Inkless Wells

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Roger Martin on Nortel: Business hardball as she is played, or not

by Paul Wells on Tuesday, August 4, 2009 8:13pm - 40 Comments

I’m surprised Roger Martin’s piece on Nortel and RIM and the Harper government and, well, Sweden for that matter, from yesterday’s Globe didn’t get more attention. But then, it was yesterday’s Globe and it was a day off for most of us and maybe you were grilling. But here’s the dean of Canada’s largest business school — well, I’m guessing; I’m pretty sure it’s the University of Toronto’s largest business school — Mr. Productivity himself, making quite an impassioned argument about the largest non-wafer-related chip-related public-policy issue currently facing this sleepy land.

And if he’s right then this whole should-Ottawa-let-Ericsson-have-Nortel thing is an open-and-shut No. But I’m not sure he’s right. Perhaps you can help?

Martin’s is quite a blunt argument. Basically, he says, it’s a tough old world, and you need to look out for your own, and the grownups in other countries sure know that, and if they had a Nortel they would block its sale to any but their own. So smarten up, Canadian federal government, and take Canada out of the global market for this round. Martin’s nut grafs:

…Had crucial Swedish telecom intellectual property been up for sale instead, there would be no chance that any foreign company would have even have had a sniff at it, let alone get $300-million in financing for it (as Export Development Canada offered to Nokia Siemens Systems in its failed bid for the Nortel assets). And that’s because the Swedish economic policy leaders aren’t boy scouts.

The time is now – right now – for the Canadian government to step up to the plate and use the Investment Canada Act review provisions to demonstrate that, like the leaders of Canada’s great global companies, it has graduated from scout status to being a full partner in global competitiveness…

I am used to working on complicated policy issues that have many legitimate points of view. This one isn’t complicated. It is simple. The Canadian people who financed the R&D behind the intellectual property won by Ericsson must be assured that it will not be used to the detriment of their own Canadian companies. The Swedish government would not dream of allowing that to happen if the shoe were on the other foot.

Now here’s the thing. I got my BA at Western, mostly at University College and the dreary Social Sciences building up at the top of the hill, not at the Ivey School of Business, which anyway didn’t have that name yet, halfway down, so I don’t know from business cases. But if Martin’s op-ed were a student essay in Political Science, I’d note that it’s awfully thin on empirical evidence and awfully heavy on ex cathedra arguments. He’s got a lot of what Sweden would do and not much — OK, none — of what Sweden has done in similar circumstances. (Martin properly acknowledges his interest — he’s a RIM director — but I don’t think he’s the kind of guy who’d peddle baloney just to please his CEO.)

I did a little poking around this morning and I confirmed, as I’d suspected, that Sweden is a pretty handy place to go shopping for assets if you’re a foreign investor. In fact the openness of their economy is rather a point of pride with them. So I’m worried that Martin offers no evidence because there’s not much on offer. Does anyone know about large faltering firms whose intellectual property was the product of R&D financed by the Swedish people, but whose sale to non-Swedes the Kingdom tolerated? Or better yet: can anyone demonstrate that Martin’s assertion is grounded in historical fact? Does anyone know of a large faltering firm whose intellectual blah blah blah and whose sale to non-Swedes the Swedish government actively blocked?

Tags: it's Roger not Lawrence, nortel, RIM, Roger Martin, sweden

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http://intensedebate.com/people/robert_mccl6309 Robert McClelland

Does anyone know about large faltering firms whose intellectual property was the product of R&D financed by the Swedish people, but whose sale to non-Swedes the Kingdom tolerated?

SAAB would probably count as one.

http://intensedebate.com/people/Inkless Inkless

That was my first thought but Saab was, by now, essentially a subsidiary of one of the US bigs. Not a still-(shakily) standing, homegrown independent entity. Not sure the distinction is germane but there it is.

http://chuckercanuck.blogspot.com chuckercanuck

Volvo then? Oops. That got foreign owned.

http://intensedebate.com/people/robert_mccl6309 Robert McClelland

I think a Chinese company tried to buy Volvo recently. Did that go through?

