Hot Seat

• Darren Entwistle, CEO, Telus Corp. (Top 100 Rank: 1)
• Joe Houssain, CEO, Intrawest Corp. (Top 100 Rank: 14)
• Pat Jacobsen, CEO, Translink (Top 100 Rank: 37)
• Robert Butchosfsky, CEO, QLT (Top 100 Rank: 71)
• Jason Cohenour, CEO, Sierra Wireless, Top 100 Public Rank: 41)
• Reid Carter, Managing parter, Brookfield Timberland Investment Management

DARREN ENTWISTLE
CEO, Telus Corp. (Top 100 Rank: 1)

Challenges

Is there a CEO in B.C. who faces more challenges than Darren Entwistle? The brash young executive leads Telus, the 26,000-employee telecommunications giant that lays claim to $7.9 billion of annual revenue, 4.7 million network access lines and 4.1 million wireless customers.

Entwistle, who arrived at the sleepy utility in 2000 with a mandate to shake Telus out of its worker-entitlement culture and “good enough” thinking to join the rapidly evolving telecommunications world of the 21st century, has stirred the pot well. He may have gone head to head with the unions, but there’s still plenty of trouble at Telus.

Entwistle is operating in a landscape that’s anything but calm. Telus and Bell have carved up the country, and the two routinely duke it out over who is going to snare the lion’s share of the ever-changing telecom terrain.

And that terrain is rife with hazards: new Voice over Internet Protocol (VoIP) systems such as Skype and Vonage allow anyone with a computer to avoid the telephone systems and communicate via the Internet instead; the new wireless transmission technology WiMax threatens traditional and expensive wireline systems and promises the same service at a fraction of a price; new cell-phone service providers such as Virgin eat away at Telus and Bell’s share of the growing cellular service market; lower-cost providers are nipping at their heels with cheaper phone service; and non-traditional communications companies such as Shaw Cable are encroaching on their traditional territory.

Meanwhile, stock prices are precarious, as is tenure in the executive offices: George Cope, former president and CEO of the burgeoning Telus Mobility, recently jumped ship to become COO at rival Bell.

Opportunities

Entwistle was once named “one of the toughest SOBs in business” by the Globe and Mail, and for good reason. He does not suffer fools, and maintains his vision through thick and thin. That vision is simple: cut costs and grow by hitching yourself to the unstoppable Internet train. Telus must chop expenses and grow through strategic delivery of services that go well beyond

Entwistle is close to completing his mission to cut 6,000 workers. He’s also on track to trim about $500 million in annual costs. As for his visions of growth, Entwistle is also sticking to the plan, despite a turbulent telecom market in the first few years of this century that is only now beginning to calm as the Canadian economy booms.

Unlike rival Bell, which generally tries to be all things to all people, under Entwistle, Telus takes a more rifle-shot approach. It will only provide services that will make money, such as its recent focus on providing television (TelusTV) over phone lines, and leaves the low-margin stuff to others. An aspect of this strategy played out last year when Telus made a move on the Fido cell network, even though it probably didn’t want the company.

The move put Fido into play and soon the company was swallowed by Rogers Wireless. The process eliminated an annoying competitor that was undercutting the market through its constant discounting.

Outlook

Back in 2002, Moody’s Investor Services, the well-known bond rating agency, decided that Telus’s $9-billion debt called for a downgrading of its credit rating to the “junk” category.

The company’s debt has since climbed back from the credit basement and now occupies the first floor. If Telus continues to perform like it did last year (double-digit growth in wireless subscribers and increased earnings per share of 24 per cent, which shrank its debt), Telus could soon book into the penthouse.

Its stock continues to climb as it systematically solves problems. Languishing on the TSX in 2002 in the $5 range, it’s now hovering around $47. If it meets ambitious growth targets for 2006, there’s no doubt the uphill climb will continue.

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JOE HOUSSIAN
CEO, Intrawest Corp. (Top 100 Rank: 14)

Challenges

In the ’80s, Vancouver’s Intrawest was a real estate company. Today, it’s a destination resort and adventure travel company, employing some 28,000 people and welcoming eight million skiers, snowboarders, golfers and other guests annually at its 11 resorts across North America. Listed on both the NYSE (IDR) and TSX (ITW), Intrawest is North America’s largest ski-resort operator, with a market capitalization of $1.8 billion. In 2005 it posted revenues of US$862.5 million and profits of US$32.6 million.

