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Pekarsky & Co. October 2016 Newsletter – When Life Gives You Lemons…

October 5, 2016

Dear Friends and Colleagues,


Recently I was driving somewhere while my 9 year old son sat quietly in the backseat. We passed a strip mall with a large sign out front for “1 Hour Photo”. “Wow” I heard him say quietly to no one, “that’s slow.” I looked at him through the rear view mirror as he pondered this and then he added, contemplatively, “at least they’re honest.”


As with many observations made by 9 year olds, there was a profoundness to the remark; disappointment mixed with confusion at appearing to tout their slow film development time; forgiveness for at least fessing up to it. Lost on him entirely, of course, is that 1 Hour Photo was meant to suggest speed, not delay. Yet here they are, stubbornly promoting a virtue that once existed yet now seems almost a parody of itself; an outdated notion designed at another time yet clung to desperately in the face of incongruous evidence. Like the Alberta Advantage.


What followed was a nostalgic conversation about film and how we used to buy rolls of it and wait for it to be developed. This led to a further conversation about 8 tracks, waterbeds, the Encyclopedia Britannica, phone books, road maps, floppy disks…and oil.


By the time our conversation turned to Tony Seba’s Clean Disruption Keynote presentation at the Swedbank Nordic Energy Summit in Oslo, Norway on March 17th, 2016 – okay, our conversation didn’t actually go there, but my thoughts did, having watched it only days prior – I got to thinking, as many in Alberta are these days, whether Mr. Seba might be right. Is a barrel of oil the next roll of film and are we the Eastman Kodak workers too slow to respond to technological forces beyond our control? His presentation was based on his book Clean Disruption of Energy and Transportation: How Silicon Valley Will Make Oil, Nuclear, Natural Gas, Coal, Electric Utilities and Conventional Cars Obsolete by 2030. (I have a slightly catchier title in mind: How Alberta will be Obsolete by 2030 Unless We All Get Out Heads Out of Our Behinds). His
most succinct summation of his thesis:


“The age of centralized, command-and-control, extraction-resource-based energy sources (oil, gas, coal and nuclear) will not end because we run out of petroleum, natural gas, coal or uranium. It will end because these energy sources, the business models they employ, and the products that sustain them will be disrupted by superior technologies, product architectures, and business models. Compelling new technologies such as solar, wind, electric vehicles, and autonomous (self-driving) cars will disrupt and sweep away the energy industry as we know it.”


Famed Yankees Manager, Casey Stengel, once said, “Never make predictions, especially about the future.” Just ask Albert Einstein who, in 1932 said “there is not the slightest indication that nuclear energy will ever be obtainable. It would mean that the atom would have to be shattered at will.”


Or Decca Recording Company who declined to sign the Beatles in 1962, saying “We don’t like their sound, and guitar music is on the way out.”


Or Western Union who, in 1876 wrote in an internal memo “This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.”


Or Thomas Watson, Chairman of IBM, who said in 1943, “I think there is a world market for maybe five computers.”


Or the president of the Michigan Savings Bank, who advised Henry Ford’s lawyer not to invest in the Ford Motor Company in 1903 on the ground that “the horse is here to stay but the automobile is only a novelty—a fad.”


Or Dr. Ed Yardeni, Managing Director and Chief Economist, Deutche Bank, who proclaimed in 1999 “Let’s stop pretending that Y2K isn’t a major threat to our way of life. There is too much at stake for such uninformed wishful thinking.” Remember Y2K?


Indeed, if Mr. Seba is right, then Rich Kruger, CEO of Imperial Oil, must be wrong. His recent prediction is that Imperial believes energy use, including from fossil fuels, will rise by 25 per cent between now and 2040 as more of the world develops. They certainly can’t both be right in their predictions, and if they are, then the years 2030 to 2040 should be very good ones for Alberta. Having established that predictions don’t need to be right in order to be made, here are a few of mine.


The present pain felt in Alberta is going to get worse before it gets better.


Alberta will continue to see capital and talent pour out, not in. (Our latest bit of inspired genius? Use tax money, presumably the winnings from recent personal and corporate tax increases, to incent corporations to move to Alberta when it was those very tax increases that presumably drove them away in the first place.)


Frustration, which has already given way to despair among some, will eventually lead to anger and, likely, form a dark cloud over confederation sure to obscure the sun(ny ways). As Royal Bank CEO, David McKay recently said, “Canada will not succeed if Alberta does not succeed, and Alberta will not succeed if its energy sector does not succeed.”


Happily, I also predict that the double barreled impact of naturally retiring Baby Boomers coupled with the wave of forced early retirements happening throughout the private sector will, in the medium term, lead to a severe shortage of skilled senior management and a surge in recruitment activities.