Mulletaur

According to the Pink'un, Ford is talking to a number of Chinese car makers about a possible sale, but I haven't found any recent news on it. The European Parliament and European Commission may have something to say about the acquisition of Volvo by foreign entities which are state owned and/or controlled, but given the current state of the car industry and the fact that North American taxpayers virtually own two of the three largest automakers here, it's unlikely they will squawk too much.
Mulletaur

According to the Pink'un, Ford is talking to a number of Chinese car makers about a possible sale, but I haven't found any recent news on it. The European Parliament and European Commission may have something to say about the acquisition of Volvo by foreign entities which are state owned and/or controlled, but given the current state of the car industry and the fact that North American taxpayers virtually own two of the three largest automakers here, it's unlikely they will squawk too much.
http://intensedebate.com/people/YYZ YYZ

Not sure but they are buying it from the Ford Motor Company.

http://intensedebate.com/people/robert_mccl6309 Robert McClelland

I should have been clearer. I was referring to Saab's sale to GM back in the late 80s/early90s. What I'm not certain of is how much of its R&D was financed by the Swedish people after Saab Auto was spun off from its parent company.

http://intensedebate.com/people/jolyon jolyon

I believe GM is in process of selling Saab to a tiny Swedish carmaker. GM asked Sweden for some bailout money back in winter/spring but gov't refused to give money to American org. Now that wee Swedish carmaker, I forget name, is in negotiations to buy Saab, Swedish gov't is hinting that it might help out with purchase.

I wonder if Nortel execs were sent away with flea in their ear because Feds already bailed out GM/Chrylser and that did not go over too well with general public.

http://www.TennisVagabond.com Big Dave S

Sounds like Martin acts as if it were a case that a win for a Canadian buyer, ANY Canadian buyer, is a win for Canada.
That's probably stoopid with two "o"s.
Isn't it generally a healthy thing to have foreign investment? Doesn't earning foreign investment usually entail offering things up which are worthwhile for foreigners to own? Or do we only offer shares in Canwest? Baddaboom.
Anon

.. non-wafer-related chip-related ..

Is it possible to have non-wafer related semi chips?
scf

For one thing, the "he did it", "we should too" argument is completely bankrupt, and always rebutted by the "if he jumped off a bridge…" rebuttal. Let's save what works. Nortel did not work, the company was a shambles.

However, when the argument is actually a lie, in addition, as in this case, that is reprehensible. So yes, I would really like to see Martin come on here and respond to Paul's question:

can anyone demonstrate that Martin’s assertion is grounded in historical fact? Does anyone know of a large faltering firm whose intellectual blah blah blah and whose sale to non-Swedes the Swedish government actively blocked?
Mulletaur

Since Sweden's accession to the European Union on 1 January 1995, I don't think they could do anything to block a sale even if they wanted to. They have to play by EU rules, which, to the best of my knowledge, remove all restrictions on foreign direct investment in manufacturing (but not in services).
http://livefreeordie.ca nick Ragaz

It's hard to take a guy seriously who, to entice an educated public, posts a sample lecture on the front page of his school's website that contains a glaring factual error about one of the most significant and interesting business stories of the past decade. I don't expect him to step up with the facts anytime soon.
Patent Agent Perspective

Nice to read that some seek proof behind the arguments of Mr. Roger Martin.

If he wanted to drum up national pride, he should have gone with a Hockey metaphor instead of Baseball.

So, sticking to the baseball analogy…

Strike one: not playing by the rules and excluding themselves from the bidding process. In baseball this would be a no-show and other team wins.

Strike two: not being present at court approval of sale to Ericsson. Again, a no show.

Strike three: no facts supporting any argument, and asking the umpire to step up to the plate.

What comes next ….

Hopefully, we’ll hear the umpire say “Your out!”

And by the way, the national anthem in business, just like in baseball and hockey, is played before the game starts, not after the season is over and a winner is declared.
http://intensedebate.com/people/StephenGordon StephenGordon

I can't think of any reason why we should care what the nationality of the person who owns the patents is. Seriously: who cares? Apart from the warm fuzzies ("It's ours!) and indulging in unseemly bits of xenophobia ("No outsiders!").