Intrawest has evolved into a huge organization supporting two divisions and a number of different business units. By 2005, the company had become a retailer of sports gear, a housing developer, a resort owner and manager, and a luxury adventure travel agency. The diversity confused analysts and investors, who were unsure how to value the company. It also poses a challenge for company founder Joe Houssian, who started in the business by developing Blackcomb Mountain in Whistler. Now that the company has accomplished its “open all-year-round” goal, it must rationalize some of its interests and form a new strategy.

Some of its core businesses are in the path of an avalanche of troubles. Although Intrawest recovered from the post-9/11 travel slump, high energy prices, the rising Canadian dollar and a general aging of the outdoor recreation population are affecting most of its operations. Its signature Whistler-Blackcomb ski operation experienced a four-per-cent decline in revenue last year.

It doesn’t help that a U.S. activist hedge fund is now pushing Intrawest to do something about its stock price sooner rather than later – such as sell the entire company to somebody bigger. The appropriately named Pirate Capital LLC recent¬ly increased its stake in Intrawest and now owns 16.3 per cent of the company. It figures that Intrawest’s stock, which bottomed out at $14 in 2003 but has since climbed to the high $30s, is undervalued. Pirate Capital has made no secret of its desire to see Houssian boost stock prices considerably – right into the $45 range.

Opportunities

The world has changed in the past 25 years. Many ¬mature companies that once ¬focused solely on growth and acquisitions have discovered that managing for a fee is more profitable than ownership. Intrawest has an expertise in many things, but its prime skill is in ¬managing resorts and supplying vacation experiences to millions of rich baby boomers who want one last kick at travel and ¬adventure before they settle into their rocking chairs. If Houssian can move the ¬company into a more managerial mindset, the ¬company can free up capital by selling its real-estate holdings in a hot market, and enter into development and/or long-term management contracts with other giant real-estate companies.

Outlook

Houssian appears to be moving the company in this direction. With deep-pocketed partners, including Manulife Financial, Intrawest has entered into several joint-resort development contracts. Last year it sold a joint development, California’s Mammoth Mountain ski resort, to its partner, Starwood Capital Group Global LLC, which operates Starwood Hotels & Resorts Worldwide Inc.

Industry buzz is that Starwood is the most likely buyer for Intrawest as Pirate pushes to boost share value. Support for the idea no doubt increased when Intrawest retained the investment firm Goldman Sachs early this year to explore various strategic ¬options, one of which was to sell the company. Analysts and the press jumped on the sale option ¬because it’s dramatic and makes for a good story. But they ignored the other half of Houssian’s straightforward comment: that the company had reached a ¬pivotal point and needed to think about where it was going in future. This could, he said, include strategic partnerships or different business combinations.

Houssian might consider an income trust or, perhaps, joint ventures with various groups that would hire Intrawest to manage its resorts, allowing it to be the king of the ski hill again without having to navigate the moguls of real-estate ownership.

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PAT JACOBSEN
CEO, TransLink (Top 100 Rank: 37)

Challenges

Pat Jacobsen, who directs an operation with a budget of close to $1 billion and a $4-billion capital expansion plan, has faced just about every problem a chief can since assuming the helm in 2001.

She arrived in the midst of a bitter strike. It was eventually settled, but TransLink continues to be regularly criticized by the public and politicians. Absurdly high house prices are driving people to buy homes in the extreme suburbs, which means transit users are moving beyond TransLink’s service area, destroying its plan to use public transit to link dense town centres and create a more liveable region.

Every local politician feels he or she has a right to tell Jacobsen what to do. Some would say the ¬governing body of the Greater Vancouver Transportation Authority (the formal name of TransLink) is made up of parochial, small-minded local politicians. A steady shift from an outdated revenue model – direct government support – to a model based on a combination of transit fees, road tolls, fuel taxes and other indirect taxes has enraged sectors of the community.

