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CEO SERIES: Setting the record straight: Lise Lachapelle of FPAC

The Canadian forest industry faces some tests in the next few years, including getting its message across on sustainable forest management and environmental practices, increasing its market access and bettering its public image

lise lachapelle: fpac better reflects the industry’s integrated operations.

There is no denying that Canadian forest-product companies have been under scrutiny from various groups the last few years, including shareholders, government organizations, environmentalists and the general public. In response, the industry has sharpened its strategy in such areas as sustainable forest management, environmental practices and market access.

Even so, there’s another area that deserves equal attention: public image. Which perhaps helps explain why in a series of high-level meetings last year, industry executives from such leading Canadian companies as Abitibi-Consolidated Inc., Domtar Inc. and Weyerhaeuser Canada Ltd. sat together to find out new ways to improve operations.

The chief executives noted that something was decidedly lacking from the industry’s lobbying efforts — a national association that would represent forest-products companies’ timber holding as effectively as it does their pulp-and-paper assets. Such an idea holds more significance when one considers that Canadian forest-products companies’ timber holdings approach 70% of all cutting rights — a significant percentage.

Equally important, the timber side has garnered the most media and public attention the last few years. For example, environmental activists like Greenpeace pushed hard for boycotts of Canadian lumber and related wood products in the European Union last year, justifying its actions by criticizing British Columbia forest practices as environmentally damaging. The environmentalists met with some success, much to the disappointment of the forestry industry.

To step up its lobbying clout, Canadian forest-products companies “[have] moved to strengthen and expand their national and international promotion efforts by creating the Forest Products Association of Canada,” it said in a press release. FPAC, created on February 1, 2001, on the heels of the now-defunct Canadian Pulp and Paper Association, represents makers of pulp, paper and wood products — thus expecting to better reflect the industry’s integrated operations from forests to finished products. (As a note of interest, FPAC plans to move its corporate offices to Ottawa in September, chiefly to be closer to federal policymakers.)

Heading the new organization is Lise Lachapelle, its president and chief executive officer, who says, “Streamlining is part of the goal.” Perhaps, with good reason, as size becomes increasingly more important both nationally and internationally. Nationally, pulp and paper assets have been represented at the provincial level — notably through a patchwork of many associations. Such a fragmented system was, in part, self-defeating — particularly if the goal was to develop one strong voice in each province to speak to provincial governments and one strong voice nationally both to speak to the federal government and to represent companies internationally.

One example highlights what companies have traditionally been facing in the way of lobbying efforts. “You had a large company like Abitibi-Consolidated belonging to five lumber associations,” Lachapelle notes. That situation has become cumbersome. For example, Quebec has six regional lumber associations and British Columbia over 12.

One strong voice

As part of its mandate, FPAC has identified five major areas on which it will be concentrating its energies the next few years:

Sustainable forest management, or SFM practices;

Public image;

Market access;

Environmental issues;

Government policies, nationally and internationally.

The chief executives did not list the objectives in a hierarchy, Lachapelle notes. “It wasn’t one, two, three, four, five, but rather the objectives are equal and circular, much like a serpent.” That is, each objective influences the others. Such a holistic approach to management is quickly becoming popular among management strategists and thinkers.

Another new undertaking is in the area of environmental issues, particularly as it applies to SFM practices. (See sidebar, Managing the forests.) For years, FPAC has invited speakers from environmental groups like the Sierra Club to speak at conferences and technical sessions. But FPAC has moved beyond that to working closely with the Sierra Club on the pending Species at Risk legislation, which the federal government has tabled.

FPAC and the Sierra Club are part of the Species at Risk Working Group, or SARWG. And although the relationship hasn’t always been hearts and roses, it has produced an understanding of each side’s views. And more, Lachapelle says: “It has raised a few eyebrows in Ottawa. When we walk in together to the Environment Ministry, the officials ask, ‘Are you coming in to the same room together?’ And we say, ‘Yes we will.'” Such working arrangements between traditional adversaries cause confusion in the minds of politicians, who typically operate differently. “It’s much easier for the government to put A on one side, B on the other, and then step in to make a Solomon-like decision,” she says.