Martin's argument explains much of our current problems when it comes to productivity. Here we have a case of assets that has been produced by Canadians, and their owners are expected to accept *less* than full market price. Why? Because no Canadian investor thinks that it's worth what foreigners are willing to spend.

Right there, we see why no Canadian in their right mind would spend much time or effort doing R&D. Because they know that the best price they can ever get is one offered by other Canadians. And this price is always going to be lower than what other innovators in other countries can expect to receive.

Worse, Canadian bidders can knowingly low-ball when they make their offers for Canadian-born intellectual property. Why didn't RIM outbid Ericcson? Because they knew that they could bid low, invoke patriotism and get the assets anyway?
http://www.intensedebate.com/people/StephenGordon StephenGordon

I can't think of any reason why we should care what the nationality of the person who owns the patents is. Seriously: who cares? Apart from the warm fuzzies ("It's ours!") and indulging in unseemly bits of xenophobia ("No outsiders!"). there isn't much in the way of a concrete reason to have a preference.

Martin's argument explains much of our current problems when it comes to productivity. Here we have a case of intellectual assets that have been produced by Canadians, and their owners are expected to accept *less* than full market price. Why? Because no Canadian investor thinks that it's worth what foreigners are willing to spend.

Right there, we see why no Canadian in their right mind would spend much time or effort doing R&D. Because they know that the best price they can ever get is one offered by other Canadians. And this price is always going to be lower than what other innovators in other countries can expect to receive.

Worse, Canadian bidders can knowingly low-ball when they make their offers for Canadian-born intellectual property. Why didn't RIM outbid Ericcson? Because they knew that they could bid low, invoke patriotism and get the assets anyway?

scf

Why didn't RIM outbid Ericcson?

Impossible to tell, but there is no doubt they invoked the Canadian patriotism argument to aid their bid, which is not admirable. Nortel creditors deserve every single penny they can get.

Orson Bean

I agree — RIM's behaviour during this whole bidding process has seemed kind of bizarre to me. As a Canucker, yeah, I suppose I'd prefer Nortel assets to stay in (nominally) Canadian hands. But all RIM had to do was play by the rules, follow the process, make a damn bid like the other participants who did so, and make the superior bid. Instead, RIM resorted to the first refuge of the scoundrel in this country, i.e., wrapping yourself in the Canadian flag. Why RIM didn't simply follow the process like everyone else has me scratching my head — UNLESS RIM thought that it could wrap itself in the flag, make a stink bid and walk away with the assets. If that was their plan, then I don't think we should allow it to succeed.

http://intensedebate.com/people/Crit_Reasoning Crit_Reasoning

Millions of Canadians are invested in RIM directly or through RRSPs, pension funds, etc. RIM's gain is also Canada's gain.

sbt

No, it's not. It's the gain of RIM shareholders. And what about the millions of Canadians invested in Nortel through stock shares and bond holdings (which they may own individually or through bank stocks)? Why should they not be allowed to get the best price for their asset? If you want to own Nortel's assets then go outbid the other guy or buy stocks in their company.

Mike T.

My impression of late is that when Balsillie screams that something should happen the way he wants it because it's really good for Canada, it's because his plan is good for Balsillie and there's an excellent reason it's not going down the way he wants it to.
http://intensedebate.com/people/Brammer Brammer

Blocking the sale would be a win for the Cons IMO.

Couple this with the MDA sale block, wrap it in a "standing up for Canada" banner and then contrast with the Libs, who have never blocked a sale to anyone.

Now you have a positive, non-attack ad promo that might resonate with Canadians, especially during a recession. Bonus points: "We're not your Diefenbaker conservatives"
http://theplaceofbiff.blogspot.com biff

Regrettable coming from a Canadian B School big wig.