As head of TransLink, which is charged with planning, funding and delivering transportation within a 700-square-mile region containing 2.3 million people, Jacobsen is responsible for building out the Lower Mainland’s transportation infrastructure for the 21st century. She has to be able to keep her eye on the road while addressing the complaints of backseat drivers on all sides.

Opportunities

Jacobsen is an innovator driven by her vision of an integrated transportation authority as the only way to make sense out of the road and transit monster that has emerged in most cities. And this is exactly the kind of thinking needed to run a sprawling operation like TransLink.

She has a clear idea of her business. The GVTA is not a transportation company, she ¬insists, but a governing and planning agency that contracts out work to other transportation companies, some of which are subsidiaries (the Coast Mountain Bus Company), some of which aren’t (various private firms building roads).

Jacobsen knows her job is to envision, organize and delegate. It’s also to cut the knot of competing local interests and to encourage municipalities to think regionally.

Fortunately, Jacobsen, who is known as being warm and likeable, is also considered one tough cookie and able to tackle the job. (“Let’s just say she has really big cojones,” observes one analyst.)

She is also a veteran of a larger and more error-prone operation: the Toronto transportation system. She logged time as deputy transportation minister in Ontario and gets credit for ramming through construction of the long-planned toll Highway No. 407, which has greatly relieved traffic congestion on Toronto’s parallel main road, the 401.

The highway plan languished for decades as critics insisted that no driver would pay a toll on a road when they could drive for free on the highway next door. But Jacobsen, who believed people would pay for convenience, ignored the critics and has since been validated by the huge numbers of drivers who use the toll road daily.

In B.C. she is well on her way to achieving many of the initial goals TransLink dreamed up when it was formed in 1999, including increased transit use, more efficient use of roads and better funding models. Where others see problems, she clearly sees opportunities.

Outlook

The B.C. government recently initiated a sweeping review of the GVTA governance system, with an eye to changing it so that regional concerns dominate, rather than the usual NIMBY-ism and nitpicking that bog it down today.

This could relieve Jacobsen of some local political meddling, an obstruction to change that has hampered transportation improvements in the region for decades. For example, Jacobsen would like to see a toll road snaking through the suburbs to generate funding and relieve congestion on Highway No. 1, but faces criticism from local residents (much as she did in Toronto).

In her favour, Jacobsen understands change management and that it takes time to institute big ideas. She is prepared to wait it out. As she once said of politics, “It’s a stamina sport and I’ve always been into stamina sports.”

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ROBERT BUTCHOFSKY
CEO, QLT (Top 100 Rank: 71)

Challenges

Bob Butchofsky officially took over QLT early this year, following the footsteps of co-founder Julia Levy and her successor, Paul Hastings. Both Levy and Hastings tried to reshape the former biotech research company into a mid-tier drug manufacturer, primarily on the strength of Visudyne, the drug its researchers developed in the 1990s to treat the eye disease wet macular degeneration. The leap has not been easy. Drug research companies offer promise, hope and vision: drug distribution companies usually offer an array of endless operational problems.

And QLT has problems aplenty. Revenue is crashing: fourth-quarter revenues for 2005 declined 6.3 per cent to US$50.4 million from US$53.8 million in 2004, and the slide continued into the first quarter of this year, with revenues falling to $50.4 million, 18.3 per cent below the same quarter in 2005. The company’s attempt to diversify its product portfolio hasn’t worked so far.

Last year QLT recorded a net loss, primarily due to a one-time writedown of US$410 million related to its aquisition of Atrix Laboratories. Unfortunately, there was a fly in the Atrix ointment; one of the Atrix drugs is the subject of an expensive patent lawsuit. Meanwhile, competitors are eating away at QLT’s market share. Eyetech Pharmaceuticals, for example, developed Macugen (a prescription drug also designed to slow vision loss) and was sold last November for US$935 million to OSI Pharmaceuticals. Investors took notice: QLT’s stock price, once above US$100, has dropped below US$8.

And if that litany of challenges wasn’t enough, QLT management now feels the pressure of an activist hedge fund that has accumulated an eight-per-cent interest in the company and is expecting improved results – soon. The US$4.5-billion fund Jana Partners LLP, famous for its part in a failed attempt to take over Time Warner last year, is now QLT’s third-largest shareholder.

