30 of 100 overlapping management positions. "This will allow Bell to get nearer to its customers and to eliminate the doubling of some costs," says Scotia Capital analyst John Henderson.

To pay for the buyback from SBC, Sabia sold the Yellow Pages business to the American leverage buyout firm Kohlberg Kravis Roberts & Co. and to the investment service of the Ontario Teachers retirement fund for $3 billion. Not everyone praised the decision to sell, especially since Yellow Pages generates annual profits of $200 million. "BCE didn't have to sell its directories to finance the buyback [from] SBC," says Henderson. He argues that the subsidiary was more valuable as a long-term hold since it generates strong cash flow.

Beyond repairing past damage, Sabia wants BCE to become a core telephone company again. One initiative: building an alliance with Manitoba Telecom to go along with BCE-owned Aliant in the Maritimes, so the company could establish a bigger quick-and-dirty national presence. Sabia has also called for a focus on customer service. "What surprises me," consultant Iain Grant of Seaboard Group in Brockville, Ont., said last year, "was the fact they only just discovered the customer is king." Another Sabia initiative: He has reorganized Bell away from superfluous geographical divisions that separated Quebec and Ontario into new "customer-facing groups" in three divisions: consumer, small and medium business, and enterprise.

Sabia has yet to display real genius. Cutting costs, focussing on customers and cash flow are common, obvious responses to trouble. The challenges ahead will be much tougher. Bell Canada Enterprises badly needs to cut its debt levels, despite a recent improvement in its credit ratings by Moody's, which had placed BCE on its surveillance list. Debt remains at $17.6 billion, two-thirds of BCE's market value, compared to about 40% for the leading American telephone companies. Could debt be reduced by dumping Bell Globemedia, IT outsourcing business CGI Group Inc. or Bell Emergis? Sabia says there are no immediate plans to sell any of them. Analyst Mark Quigley of Yankee Group in Ottawa says that Sabia is methodical and will make a decision only when he is ready.

BCE's participation in CGI, though, has already fallen from 44% to 29.9%, and a decision to sell the remainder may come as early as next month. In the meantime, CTV and The Globe and Mail both provide free cash flow, so there's no need for a distress sale. But their very existence in the portfolio is at odds with Sabia's vision of a renewed telecom focus. Still, Globemedia, Sympatico, CGI and the ExpressVu satellite business are only bit players compared to BCE's phone operations, which accounted for 90% of the company's $19.8 billion in revenues last year.

At Bell, Sabia's immediate concern is to do something more than mouth bromides about customer service. However, those dissatisfied with one service are not likely to be interested in taking on another, which puts in peril one of Sabia's key strategies -- the "bundling" of such BCE products as telephone, Internet and satellite TV in order to increase Bell's "share of wallet." Sabia needs to bundle: the prospects for revenue growth just from telephones are limited, owing to market maturity and the CRTC's May decision to freeze local rates for four years. This same decision has also forced Bell to reduce rates charged to competitors for using its networks by 20%.

Sabia is the first to admit that changing BCE's hidebound culture is one of his major challenges. "We are still pretty hierarchical," he said recently. "Decision-making is not pushed far enough and there's not enough focus on accountability." As well, Rogers Communications Inc., which bundles its own products, has urged the Canadian Radio-television and Telecommications Commission to block BCE from bundling because it takes unfair advantage of Bell's phone monopoly.

Sabia has proved that he can change even the deadest of cultures. The task may be tougher at Bell Canada Enterprises -- whereas Canadian National knew it was in big trouble, complacency still hovers over Beaver Hall Hill. Sabia has responded by examining key managers in order to gauge whether they are up to the tasks he has set before them. He has replaced the dog meat with trusted lieutenants who will head Bell Canada's new "customer-facing groups." Pierre Blouin, for example, the new president of consumer markets, proved his worth at Bell Mobility, where under his direction revenues rose from $800 million to $8 billion. He will have to make the dubious proposition of bundling work, as well as maximizing residential broadband revenues.

His expertise and that of others will help effect the changes for which Sabia -- and investors -- are so impatient. Sabia is aware of his Vesuvian temper and the damage it can do. Former BCE employees say that at least Monty could rally people to his vision, however flawed. "Sabia makes them panicky," one says. And his habit of interrupting anyone any time has embittered colleagues. "Even if you were talking with the Pope," one of them gripes, "Sabia would come in a room without knocking, without excusing himself, without even looking at you. With him, it's me, myself and I."

Sabia says he's trying to control his anger. And he remains a prized leader -- even to his banished predecessor, Jean Monty, to whom some credit must be given for drafting Sabia's current strategy before his ouster. "Who developed the strategy is not important," says Monty. "Execution is the important thing. And Michael knows how to execute." He had better, and soon, or it will be the investors' turn to do some executing.