History of the Business Development Bank of Canada The FBDB period (1975-1995) Donald Layne For the men and women who worked and work at Canada’s business development bank, FBDB and BDC Bibliothèque et Archives nationales du Québec and Library and Archives Canada Title: History of the Business Development Bank of Canada: The FBDB period (1975-1995) Issued also in French under title: Histoire de la Banque de développement du Canada : La période BFD (1975-1995) ISBN 978-0-9953184-4-1 Published by the Business Development Bank of Canada (BDC). All rights reserved. Printed in Canada. Also available in electronic format. In the event of any discrepancies between the English and French versions, the English version shall prevail. Legal deposit – Library and Archives Canada, 2016 Cover picture: Stock Exchange Tower, Montreal. BDC’s Head Office was located here from 1969 to 1997. Table of Contents Preface 06 Chapter 1 The genesis 09 Chapter 2 Creating FBDB 15 Chapter 3 Early days at FBDB 23 Chapter 4 On the eve of the great recession 40 Chapter 5 Cost recovery Part I 45 Chapter 6 SBFR & a new mandate for FBDB 58 Chapter 7 Cost recovery Part II 71 Chapter 8 Rock bottom 82 Chapter 9 Rebuilding 94 Chapter 10 Working with government 114 Chapter 11 Treasury ops 126 Chapter 12 Shocks to the system 138 Chapter 13 Another recession 149 Chapter 14 Information technology @ FBDB/BDC 169 Chapter 15 Start of a new era 190 Chapter 16 The BDC act 207 Chapter 17 Mandate change begets culture change 215 Appendix 1 Members of the boards of directors 234 Appendix 2 Contributors 236 6 Preface This book provides a history of the Business Development Bank of Canada during the period 1975 to 1995. It is about difficult decisions, hard work, innovation and team work that together took a crown corporation from the brink of annihilation to being a prosperous and important partner in building successful small and medium-sized businesses in Canada. The writing of this history was initiated in 2011 by the President of the Business Development Bank of Canada, Jean-René Halde. The task was assigned to the author, a retired employee of the Business Development Bank of Canada who had witnessed the period covered in this history. 7 The Business Development Bank of Canada succeeded the Federal Business Development Bank in 1995, which itself had succeeded the Industrial Development Bank in 1975. The latter was founded in 1944. E. Ritchie Clark, a former Chief General Manager of the Industrial Development Bank, wrote A History of Canada’s Industrial Development Bank after he retired from the Bank. Clark’s history covers the period from 1944 to 1975. The present account extends the history to cover the twenty years following 1975. It refers back to Clark’s history to trace the origins of essential elements of the Bank as well as fundamental mandate issues returning to the fore over the decades. It is the author’s intention to present a history that is more interesting than a dry rehashing of facts and figures. As such, there may be certain views, conclusions and inferences that are solely those of the author and may not be shared by the Bank or its directors, officers or employees, past or present. This history is written principally from the corporate perspective. It recounts events as they unfolded “behind the scenes,” events many employees on the frontline were not privy to. It lays out the major challenges the Bank faced during 1975 to 1995 and how they were overcome, and illustrates a key characteristic of the Bank’s genetic make-up; when faced with seemingly insurmountable challenges, the Bank finds ways to overcome them and consequently become a better institution. As Guy Lavigueur, the former President of the Federal Business Development Bank, used to say, the employees of this Bank can do the almost impossible; point them in the right direction and with their perseverance and expertise, they will deliver the goods. Former Bank presidents Guy Lavigueur and François Beaudoin figure prominently in this history as chief decision-makers. Along with their Boards of Directors, they provided the directions for the rest of the Bank to implement. If they had given different directions or taken different decisions, the Bank would not have achieved what it did. Indeed, the Bank’s evolution might have taken a different path and BDC would not be what it is today. This book would not have been possible without the contributions of many former and current Bank employees (identified in Appendix 2). The author is very grateful that they took time from their busy schedules to be interviewed and that they mined their memories for the details needed to fill out this history. It would not have been practical to interview every former and