Well, not in this case, it seems. Although this type of relationship “might in itself be at risk,” Lachapelle says half joking, the two groups have good reasons to work together — to ensure future legislation is workable. She says: “A number of environmental groups have said that if they want the law to be effective, they will have to sit at the table with those who will implement it. A government can legislate, but only the people who have stakes in the habitats can put the law into practice.”

The bill has undergone substantial revisions since it was announced a few years ago. The current version’s central idea is to maintain Canada’s habitats and ensure that they don’t deteriorate beyond repair, to the harm of nature’s wildlife — at a reasonable cost. Which brings up the question of what Canadians will pay to protect such habitats, Lachapelle says. “If Canadians put a value to species at risk, then it’s worth something and we — not only industry — should be willing to pay to protect such habitats.”

Unhindered access to markets

The lumber trade war between Canada and the United Stares is still a sore point for Canadian producers. The ending of the Canada-US Softwood Lumber Agreement (SLA) on March 31 has resulted in uneven market access. It has yet to be resolved, although the issue has been brought to the highest levels of both governments.

About $1 billion a day in trade flows across the border, thus it’s likely that this issue will soon be resolved. But not too soon for lumber producers. “Even when you have free trade agreements, look what happens,” Lachapelle says. “Market access is critical. There’s no point in producing the best paper and lumber in the world if it doesn’t get to our customers.”

Then there’s the European market. For years, the association has had an office in Brussels, the hub of the European Union, a market the size of North America. The importance of such an office, which was at first half funded by the federal government, became clear when Greenpeace put pressure on European nations last year to boycott lumber produced from British Columbia. “One of the office’s main purposes is to tell our European customers about our forest practices, and not allow groups like Greenpeace to give one-sided views,” Lachapelle says.

Notwithstanding Greenpeace’s concerted efforts, there are larger trade issues at stake in a market that represents between 10% and 15% of annual revenues for Canadian companies. To wit, keeping an eye on EU policies and politics that favour only European nations. As Lachapelle puts it, “It’s a big money game. We have to monitor what is happening in Brussels to ensure that the EU doesn’t erect trade barriers that would effectively shut out Canadian companies.”

The EU is a mature, reliable market that consumes a stable am
ount of paper products each year. But when one speaks of potential consumer markets, one usually looks to Southeast Asia and countries like India, Indonesia and China — together comprising one-half the world’s population. China holds the biggest appeal and, as some would agree, mystery. Many paper companies worldwide have, to varying degrees of success, been looking to cash in on its market potential. Part of the current risk in investing in China is an inconsistent energy source: daily power outages are common.

Still, one cannot ignore it. “It’s a huge market that has a tendency to be protective,” says Lachapelle, who visited China as part of a trade group a few years ago. “The consumption of paper products is so much lower than in North America. Even if consumption increases by only 10%, it would represent a tremendous market opportunity.”

There are some obstacles, however. The fortunes of Canadian companies in that region rest on the future of democracy in China. Democracy, however, is linked to a free press, which is far from happening in a state that controls paper consumption and the media’s way of operating. “They still have one newspaper for every 100 readers,” says Lachapelle, referring to what she viewed when in China.

Still, hope springs eternal. “The minute China opens its doors a little more to foreign trade, paper consumption will increase.” The thinking goes like this: more trade results in more foreign currency, which China needs, resulting in the need for more paper products. For example, Chinese merchants need to wrap the products they make in paper products. Thus, as the country becomes more industrial, its demand for paper products — whether for wrapping, instruction sheets and warranty cards — will rise proportionally.

State of the industry

Unlike a few economists, Lachapelle doesn’t sense that Canada or the US is headed for a recession. Lachapelle, herself a trained economist, notes that the central banks in both countries have been acting diligently in their monetary policies, notably by making necessary interest-rate cuts to stimulate the economy. The central question is what Canadians ought to expect after such a sustained period of unprecedented growth. As she puts it, “A slowdown from 3% to 2% is still a good economy. Many countries in the world would kill for 2% growth.” For example, Japan, which expects zero growth this year, “would love 1% growth,” she says.

