The Fun of Revisiting Key Decisions

The Globe and Mail published an article that recounted a part of the Business Strategy curriculum at Ivey Business School at Western University. The Case Study approach is popular in many schools, and two things jumped out about this particular instance, which focused on the 2018 expansion of Kinder Morgan’s Trans Mountain pipeline. First, this “case” was refreshingly recent and familiar. Having studied and taught business at both the undergraduate and graduate level, I was used to seeing (and, of course, defending the use of!) cases that could be seen as dated and distant. Second was that former Finance Minister Bill Morneau joined the class to share first-hand accounts of leading those negotiations on behalf of Justin Trudeau’s Liberal Government. According to the article, this was part of a series at Ivey where business leaders had been invited the “revisit key decisions” that they had made.

Studying Business Strategy

The Case Study method provides a clear framework for the critical decision making that underpins business strategy. The consistent and repeatable formula is: analyze the context, identify strategic options to address the situation, and make a strategic decision/recommendation. The final paragraph of many written case studies often has an executive at their desk burdened by the realization that the time has come to make an important decision. (I always picture them staring out a window that is being gently pelleted by rain or wet snow.)

Such was the stage for the Morneau team in April 2018, when external factors had drastically reduced Kinder Morgan’s interest in continuing on with the pipeline expansion project. The class identified strategic options “within minutes,” which is a comment on how cleanly analysis tools can be applied to complex situations. (Note: In many instances, we can score huge “strategic thinking points” by pointing out that the status quo is often an option, i.e. sometimes “doing nothing” is a highly strategic move.) In this case, there was a fork in the road:

• Make it work with the existing partner (Kinder Morgan) by assuming any and all financial risks from delays; or

• Make it work without the existing partner by:

  • Finding a new private-sector partner (manufacturer or financier) OR

  • Taking control of the pipeline outright.

NOTE: The class’s fourth strategic options, “walk away,” betrays some private-sector-specific thinking that does not hold up in the public sector (More on this later).

Mr. Morneau immediately dismissed the option of unconditionally backstopping Kinder Morgan. He went on to say that the aggressive timeline imposed by Kinder Morgan eliminated the option of finding another private sector partner. His reflection on the proceedings was that, “Kinder Morgan gamed us.” As a former executive in the pension space, he asserted that the Canadian Pension Plan Investment Board would never willingly accept investment in such an uncertain project. Apparently, he would not expect the Federal Government to coerce such involvement. Whether practical, political or ethical, the only option was to purchase the pipeline. Mr. Morneau added context by sharing, “There is a Canada-first mentality now that is different from when I was in office.” I take this to mean that the decision to take over the pipeline would receive less backlash now than it did eight years ago. All of this may sound like someone saying, “What else could we do?” but in the class of 75 future business leaders, only 10 per cent agreed with the Government’s decision to purchase the pipeline outright.

Aligning (or not) on “What?” and “How?”

The exercise in revisiting previous decisions (that may or may not have aged well) is useful to expose the complexity of these situations, including exploring the public sentiment at the time. The generosity and vulnerability that executives like Mr. Morneau exhibit in conducting such a post mortem has the potential to be highly instructive for future leaders. Mr. Morneau shared that in a face-to-face meeting with the leadership of Kinder Morgan he gleaned that they had already decided to exit the partnership. This would have been the point at which he felt they had been “gamed,” i.e. you haven’t said that you are ditching us, but you have created a deliberately impossible path forward so as to engineer a (strategic?) end.

My reference above to “private-sector-specific thinking” refers to two logical connections that may be underpin the world of business strategy. The first has to do with an ease disconnecting from the context, i.e. “Not my monkey; not my circus.” The second has to do with the extent of the returns sought: Businesses do a great job of gauging the what-by-when of their expected returns, but the question of “What is enough?” gets a bit fuzzier.

Globalization has created great flexibility for businesses who pursue all sorts of options in the name of efficiency. There is a reason why Ireland is home to so many corporate head offices. That potential transiency creates the option of leaving a situation and having others clean up any mess. There is a stereotypical short-term nature to corporate decision making, even when it comes to strategic decisions. It’s not as bad as the anecdote relayed to me of a business executive, who in consulting a sales leader about embracing a new process, was met with the retort, “You must have me confused with someone who cares about something other than my Q4 results.” The MBAs engaging with Mr. Morneau’s case clearly saw “exit” as a viable option and, were they arguing the Kinder Morgan side of the discussion, would not be “gaming the Canadian Government,” but rather “making the tough but necessary decision,” with no regard for the consequences of that move.