And I predict that those of us who stayed behind, either by choice or necessity, will reap the benefits of the rebound. And I predict it won’t be a typical Alberta rebound fueled by a geopolitical event that temporarily spikes the price of oil and makes even the most incompetent leaders feel brilliant, but rather a more fundamental, sustainable and organic rebirth, like the mature forest that burns to the ground; terrible to watch to while it’s happening but so full of promise once the new trees grow and so critical to the long-term health of the eco-system.


And I predict that those search firms who have stayed true to their values, worked constructively with their clients, counseled their candidates and awoken to, and even embraced, the reality of the new normal, will excel while the dinosaurs will go extinct.


Thing is, it doesn’t matter if Mr. Seba or Mr. Kruger or even I am right or wrong. 2030 is a long way off and we can’t wait that long. We need to borrow a page from the US playbook where, concurrent with cultivating a green image under a charismatic left-leaning leader who campaigned on a promise of hope (sound familiar?), they have managed to build thousands of miles of pipelines and LNG terminals are popping up like lemonade stands. There’s a lesson there; it’s not diversification we need; it’s expansion. There’s a difference.


Imagine watching your daughter set up a highly successful lemonade stand and for the longest time, selling that lemonade exclusively to your very thirsty next-door neighbour. Until one day, your neighbour, who has a nearly limitless supply of easily accessible lemons, starts making and selling his own lemonade as it costs him less to make than to buy it from your kid, and it tastes great, too. To survive, your daughter simply needs to sell her lemonade to the houses across the street where the people are also thirsty.


But to make it safe for all those other customers in the neighbourhood to cross the street to get access to your daughter’s product you’re told you need to have a cross-walk built so people can safely go back and forth, buying and selling her tasty, safely-brewed, carefully-prepared, lemonade. But you can’t get the crosswalk built unless you comply with 190 conditions, at your time and expense and not without years of lobbying the City, and without assuaging the concerns of the asphalt lobby, the paint union and earthworms, acorns and fallen leaves everywhere.


Why would any reasonable lemonade stand operator comply when they can just move out and set up shop elsewhere? Soon the lemons rot and eventually your kid’s business dies while the people across the street are forced to buy their lemonade from wherever they can get it, including some houses where you know the water is dirty, and the kids profiting from it are jerks. Diversification means getting out of lemons altogether, which would be sad because your daughter makes great lemonade. Expansion means looking at other and better ways of getting your lemonade to more customers.


Or, as Mr. McKay said, “If we can’t develop at least some additional pipelines to get our oil and gas to market, Canadians will lose jobs, face a lower dollar and have to find other sectors to tax if we want to cover the costs of health and education. Let’s remind ourselves that no one – not Americans, not Canadians, not Mexicans, not Chinese – is using less oil and gas as a result of our decisions over pipelines. If we don’t take on the energy infrastructure that we so clearly need, the world will move on, and we would lose our opportunity to help lead the global energy transition. The choice is ours: We can be a leader in the clean energy revolution or we can be a spectator.”


So, we watch.


And we wait. We wait for approvals and permits and political will and we endure flowery politically expedient pronouncements promoting a better future, yet paying no heed to the present day.


Still, though the lemons rot, we here at P&Co. continue to make lemonade.


Several of our new featured searches are listed below and we have just recommitted, for the 7th consecutive year, to the Gordie Howe CARES pro-am, as a Gold Level sponsor. This year we will eclipse $400,000 in funds raised by the Pekarsky & Co. Pro Bonos toward Alzheimer’s research. Moreover, we have recently launched a (fittingly) pro bono search for an Executive Director on behalf of the Gordie Howe Centre For Dementia Care currently under construction as a part of the new State of the Art Manor Village at Fish Creek Park in Calgary, where the bulk of our funds raised over the years have been directed.


Additionally, On September 22nd, Rick Vogel once again presented the Vogel Award at the CARNA President’s Dinner to Alison Landerville. In early October, Christine DeWitt is speaking to a group of junior high students as part of Edmonton Read-In week in early October. I’ll be participating on an Ontario Bar Association panel discussion in Toronto entitled Think Like an Entrepreneur: Create Your Own Success on October 5th; speaking at a major Atlantic Canadian law firm retreat on October 21st on Working as a Team to Maximize Productivity and Profitability; speaking to a Calgary law firm’s administrative staff on October 28th on the topic of staying positive in the face of cost reduction initiatives (tough gig). Then in November I am speaking to the Canadian Energy Law Foundation on the 3rd and the Canadian Bar Association Natural Resources sub-section on the 16th.


Like so many we advise every day, we continue to do what we need to do to stay relevant, front-of-mind and hold on to our hard-earned place in the markets where we work. But make no mistake; all the effort in the world doesn’t change the heap of trouble Albertans are currently in. As I said in a recent email to an exasperated displaced senior executive asking me what more she can possibly do after searching for over a year, “You are doing all the right things, and more. But, at the end of the day, the negative political and economic forces of this market are greater than any one person’s ingenuity and hustle.  All I can say is keep doing what you’re doing. The market will loosen up and reward your hard work but I think we are still many, many, many months away from feeling any better.”


At least I’m honest.