Opportunities

Butchofsky has already begun taking aggressive action to position the biotech researcher for a future as a lean and strong distributor – and to stave off a forced sale that he might not relish. In December, QLT announced that it was halving its workforce of 500 through job cuts and the disposal of non-core assets. It is also slashing R&D, marketing and administration costs by 20 per cent.

The company has also ramped up a share buy-back plan to increase its stock price. A strategy to dig into its cash and investment reserves for US$50 million to buy back its own shares now sets aside $100 million. (The plan is to create demand. Assuming fewer shares means prices will rise, the buy-back should lure “flippers” who will buy cheap and then flip shares out at a higher rate.)

The buy-back is intended to whip QLT into shape to take advantage of its biggest opportunity. Atrix brought some much-needed nutrition to QLT: hundreds of patents that can be developed into promising drugs.

If QLT wants to grow up to find a place among the big pharmas of the world, the Pfizers and the Mercks, it needs to fill its distribution pipeline with new products. Since commercializing biopharmaceuticals is a crapshoot at the best of times, access to a smorgasbord of intellectual properties with potential lowers its risk.

Outlook

Researchers that evolve into distributors tend to forget what their real business is (running a public company), but if Butchofsky can increase return on investment to shareholders, he may vault QLT into the biopharma big leagues.

It could mean radical realignment, however: as radical as selling off the company’s prime product, Visudyne, or putting it into a more mature financial structure, such as an income trust. So far Jana, the hedge fund pushing for action, believes Butchofsky has the chops to pull it off. If he doesn’t, they won’t hesitate to pull the plug and force the sale of the company many say put B.C.’s biotech industry on the map.

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JASON COHENOUR
CEO, Sierra Wireless (Top 100 Public Rank: 41)

Challenges

More than a year ago, Sierra Wireless was an embattled company with big problems. Except for a few surges, Sierra never really recovered from the tech wreck of 2001. Also, the wireless equipment supplier suffered from product drift and its big move to chart a new course – the attempted launch of the VOQ smartphone – ended in humiliating failure and analysts predicted that the company would be hobbled for years to come.

In fact, some said the VOQ fiasco caused CEO David Sutcliffe’s exit after 10 years at the helm of what was one of B.C.’s top tech companies. So, when former COO Jason Cohenour replaced Sutcliffe as president and CEO of Sierra Wireless in October of 2005, it was clear Sierra was looking for a new sparkplug to crank up the company and its stock. But Cohenour was part of the old team. So his major challenge was – and, to an extent, still is – a perception that he wasn’t just the same old, same old. He had to convince the industry and investors that he had a new vision.

Opportunities

Cohenour was handed the job by the Sierra board after a thorough external executive search, so he clearly had a plan that excited the company directors. These days, the wireless world is a Wild West show of exploding technology and services, with clever new companies joining the fray every minute. If a supplier company successfully pinpoints what it has to offer customers in this fast-growing field, it also has the chance of riding the next big wave in telecommunications.

Cohenour is an industry veteran; he knows the territory and, more importantly, he understands where it’s going.

His plan is simple: stick to Sierra’s core expertise in wireless transmission and deliver innovative new products to increasing numbers of companies jockeying for space in the wireless world.

To that end, Sierra has a new focus and strategy: to own the market for design and development of 3G (third-generation high-speed) wireless subscriber devices. It is focusing particularly on the rapidly growing mobile computing sector, or the wireless wide-area network (WAN) space, which is projected to boom in the next five years as many large companies convert their campuses completely to wireless.

Outlook

Sierra’s stock (SWIR:Nasdaq) has more than doubled from a low of a little more than US$6 a year ago to its current US$20 range. Much of that jump came after Cohenour was named to the new position, and it’s been steadily climbing ever since. So investors obviously believe he has the right stuff to ring in a brighter future.

It helps that revenue and profit have been growing steadily. For instance, total revenue in 2005 was US$107 million, almost half of the previous year, with a gross profit of US$25 million, about a third of the previous year. But a quarter-by-quarter view shows a continuous revenue climb as Sierra Wireless equipment is adopted as OEM (original equipment manufacturing) by large ¬mobile computer companies.

