David O'Brien, the chairman, president and chief executive officer of Canadian Pacific Ltd., is a man who regularly confounds expectations. An outgoing character with a large circle of friends across the country, O'Brien nonetheless says of his private life: "I am not someone who needs to see a lot of people to be content." Although renowned for his geniality and courtesy, the 57-year-old O'Brien is a ferocious competitor who as a youth was noted for the intensity he brought to sports such as boxing, tennis and hockey. An avid reader, he often has as many as five books on the go - with subjects completely unrelated to each other. A bilingual native Montrealer who professes great fondness for the city, he unapologetically moved CP's head office from there to Calgary in 1996. After starting professional life as a Montreal trial lawyer, he made a reputation running oil-and-gas companies in Western Canada. Now, he runs one of Canada's biggest conglomerates, overseeing such sectors as hotels and railroads in which he has no previous experience.
For those who seek lessons from successes, one moral of O'Brien's story is that dramatic shifts can be positive events - at least in the case of CP and its CEO. O'Brien, a self-described pragmatist, says his willingness to change direction swiftly is deliberate: "I don't believe in the notion of one great vision. To me, 'vision' sounds too much like 'hallucination'." That does not mean he lacks firmness: since becoming president of CP in 1995 and CEO the following year, he has sold long-time operations and expanded others, reshaping the company into a growing international presence with profits to match. Last month, CP released third-quarter results showing earnings of more than $200 million, with revenue of $2.5 billion. That was down from earnings of $260 million in the same period last year. But the decline was expected because of low energy prices, the falling dollar, and the economic crisis in Asia, which affects the company's shipping and mining concerns. In fact, earnings were higher than some Bay Street analysts had forecast.
The fact that CP is flourishing under O'Brien is no surprise to his longtime friend and sometime business associate John Cleghorn, the CEO of the Royal Bank. "Even when David was a lawyer, it was apparent he was born to run a business," says Cleghorn, who has known O'Brien for more than three decades. "He is a clear-headed, incisive, natural leader."
Under O'Brien, the difference between the public's traditional perception of CP and its actual composition is dramatic. Today, the company operates in five sectors: rail, shipping, coal, oil and gas, and a combined hotel and real estate company. Long regarded as a quintessentially Canadian operation since its founding as a railroad company in 1881, CP now has 45 per cent of its shares owned by Americans - and much of its business takes place far beyond Canada's borders. CP Ships is one of the company's fastest-growing subsidiaries, with revenues of $675 million. It is based in London, run by an Englishman, and its ships are registered in many countries around the world - but not in Canada. Earlier this year, the hotel division not only bought Canada's Delta Hotel chain for about $94 million, but Princess Hotels, which operates in Bermuda, Barbados, Mexico and the United States. "We have not forsaken Canada," says O'Brien. "But we think we have the ability to also compete with the rest of the world."
CP's biggest dilemma is that some analysts suggest that the stock, which traded at week's end at $36.25, is undervalued because buyers do not understand the extent of the company's holdings. As well, says analyst Terry Fisher of Toronto-based HSBC Securities, it suffers from its longstanding image of being "a proxy for investing in Canada." That is because it reflects such major Canadian sectors as tourism, oil production, coal and transport.
The company's diversity may reflect a strategic failing, some analysts say. "The businesses that CP runs bear little or no relation to each other," says Fisher. "The question is, why should CP exist in its present form? The answer, other than the huge cash flow it generates, is not always clear." But others say that CP's size and range of interests are good measures of the company's success, and provide insurance if one sector falls on bad times. One New York-based analyst estimates that CP's break-up price would be almost 25 per cent above its present value - and cites that as a measure of how O'Brien has improved the value of each business.
In fact, O'Brien has been quick to identify strengths and weaknesses, and act accordingly. In the last three years, he has sold more than $4 billion of non-core assets, ranging from Marathon Realty Company Ltd. in 1996 to last year's sale of Laidlaw Inc., a health-care, transport and environmental services company. Such moves have helped CP to dramatically reduce debt, even as it increased spending on profitable operations. CP Hotels, the company's upscale flagship chain, has spent millions upgrading its properties, which include the Château Frontenac in Quebec City, the Banff Springs and Palliser hotels in Alberta and the Hotel Vancouver and Château Whistler in British Columbia.
