BCE's George Cope named Canada's Outstanding CEO of the Year

The Financial Post talks to the chief executive about how he transformed BCE from a weathered and beaten telecom into a company that's lean and in tip-top shape

This article appears in the November edition of the Financial Post Magazine. Visit the iTunes store to download the iPad edition of this month’s issue.

In the race to outfit 36 million Canadians with a cellphone, George Cope is content for BCE Inc. to be trailing in third place. “Our goal has never been to be No. 1 in subscribers,” he says during a lengthy interview at his Toronto office on Bay Street. Cope has another target in mind: “Growing our profits in wireless faster than our competitors. It’s how the capital markets measure success and, to me, what always matters.”


We’re a boring, dividend-paying stock that’s going to try to grow

Grow BCE’s profits is something Cope has certainly done. In fiscal 2014, the Montreal-based telco posted net earnings of $2.5 billion, 18.7% more than the previous year and a long way from the comparatively dismal $943 million it registered in 2008, the year Cope assumed the CEO mantle. That July, in the depths of a failed $52-billion takeover, he unleashed a 100-day turnaround plan to cut costs and jolt the lethargic telephone company, which was losing share in key markets to rival cablecos. Cope — 2,678 days into his tenure — hasn’t really stopped executing that plan.

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For his efforts, he?was named?Canada’s Outstanding CEO of the Year for 2015, an award presented by Bennett Jones, founding sponsor Caldwell Partners and media sponsor National Post.

Cope rattles off a laundry list of changes: BCE assembled a new executive team, built a new cellular network that it shares with Telus Corp., offered new products such as Fibe TV, widened its retail presence by acquiring The Source, among other retail chains, and bolstered its 130-year-old flagship Bell brand. “We’re fighting really hard,” he says.

Peter J. Thompson/National Post

The road to recovery hasn’t always been smooth. There have been times when the public hasn’t been onside with BCE; unfavourable regulatory decisions have hampered its business plan and the very visible sparring rounds with the regulators that ensued weren’t particularly flattering. But everything BCE does fits into one of its six strategic imperatives: invest in broadband networks and services; accelerate wireless; leverage wireline momentum; expand media leadership; improve customer service; and achieve a competitive cost structure.

We’re really rebuilding the telephone company that was built 100 years ago
[np_storybar title=”Essential George Cope” link=””]
Born: 1961
Education: HBA (Honours Business Administration), 1984, Richard Ivey School of Business, Western University
Career: Became CEO and president of BCE Inc. and Bell Canada in 2008, after serving
as president and chief operating officer of Bell Canada since 2006. Prior to that, he was CEO and president from 2000 to 2005 at rival Telus Mobility, which had bought Clearnet Communications, where he served a similar role. He was also president at BrookTel from 1985 to 1987.
2014 Fixed Compensation:$10 million
Boards: Director, BCE Inc.; director, Bank of Montreal; member, Richard Ivey School of Business Advisory Board, Western University; member, Canadian Council of Chief Executives
BCE 2014Revenue: $21 billion
BCE 2014 Profit: $2.5 billion
BCE 2014 assets: $46.3 billion
FP500 Rank: 20
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And Cope says he’s not done yet. As the legacy landline business sputters, his mission is to stem the losses and find new sources of sales. BCE is also in the midst of upgrading its network of fibre-optic cables in select east coast cities to power a new Internet service it calls Gigabit Fibe that will deliver the fastest speeds available today. BCE told its investors in April that it will invest $20 billion on infrastructure by 2020.

After BCE’s botched attempt to go private in 2008, Cope, a self-described delegator and generalist, also began repairing the company’s ties with the public markets. “Investors would say to me, ‘We can’t figure it out: is Bell a high-growth company, low growth, an acquisition company? What’s your story?’” Cope recalls. “I’d say, ‘We’re a boring, dividend-paying stock that’s going to try to grow.’ What we said we were going to be, we are. We’re not worse, we’re not better, we’re just who we said we’re going to be.”

Since BCE’s quarterly dividend was reinstated at 36.5 cents per common share in late 2008, it’s been hiked 11 times to 65 cents. BCE shares in July 2008 traded near $40, and subsequently fell into the low $20s before the end of that year. But the stock, which has been an investment staple of widows, orphans and pension plans, has climbed in price ever since. In January 2015, investors fleeing riskier bets in Canada’s oil patch catapulted BCE to new all-time highs, before it settled around $55 in mid-October. Its dividend yield of 4.7% is among the best 10 yielding stocks on the Toronto Stock Exchange.

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Cope sat down with Financial Post Magazine to reflect on what he’s achieved, look ahead to what he still has to do, and talk about how he’ll steer BCE’s 57,000 employees to get there.