First-quarter revenues in 2005 hit US$20 million, but by the first quarter of 2006, that had climbed to US$45 million. Net earnings have been growing as well. They climbed into positive territory in the fourth quarter of 2005 at US$0.9 million, and hit US$3.5 million by the end of the first quarter of 2006.

So, as Sierra Wireless likes to point out, it is solidly recovering from its trials of a year ago. But telecom technology is a perilous path, as Cohenour’s predecessor discovered, and there are plenty of opportunities to trip up.

These days, if a company stumbles, institutional investors and the small-investor pilot fish that follow them pounce quickly and feed on the downed animal’s lifeblood, its stock. That kind of environment can throw static into even the best-laid plan.

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REID CARTER
Managing partner, Brookfield Timberland Investment Management

Challenges

You can’t exist in the forest industry today without facing a thicket of problems. And when you’re in charge of one of the largest forestry operations in B.C. for one of the largest resource conglomerates in the world, that thicket takes on rainforest proportions.

Toronto-based Brascan Corp. appointed former National Bank forestry analyst Reid Carter to head its new timberland asset management firm, Brookfield Timberland Investment Management Organization, last year. This was after Brascan bought private timberlands, 3.6 billion cubic metres of Crown harvesting rights, five sawmills and two manufacturing facilities from forestry giant Weyerhaeuser Co. in a deal worth $1.2 billion, plus $200 million in working capital. Brookfield quickly created a subsidiary fund, Island Timberlands, to manage 635,000 acres of timberland on Vancouver Island. Brookfield also owns about 1.4 million acres of timberland in New Brunswick, Maine and Brazil.

Brookfield isn’t a traditional lumber or pulp producer. For the most part, the company harvests quality timber from private and Crown lands for export, so it doesn’t suffer from those high-profile forestry problems that have dogged the industry, such as softwood duties and pine-beetle infestations. But export markets are changing, competition is ramping up from lower-cost foreign timber producers and the ever-present environmental lobby is continually pushing for sustainable forestry practices.

Carter’s operations have some other splinters to contend with. A recent PricewaterhouseCoopers study showed that the rising Canadian dollar lopped more than $1 billion from the B.C. forest and paper industry, significantly reducing earnings in 2005. Lower lumber prices, higher energy costs and transportation challenges also made 2005 a tough year.

Opportunities

In Canada, 95 per cent of forest land is government-owned. Traditionally, timber licences have been attached to forestry operations such as pulp or lumber production. On the surface, this would appear to present a challenge to an investment fund on the hunt for private timberlands. But the softwood issue and fluctuating government attitudes on forestry policy could turn this in Carter’s favour. By creating a fund that is essentially a third-party manager of timber, Brascan is betting that the system is going to change and has given Carter the job of leveraging that change. Industry consultants say that new opportunities and the ¬potential for investment will heat up as market forces play a more dominant role in B.C.’s forestry sector.

Craig Campbell, a partner with Pricewaterhouse Coopers, has said he wouldn’t be surprised to see timberlands go up for sale in B.C. in the future. Even if they don’t, other opportunities may exist for a third-party timber manager. Carter believes that other structures such as public/private partnerships or outsourced management of timberlands will come into being.

Outlook

As an analyst, Carter was famous for marshalling information to accurately predict the future, so it’s a good bet he has a read on forestry ownership and management in B.C. and Canada over the next decade. An analysis he presented to the forest industry more than a year ago predicted that demand for wood products had “nowhere to go but down” because housing starts, especially in the U.S., would slow. He stated that the housing bubble was about to stop inflating and the resulting slowdown would lead to a surplus supply of wood. All these factors will affect his company’s business.

Carter also pointed out that there will be more challenges for forestry companies trying to access capital in the future. This implies a strategic advantage for a large and cash-heavy forest assets manager such as Brookfield. With more than $2 billion available, parent Brascan can use Brookfield to buy up timber rights from struggling forest-products companies that need infusions of capital. In fact, Brascan makes no secret of its plan: it points out that it has the ability to “pursue several non-traditional timberlands investment opportunities including Canadian Crown land and existing timberlands – rich public and private companies with enterprise values well below the asset value that might be achieved through a restructuring.” Change, it seems, is blowing in the wind and Reid Carter manages a whack of patient money. That patience may soon pay off.