Meanwhile, CP Ships, which has 65 ships and 2,400 employees, has been on an expansion program that should see revenues this year reach close to $3 billion - almost double last year's total. Ironically, the under-performer among the five businesses has been PanCanadian Petroleum - the company O'Brien ran for five years. A 23 per cent fall in the price of crude oil this year dropped net income for the nine months ending Sept. 30 to $72.4 million - a dramatic decline from $216.9 million for the same period a year earlier.
In the business community, O'Brien is widely admired for his ability to cut through complexity and identify the essence of issues. "David's affability conceals his tremendous drive," says Thomas Kierans, chairman and chief executive officer of the C.D. Howe Institute, who has known O'Brien since both were students at McGill University. "Once he sets goals, no one is more focused." O'Brien describes that quality in self-effacing terms: "The fact I had so little background in some businesses helped when I became CEO. I had to rely on people who really know their stuff for advice - and there was no danger of getting bogged down in small details."
O'Brien brings to his job the easy self-confidence of someone who has confronted a wide range of challenges - and succeeded at most. The son of a successful Montreal lawyer, he grew up in the wealthy enclave of Westmount, where one of the people he played hockey against as a youth was Cleghorn. "I guess we were both pretty hard-nosed," Cleghorn laughingly recalls. At age 11, a picture of O'Brien in boxing gear appeared on the front page of The Gazette with a caption describing him as a promising fighter. Recalls O'Brien's younger brother Peter, now a prominent Montreal lawyer: "Brothers always battle about something. With us, I was happy to get by at school, while David had to be tops in everything."
After graduating from Loyola College with an honors degree in economics, O'Brien finished near the top of his law class at McGill - and also met his wife, Gail Corneil. She now manages Holt Renfrew's Calgary store, and the couple have three children: Tara, 29, a medical doctor, Matthew, 27, who is completing a Masters of Business Administration degree from University of Western Ontario in London, and Shaun, 26, who is studying law at University of Toronto.
As a Montreal corporate lawyer, O'Brien spent most of his time structuring complex business deals. In 1977, he moved to Calgary to become legal counsel, and later executive vice-president, of Petro-Canada. That experience gave him his grounding in the oilpatch: in 1990, after a brief and unhappy foray back to Montreal to run Noverco Inc., he returned to Calgary when he was offered the top job at Pan-Canadian. There, he built the company from about $3 billion in market value to more than $6 billion in less than four years. At one stage, PanCanadian was producing more than 80 per cent of CP's profit. That won the attention of predecessor William Stinson and the CP board of directors. After O'Brien was announced as Stinson's successor, and in the midst of speculation about which companies he would unload, he quickly soothed anxious employees in his first public meeting at Calgary's Palliser Hotel by saying: "Welcome to my hotel."
Now, O'Brien spends about three weeks of every four away from Calgary, travelling within Canada or to meet financial market representatives in New York or London. A public-policy junkie, O'Brien is active with both the Business Council on National Issues and the C.D. Howe Institute, as well as four company boards, including the Royal Bank and Air Canada. Says Kierans: "CP is David's vocation: public policy is his avocation."
Still, O'Brien remains most focused on his company. CP, he says, "will continue to grow and change". He is noncommittal about suggestions that the company will move soon to sell or spin off one of its companies. But analysts note that at the company's annual meeting in April, O'Brien said: "Looking out over time, and by that I mean the next two years, we would expect probably to be in fewer businesses than we are today." The Fording coal company is one candidate to be sold, and PanCanadian is also considered a likely choice. But as O'Brien's friends and competitors have repeatedly learned, with him, it is usually best to expect the unexpected.
Percentage of CP's 1997 revenues provided by its five subsidiaries:
Canadian Pacific Railway 37
PanCanadian (oil and gas) 32
CP Ships 15
Fording (coal) 10
Canadian Pacific Hotels 6
Source: Canadian Pacific Ltd.
Maclean's November 16, 1998