Brain drain will ruin Canada:

Nortel boss 'Wealth producers are leaving'

Karyn Standen
The Ottawa Citizen
November 13, 1999

In one of his darkest assessments of Canada's future, Nortel Networks Corp. chief executive John Roth says all you have to do is look at what happened to Montreal to see where Canada could be heading if nothing is done to stem the "brain drain."

In the process, he once more raised the possibility, first hinted at by a Nortel executive earlier this year, that Canada's top technology company could quit the country.

"Canada is going to face a crisis ... Canada's future wealth producers are leaving," he told the Ivey Business Journal in a no-holds-barred interview published this month.

"If you want to see what this will look like, look at Quebec. I lived in Quebec 30 years ago ... Montreal was a fabulous place to live then, way better than Toronto. Now, when you drive in Montreal, you've got to get your wheels aligned. I don't think the roads have been repaired since I left in 1969."

"I was on Dorchester the other day ... well, they don't call it Dorchester any more ... I was on Boulevard Rene Levesque, and if you go two doors down on any side street, the buildings are boarded up."

In the wide-ranging interview exploring Nortel's battle with rivals Cisco Systems Inc. and Lucent Technologies Inc., and its aggressive campaign to transform the bureaucracy-riddled phone-maker into a leader in the red-hot fibre-optic systems industry, Mr. Roth saved his sharpest attacks for Canada's handling of its high-tech industry.

"I'm quite discouraged with the climate in Canada as it pertains to high tech," he said. "The problem is the nature of Canadian business. You have to ask, where did all the Canadian entrepreneurs go? Increasingly, Canadian entrepreneurs are not in Canada. They've all left. That's an exaggeration. They've almost all left.

"I meet Canadian high-tech entrepreneurs all the time. I meet them in Menlo Park. I meet them in Boston. I meet lots of them in Silicon Valley. I seldom meet them in Toronto, or any other place in Canada, for that matter. We're losing the entrepreneurial magic."

He said Nortel is not immune to the talent drain, noting that only seven per cent of its top executive staff remain in Canada (22,000 of Nortel's 70,000 employees work in Canada). That prompted the question: Will Nortel soon pack up and leave Canada?

"I'm saying, what does having the headquarters in Canada mean, if most of the company's leadership team has left?"

"I look at the numbers and say 40 per cent of those executives could have stayed in Canada. Their jobs and tasks are such that they could have done them from either side of the border, but three-quarters of them chose to move the United States. When they moved, they took whole departments with them."

What does Canada have to do to retain the talent Nortel needs? he was asked.

"There's two things. Canadian boards of directors are generally not aware of the salary differential that exists between Canada and the United States for executives. So the problem starts with industry."

"Canada has created a huge incentive for Canadian corporations and its top achievers and high-tech entrepreneurs to leave ... The top 400 executives (one half of one per cent of Nortel employees) set the tone and direction for Nortel," he said. "That's the real brain drain -- the real threat to Canada's future in the Internet economy. We need those people to lead Canada in the Internet economy, but we're losing them. Canada loses."

Second, the "U.S. dollar's worth 47 per cent more than the Canadian dollar. Then the top marginal tax rate in the United States just moved from $283,000 to $285,000. Canada's top rate starts at $65,000 Canadian, or $42,000 U.S. So in Canada, you are wealthy at $42,000 U.S. In America, you're wealthy at $285,000 U.S."

An additional appeal of heading south, he said, is the "excitement level in the United States high-tech community."

"Follow the money. The amount of venture capital money in the United States compared to venture capital money in Canada is dramatically different. But it is also the ease of getting it and the understanding of the value of the technology and the people involved. If you IPO (take a company public) in Canada, it might come in at a 10th of the value that it gets in the U.S. That's an exaggeration. Maybe it's a quarter or a third. The point is, it is perceived to be significantly more valuable in the U.S. than in Canada."

He also took a swing at the quality of Canada's high-tech talent, saying, "half the engineers who come to Canada from offshore are below average."

He didn't hold out much hope for the long-term quality of graduate engineers trained in Canada, either -- 25 per cent of which are hired each year by Nortel.

"The quality of the Canadian grads in engineering and computer science is excellent, (but) I'm fearful of the quality going down because the education system in not well financed. We can't attract top professors. We sponsor the Nortel Chair at the University of Toronto. The holder of the chair was outstanding in his field of electrical engineering ... This summer he left the U of T for a university position in the U.S. He left for more money and career opportunities and we're having great difficulty finding somebody of his calibre to replace him."

"What frustrates me is Canada is such a great country to live in, but we sure have not created an economic climate to keep our top talent ... and wealth creators here for the coming century," he said.

"Canada's certainly a good place to retire, (but) maybe not a great place to earn your living."



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