present employee of the Bank, although each could have probably provided an interesting story about challenges they faced and how they were overcome. As seen with those interviewed, many employees, past and present, take pride in their achievements at the Bank, especially in growing Canada’s small and medium-sized businesses. It is particularly rewarding when a Bank employee can walk down a street and point to a business he or she helped years ago, a business that is still flourishing. This is one of the most gratifying experiences one can have. 8 Special thanks go to Jane MacGregor of BDC’s Public Affairs department. She arranged research facilities and access to the Bank’s archives that provided the bulk of the material for this book. A special thank you also goes to a trusted colleague who worked with the author for many years, Cora Siré. She assisted by drafting the Information Technology chapter and by editing and making changes to the first drafts of this book. Finally, the author thanks all his former colleagues for making his time at the Bank a fulfilling experience, one that allowed him to produce this book. As a crown corporation, the Bank has and will continue to be faced with challenges emanating from paradoxes implicit in its changing mandates. It is said that history teaches valuable lessons. Perhaps this history can contribute in some small way to how the Bank faces and overcomes its challenges in the future. Chapter 1 | 9 1944 The genesis The Bank’s genetic make-up is conceived. Founders of IDB grapple with familiar preoccupations: the ‘non-competing’ mandate, making higher risk, higher cost loans and achieving modest profitability. 10 | Chapter 1 he Federal Business Development Bank (FBDB) came into being on T October 2, 1975. Created by an Act of Parliament, FBDB was established as a crown corporation wholly owned by the Government of Canada. It took over the operations of the Industrial Development Bank (IDB) which itself was created by Canada’s Parliament in 1944. Crown corporations are expected to operate on normal commercial terms but their operating objectives are determined by the government of the day. A government regulation stipulated FBDB’s headquarters be located in Montreal. It joined two other important federal crown corporations also headquartered there – Air Canada and Canadian National Railways. The placement in Montreal was not unexpected as IDB’s operational management was already located there, operating out of what was then the Bank of Canada building on Victoria Square. As an independent crown corporation, FBDB had its own President and Chief Executive Officer and its own Board of Directors. These officers were all appointed by the government of the day. IDB, on the other hand, had been established as a wholly owned subsidiary of the Bank of Canada, another crown corporation. Its President had been the Governor of the Bank of Canada, its Board of Directors was the same as the Bank of Canada’s, but its operations were run by a Chief General Manager. In 1975, the Governor of the Bank of Canada was Gerald Bouey and the Chief General Manager of IDB was E. Ritchie Clark. IDB was created to finance small manufacturers. Many of these businesses had to convert from wartime to peacetime production following World War II. Over the years, IDB had its mandate expanded periodically to finance more sectors of the economy. IDB also added equity financing and advisory services to its offerings in later years. But financing Canada’s small business manufacturing sector with term loans remained the main focus, and market, for IDB. Ritchie Clark joined the Bank as a credit officer in 1947, not long after its founding, and so was witness to almost the whole life story of the Industrial Development Bank. After IDB was taken over by the newly created FBDB in 1975, Clark stayed on briefly as Vice President and Chief General Manager to assist the new President, Richard Murray, in the Bank’s transition from IDB to FBDB. After retiring from the Bank, Clark authored an excellent, informative history of IDB1. This book, referred to herein as Clark’s History and quoted in the paragraphs below, follows IDB from the discussions and debates in the federal government that gave rise to the Bank in the early 1940s to the takeover by FBDB in 1975. Some key events documented by Clark are worth recounting because they illustrate the genetic make-up of the Bank. They also give credence to the maxim plus ça change, plus c’est pareil – the more things change, the more they stay the same – one of history’s fundamental lessons. The hearings on Parliament Hill when IDB was being created and the manoeuvres by government departments to remove IDB from the Bank of Canada are worth recollecting.