To dig into Mr. Moreau’s rationale for not offering indemnity Kinder Morgan, the fact that they are Houston-based definitely would not help. If you agree to bankroll someone in a risky situation, you most likely expect a “good faith” partnership where they will only lean on you when truly needed. There will be no contract clause that says, “Don’t take advantage of us,” but the norms espoused under the umbrella of business strategy can drive a “take what you can get” attitude. As CEO of Canadian Health Labs (CHL), Ivey-educated Billy Hennessey oversaw relationships with long-term care homes to arrange agency nurses to fill labour gaps. Media coverage will suggest that his strategy involved controlling a scarce resource (nurses during a pandemic) and charging what the market will pay. When the “market” has the deep pockets of a provincial health authority, why not kick that up a few points and even charge for services that were not delivered?

It is an exercise in futility to try to impose an overall direction on an entity that does not see/respect/appreciate how the rules connect to the overall aim. Another example of this is the restriction of some performance enhancing drugs in elite level sport. Conceivably, parties would agree that fair competition, entertainment value and long-term health of athletes would factor into the long-term view. A logical connection exists between banning some substances and protecting the athletes health (and from themselves and their coaches). Discounting the negative impact on the athlete fosters an attitude of avoiding detection rather than avoiding use. Not to moralize or suggest that those in the public sector have superior ethics than their private sector contemporaries, but this same misalignment of “rules” hampers the public-private partnership.

Recipe for Collaboration

Collaboration in such complex environments can work well if three conditions hold:

• Sufficient overlap in the long-term direction (We may not be in lockstep, but it does not feel like a tug of war);

• Shared understanding of constraints that guide actions. (We accept such “rules” rather flout them because adhering to them aligns with our ideas of success and progress); and

• Shared understanding of our means of gauging progress. (We also embrace the complexity of showing such progress in unassailable terms).

With such energy infrastructure project as the above case, effective collaborators both want a pipeline that functions safely and efficiently. (It doesn’t matter whether you are doing this to bolster the national economy or to meet stock analyst expectations for revenue over the next 5 years.) If there was duty to consult stakeholders, we do so in good faith because we know that following that process will ease the path of implementation and strengthen the project over the long term. (This is not a “tick the box” exercise for anyone.) Gauging progress for the project would relate to meeting deadlines and remaining within budget. This stakeholder consultation connects to the overall objective by contributing to realistic timelines and budgets, than can avert “unforeseen delays” and other complications. This all sounds very commonsensical, but imagine how such a collaboration would work when overall aims diverge significantly AND/OR where we “play by different rules” AND/OR when parties look at totally different things to assess interim progress or lack thereof.

To modify the truism, “If you have no destination in mind, any route will get you there,” let’s say, “If you have not discussed where we are headed, how can we meaningfully discuss progress toward getting there?” The “discussion” about where we are headed will not be one that births a clear direction and consensus. The alignment toward the ultimate goals can sound moralistic and can surface some areas where parties agree on a course of action for very different reasons. Without clear indicators of “how we are doing,” we can err on the side of “playing by the rules” or on the side of “checking the scoreboard.”

Parting Thoughts

It is easiest to work with people who are trying to do the same thing that we are. We can be surprised when those who actually have similar goals have very different ideas of how to get there. We can also be disappointed (and surprised?) to learn about differences in motivation and desired impact.

NOTE: Finding sufficient overlap in orientation does not be that big a hurdle, but it is good to discuss up front.

Sharing the same rules is very helpful when collaborating with others. Sometimes we have to check that adhering to the rules really connects to our idea of success. Sometimes we have to help others see and believe those connections.

Trusting that at some point we going to ask each other, “how do you think we are doing?” it is nice to discuss and agree on stand-in measures that tie to our belief in overall success. Rather than forecasting success, we are sharing our expectations in the face of many moving parts. Our expectations will develop as we learn from tangible evidence we gather and our actual experiences.