Very regrettable.
http://intensedebate.com/people/Gaunilon Gaunilon

I don't give a rat's ass what Sweden would do, but I think he's got a point. The IP is an asset that will be used against competitors. If we want Canadian competitors to maintain an advantage we should try to keep it in country.
http://www.intensedebate.com/people/Gaunilon Gaunilon

I don't give a rat's ass what Sweden would do or has done, but I think he's got a point. The IP is an asset that will be used against competitors. If we want Canadian competitors to maintain an advantage we should try to keep it in country.

http://intensedebate.com/people/CBP CBP

Remember, the patents are not part of the Ericsson deal. So the IP "remains" in Canada. And RIM can go hunting for that any time they want. I don't think RIM would be keeping anymore jobs in Canada than Ericsson….they'd just get richer with the patents while living off the dying CDMA business. Just because lots of people own RIM stock doesn't mean it's better for Canada. Lots of people have useless Nortel stock…

http://www.intensedebate.com/people/Gaunilon Gaunilon

If the article is correct, Ericsson licensed the IP. Therefore they can use it, albeit without right of exclusion. So if I understand correctly no Canadian company can maintain an advantage over Ericsson using Nortel's IP.

It's like going to war and having the best fighter plane ever made, but then licensing it to the other combatants so that theirs are just as good as yours. Meanwhile they also have their own inventions to which you may not have access. This way you lose the war.

Granted, it's not exactly a war with Sweden, but there are parallels. If Canadian companies do well and grow, there tend to be more Canadian jobs. If we cede competitive advantage to non-Canadian companies we are also ceding Canadian jobs to whichever country ends up getting the work…which is generally not Canada.

http://intensedebate.com/people/Crit_Reasoning Crit_Reasoning

making quite an impassioned argument about the largest non-wafer-related chip-related public-policy issue currently facing this sleepy land.

But, but… microchips are fabricated from silicon wafers. Therefore, anything chip-related is also wafer-related.
Saab Owner

Saab's process to independence from General Motors has been heavily documented on that independent journalist's site, Saabhistory.com
The Last Boyscout

Martin’s main point was that the RIM executives are not boyscouts: they are wise guys that play in the big league.

What old lady Nortel with her ripe 127 years of age needs, is more, not less boyscouts – preferably with merit badges for helping old ladies get safely accross the street.

Nortel certainly doesn’t need wise guys asking the traffic cop to change the light from walk to don’t walk with the hope that a national security truck rolls old lady Nortel over and they can make off with her handbag.

Hey I have an idea: why don’t we simply let the owners of Nortel’s assets, namely Nortel, decide what to do ?

It is called Bankruptcy Protection in Canada for a good reson, although wise guys would like to have us all believe the old Lady is already Bankrupt.

The Lady may be old, but she still has her witts about her!
Dot

Both Roger Martin and Jim Balsillie, Canadian nationalists, both vanmoosed to Harvard to obtain their MBAs – Canada's pond was too small for them, one presumes. Or they thought the contacts/networks would be more valuable there, than say through U of T, Queens, Western's programs.

Nothing wrong with that, just that they were the beneficiaries of equal access to foreigners of obtaining their coveted Harvard MBA letters.

Maybe another person to canvass on this issue would be Carol Stephenson, dean of Ivey's Business School, who coincidently rose through the ranks at Bell (previous owner of Nortel) and became President and CEO of Lucent technologies, which merged with Alcatel (France) in 2003. Lucent itself was a spinoff of AT&T. She also has a couple of quickie Biz degrees ("successfully completed the Executive Program at the Graduate School of Business Administration, University of California at Berkeley, as well as the Advanced Management Program at Harvard Business School."- wiki).
Dot

I don't know if Harvard has the equivalent, but many years ago Western had a requisite 2nd yr MBA course called "The Political Environment of Business" – taught many years ago by two individuals – Gordon Osbaldeston (former clerk of the Privy Council) and Jim deWilde (PhD PolySci) . A good portion of the course was teaching prospective HBA/MBA graduates the merits of understanding how gov't operates, forming coalitions with groups of similar interests, shaping/moving public opinion both infront and behind the scenes.