Numbers can become meaningless when they are not put into perspective. Or when our expectations go beyond what an economy can routinely turn out. As Lachapelle puts it, “We’ve become very greedy in what we expect from yearly economic growth. If it’s not 3.5% — if it doesn’t shake the roof — we become bored and dissatisfied.”

This is no more evident than what has taken place in the high-tech sector this year, as New Economy companies like Nortel, JDS Uniphase and 360Networks have seen their stocks tumble from once vaunted heights. Although such tech stocks have taken a hit this year, Canadian forest-products companies, apart from western Canada producers, have held their own.

Western Canada producers have been affected by the trade war between Canada and the US. “It has been more of a crunch on price than on demand. At the end of the trade agreement (March 31), people predicted that the lumber market would see a flood of wood, resulting in lower prices. Well, the reverse has happened and the price for lumber products have shot up.”

So much for bold forecasts: Lachapelle is careful to avoid making predictions on what the market will do six months or one year from now. “It’s not my job to predict the market,” she says. “And besides, I’m not that good at predictions.” It seems that few people truly are.P&PC

Perry J. Greenbaum is a Montreal-based freelance business and technology writer. He can be reached at saltpub@sympatico.ca.

Managing the forests

Sustainable forest management, or SFM, incorporates principles like biodiversity and conservation, including that of soil, wildlife habitat and water quality. The aim of SFM is to avoid erosion of stream banks and loss of wildlife habitat.

As of December 31, 2000, about 37 million hectares of Canada’s forests have been certified by one of Canada’s four major standards: International Standards Association (ISO) 14001, Canadian Standards Association (CSA), Forest Stewardship Council (FSC) and US Sustainable Forestry Initiative (SFI). By December 2001, FPAC expects that 60% of Canada’s managed forests will be certified to one of these standards.

Certification is a lengthy process, taking between 18 and 24 months to satisfy all the requirements of a standard before a company is ready to face an audit by an independent, approved auditor.

A brief bio

Lise Lachapelle holds a bachelor’s degree in business administration from the University of Montreal’s business school, Hautes tudes Commerciales, and has studied at the University of Western Ontario and Harvard Business School. After graduation, she joined the federal government, concentrating in the area of economic development and international trade, where she served as trade commissioner in Paris and at the Treasury Board holding the defence portfolio.

After 20 years in public service, she became the senior vice-president of the Montreal Stock Exchange in 1988. In 1990, she joined Strategico Inc., a public policy consulting firm, subsequently becoming president in 1993.

Lachapelle became president and CEO of the Canadian Pulp and Paper Association in 1994. In 2001, CPPA changed its mandate to include all lumber and pulp and paper companies, thereby becoming the Forest Products Association of Canada. The association is one of Canada’s largest trade and industrial associations, grouping members with combined annual revenues of $60 billion.

She sits on the boards of, among others, L’Industrielle Alliance Inc., an insurance company, and Russel Metals Inc., a metals processor and distributor. She serves on the National Statistics Council and the Forest Sector Advisory Council, and has been past chairman of the Pulp and Paper Committee of the Food and Agricultural Organization (FAO) of the United Nations.

It’s taxing to operate in Canada

Government policies rarely meet the approval of both the public and big business. One of the “biggest irritants,” says Lise Lachapelle, “is the way the federal government taxes the assets of paper companies.” Part of the conflict is centred on the shift to the New Economy, which tends to value intangibles like knowledge more than concrete things like buildings, machines and capital equipment.

The industry is capital-intensive and holds billions of dollars of assets. “The industry is constantly being taxed, whether or not it makes money,” the FPAC president and CEO points out. “We should be taxed like other industries, based on cash flow.”

FPAC is asking for a tax break. After spending two days lobbying the feds, including Finance Minister Paul Martin, on May 7 and 8, Lachapelle says, “We seem to be gathering some momentum in that area.”