Whither Canfor? – Part 3 – Our roots are in this community

By Peter Ewart

  (This article is the third in a series on Canfor Corporation.  The previous two articles are: “Whither Canfor? – Part 1 – The battle for control” and “Whither Canfor? – Part 2 – Blood in the water.”)

“Our roots are in this community” is a corporate slogan of Canfor Corporation.  But will this slogan have any credibility in the years ahead as its ownership falls more and more into the hands of international financiers who have little or no connection to the forest industry and the communities of the Interior of British Columbia?

The forest industry in the Interior and the Province as a whole got its start from entrepreneurs who had a passion and a commitment for the industry and were well integrated into the community.  In the Prince George region, a number of names come to mind including Caine, Trick, Strom, Killy, Lloyd, Martin, Geddes, Anderson, Stewart, Rustad, Novak, Cattermole, Ketcham, Kordyban, and others.  Many of these entrepreneurs had begun their careers working in mills or logging out in the bush, and thus had an intimate  connection to forestry production and to the local communities. 

Over time, the smaller companies tended to lose their family and entrepreneurial connection by being bought out or taken over by bigger companies from mainly outside the region (who often, for added clout, had directors on their boards with connections to banks and other financial institutions).  The major owners or shareholders of these large companies usually lived elsewhere and were far removed from the actual production in the bush or mill, as well as from the life of Interior communities.  The smaller companies that remained found it increasingly difficult to obtain timber rights, and in some cases have became sub-contractors for the big companies.

   Canfor itself was established as a family company in the late 1930’s in the Lower Mainland by the Bentley and Prentice families who had emigrated to Canada to escape the Nazi takeover of Europe.  In the early 1960s, Canfor expanded its operations to the Central Interior opening up two pulp mills in Prince George, as well as a number of sawmills.  In the process, the Bentley family became well known in the communities of the region, contributing to various charities and causes.  But since the 1960’s, Canfor has expanded much further and has now become a multinational corporation with operations in several Canadian provinces and and U.S. states.  

While this expansion at Canfor has been going on, the number of shares that the Bentley family owns has decreased significantly.  Today, the New York-based Third Avenue Management (TAM) controls 24.3 % of Canfor, while the Jim Pattison Group through its financial affiliate, Great Pacific Capital, controls 25.06%.  Both TAM and Great Pacific Capital are not forest companies, but rather financial institutions.  The Bentley family, which, as noted above, has a long history in the forest industry, has seen its portion of shares in the company dip below 10%.

This trend is not unique.  According to industry observers, “there has been a noticeable move by non-traditional financial players who are becoming a big part of the mergers and acquisitions [in the forestry sector] landscape.”  By “non-traditional financial players,” of course, is meant industries that are outside the forestry sector, such as the hedge fund Third Avenue Management and Jim Pattison’s Great Pacific Capital.  These kind of “non-traditionals” mergers and acquisitions in the industry have moved “from approximately 30% in 2003 to 48% in 2006” (FORDAQ News, May 15, 2007).

Thus Canfor, and the entire industry for that matter, is becoming dominated by international financiers who have little or no connection to the forest industry or to forestry workers, technical staff, managers, contractors, and business suppliers.  Indeed, these international financiers have no commitment to community, region, province or even country.  Third Avenue Management proudly states that its investments have “the sole objective of delivering superior returns [to its investors]” and that it is “indifferent to” and “not constrained by sectors, industries … and countries.” Whether Canfor produces lumber or hot dogs or hula hoops or even nothing at all is irrelevant – the sole issue is that it must make money for its investors one way or another.

Traditionally, the formula for wealth generation has been M to C to M.  Money (M) is invested in the manufacture of commodities (C), which in turn produces more money (M).  With the domination of financial institutions over the economy, increasingly the formula becomes simply M to M (money generating money out of itself), skipping the manufacture of commodities (C) part and creating no new value.  As a result, the crucial manufacturing sector of the economy goes into decline, while financial speculation and manipulation increases and the financier or money-lender becomes king.  With the fall of the productive sector and the rise of the non-productive, the economy ends up distorted and that much weaker.

This can explain why it is profitable for international financiers to squeeze all the juice out of an industry and then throw the rind away.  One of the terms to describe this process is “strip and flip.”  Financiers, like TAM, seize control of a company or even an industry, shut down plants and consolidate operations, and then sell off what remains.  The end result is reduced manufacturing capacity and a mangled industry, but huge profits for the financiers who then move on to some other industry sector in another part of the world. 

M gives rise to M, but in the meantime workers lose their livelihoods, small contractors and businesses go bankrupt, and communities are eviscerated.  This point is illustrated by the fact that while an estimated 250,000 manufacturing jobs have been lost in Canada since 2002, banks and other financial institutions have run up record profits.  So far, most of those manufacturing jobs have been lost out East, but BC’s turn is rapidly approaching.  Indeed, Craig Campbell of PricewaterhouseCoopers predicts that “dozens” of mills will close in BC’s Interior.

In light of the above, Canfor’s slogan “our roots are in this community” rings hollow.  It is becoming clear that the exact opposite is the case.  International financiers have no permanent “roots” in any community, region or country.  Their passion is not for the forest industry of BC but for the world of high finance in New York, Tokyo and elsewhere.  The question arises: How can such a vital sector of our provincial economy as the forest industry be left in such hands?  Let there be no doubt – there will be consequences.

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