I don't know if Harvard offered the same type of courses when Balsillie attended there – but he seems to rather enjoy the going nuclear option. Captain Canada to the rescue…

Martin should focus on improving his Biz school so that potential stars like him and Jim find merit in completing their studies here, and attract a higher calibre of foreign students.
http://weaponsofmassinformation.blogspot.com D.A.

"(Martin properly acknowledges his interest — he’s a RIM director — but I don’t think he’s the kind of guy who’d peddle baloney just to please his CEO.)"

Maybe not, but given the fawning praise of Balsillie that sets up Martin's argument for public money saving the corpse of Nortel on behalf of RIM, this does seem like a gargantuan conflict of interest.

Orson Bean

Of course it's a gargantual conflict of interest. And that's what bugs me about so many of the op-ed and like pieces that get published in the Globe. Like Sid Ryan the other day, fresh off Toronto's garbage strike, telling us that anything owned and run by the government is inherently superior to anything owned and run by private owners. Thanks for comin' out, Sid.
Dot

I think it would be fair to assume that the decision not to submit a bid for Nortel assets was endorsed by RIM's B-of-Director's before the fact. It appears that the corporate stategy was to float the 'we were prepared to bid $1.1 Billion' and then complain that money was left on the table because the winning bid came up short. But Erickson bid more – $1.13, so RIm and its B-of-Directors are pursuing this Canada first strategy.

I don't think it would also be unreasonable to assume Martin would have advised the RIM board that he was preparing an Op-Ed piece for the G&M on this specific item – which parallels directly RIMs revised strategy. Had he done so, I further doubt he wouldn't have submitted it without their approval.

Accordingly, I would feel more comfortable had he written his Op-Ed as a director of RIM, rather than as Dean of the Rotman School, as he was described at the end of the piece..

Dot

Correction:

I further doubt he would have submitted it without their approval.

Kris

Volvo Cars, Sweden's crown jewel is owned by Ford, Saab, also a well-known Swede, was owned by GM…., and, OMG, Sweden's government allowed ABBA to break up…. Speaking of which, Polar Music, once Abba's label, is owned by Universal.

RIM, essentially a one-trick pony, didn't bother to face its competitors at the auction, for whatever reason, and now "Mr. Bullsilly" tries to get in by the backdoor using a heyday nationalism???

Nortel wireless sale wasn't a sale, it was an auction of assets of a bankrupted company. Rather different from MDA's selling their division along with Radarsat. Ericsson is saving Canada's asse(t)s, and jobs.

On a technology side, CDMA networks are past, GSM won. As for other Nortel patents, old, present, new…. why they're not being/were not implemented in Canada? Canada's mobile wireless networks are undelvelopped, even Rogers, the only sensible company that went GSM, offers services that lag significantly behind the rest of the world. Refer to the the 2007 Seaboard group report – Wireless Canada is less developed than some Africa's mobile networks.

Would RIM as an owner of Nortel fare any better? They would inevitably license patents to overseas companies, in the same way as Nortel would. Patents are owned by Nortel and will be licensed to Ericsson.
Stephen

While I appreciate Roger Martin's stance, the logical outcome of it is that RIM is no boyscout and therefore is interested in only good outcomes for RIM. Thats fine. So don't count on it helping Canada when it runs against RIM's interests. As I said That's fine.

Cutting through the malarkey, RIM is interested in the encryption patents. They failed in their bid to buy Certicom and fear the costs and lack of control on encryption in the next gen wireless. Remeber their business is secure wireless email.

They also go themselves slapped with a court order for palying fast and loose with information gained under an NDA in the due diligence process. This might explain why Nortel was being a stickler on the NDA provision.

http://blogs.zdnet.com/BTL/?p=11598
Ben

Stephen – You're right. Nortel wasn't just being a stickler however. It was a legal requirement that potential bidders sign NDAs and RIM refused to abide by those bothersome laws. More interesting to RIM than the encryption patents however are the Nortel tax losses. They would have allowed RIM to avoid paying corporate taxes for years to come.