Canadian Press
Q It’s been a long road back for BCE. Do you think the success that the company has had lately is why you were named Canada’s Outstanding CEO of the Year?
A I think I won the award, really, because of the team of leaders at Bell and what they’ve done over the past seven or eight years to bring the company back and make it a fair fight with our competitors. I really think it’s recognition that the company is back in a leadership position in the telecom space, being head-to-head with our competitors every day, winning some, losing some, but certainly winning more than we were a while back. We have a competitive spirit here. Pride is back. Our employees feel like we’re in the game. It’s an honour to be recognized, but the reality is it just doesn’t happen without the team of leaders that run all the different divisions of Bell every single day and the people who work here.
[np_storybar title=”Selecting Canada’s Outstanding CEO of the Year” link=””]
Canada’s Outstanding CEO of the Year Award was founded in 1990. This year marks the 26th edition of this distinguished award. Presented by Bennett Jones, along with founding sponsor Caldwell Partners, and media sponsors National Post and Business News Network, the award celebrates a Canadian business chief executive who exemplifies leadership, excellence and integrity and who has built a globally competitive organization. Canada’s CEO of the Year independent advisory board comprises more than 20 of the country’s most respected business leaders and academics, including past honorees of the award. The board meets annually to select the current year’s recipient based on five key criteria: vision and leadership, corporate performance, global competitiveness, innovation and social responsibility.
The 2014 advisory board members are: Jim Balsillie; Sonja Bata, chairman, Bata Shoe Organization; Peter Bentley, chairman emeritus and director, Canfor Corp.; Alain Bouchard, founder and executive chairman, Alimentation Couche-Tard Inc.; Patrick Daniel, former CEO and president (retired), Enbridge Inc.; J. Trevor Eyton, company director; Paul Godfrey, CEO and president, Postmedia Network Canada Corp.; Ross Grieve, chairman, PCL Construction Holdings Ltd.; Dezs? Horváth, dean, Schulich School of Business, York University; Harold (Hal) Kvisle, former CEO and president, TransCanada Corp. (retired); Jacques Lamarre; Jim Leech, chancellor, Queen’s University; Hugh MacKinnon, chairman and CEO, Bennett Jones; Gordon Nixon; David O’Brien, former chairman, RBC and Encana Corp. (retired); Philip Orsino; Jane Peverett, corporate director; Indira Samarasekera, president emerita, University of Alberta; Guylaine Saucier, corporate director; John Sheridan, corporate director; Edward Sonshine, CEO, RioCan REIT; Paul Tellier, corporate director; Don Walker, CEO, Magna International Inc.
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Q You’ve said that BCE wasn’t performing well in 2008. How did it get to that point?
A We were trailing on the wireless side. Telus and Rogers were really quite a long way ahead of us. On the Internet side, we were a distant second. If you boil it back to marketing — what products we offer, what our services and distribution are like, what our reputation is as a brand — I think some of those had stepped back. During the last seven or eight years, we really pushed to compete head-to-head with our competitors, not winning all the time because they’re world class. But certainly in the area of TV, we’ve taken a leadership position. In the area of wireless, we’re back in the game, having some tremendous quarterly results. And on the broadband side, we went from not leading in market share to leading. Those are the core future drivers of our revenue. And then on the media side, Bell Media is the No. 1 media asset in the country, be it in television or in radio. And we’re closing the gap in the at-home world.
Q What was it like to be right in the thick of Teachers’ failed $52-billion takeover?
A I wasn’t CEO. I was COO, but I remember one friend saying to me, “You might be asked to be CEO. You better have a plan if it goes private.” It put the company under a microscope that it’s maybe never been under before. We had to do a lot of presentations to a lot of private investors and it made us really look hard at what are the opportunities. It was the Teachers’ group that was going to lead that. They are great telecom people, world experts. They brought a lot of focus on what were the opportunities to get back on the wireless side, the broadband side, get our cost structure in line and get the brand back in a leadership position. The company has stayed public and everyone’s been rewarded. Maybe it’s been the best of both worlds: a great plan that some of the private-equity folks had combined with execution in the public markets. If you bought our stock at the end of ’08, you’d be up 214%.
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Q If you had to boil it down, what were the three most important things you did when you became CEO to start turning the company around?
A [The first was] the clarity of focus on six strategic imperatives. No matter what way we communicated, it was always about the six strategic imperatives. What is it we need to be doing well and if we’re doing well, what would the outcome be? Our employees could see themselves contributing to those imperatives. If you’re an investor, you can see why our capital is going there. If you’re on the enterprise customer side, you’d see that’s why we’re investing. If you’re on the media side, you’d say, okay, that’s how the company views success. And so it gave us a platform.
Q What was the second thing you did?
A The second thing was stopping us from doing things that didn’t add value and just getting very, very focused on executing those imperatives. We used to have a venture-capital arm at BCE. My personal opinion is people who do venture capital know a lot about venture capital and private equity. We don’t have that core competency so we were always going to be second in that. People say you should invest in those companies because you get to see the technology first. Well, if you have technology in the telecom space, you come see Bell anyway given our size, scale and what we do. It’s not like we’re not going to see these technologies.
It takes a long time to win a customer back when you have disappointed them. We had a lot of work to do

Big companies like Bell aren’t great at running startups. We’re not culturally designed to be a startup. We’re great at something like Fibe TV. We started from zero and it’s at one million customers. That’s a business that’s going to be large. I wouldn’t allow us to put capital — with the odd exception — into startups or think we can do a startup unless that startup is going to ramp up very quickly to be a billion-dollar business.

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Q But has there ever been a concern that you’re now not diversified enough?
A We’ve done $11 billion of acquisitions since ’08. Every single acquisition has to fit in those [six] imperatives. Have we ever had to say we wish we’ve been somewhere else? No, because our canvas is so large. The growth in broadband is going to be significant over the next five, 10 years. When we ultimately have glass, or fibre, to every home and Canadians are using one gig, then two, 2.5, all the way up to who knows how many in terms of the demand for these services, the Internet is going to be a rapid area for growth for us. Wireless is continuing to grow. Video, whether it’s consuming OTT [over the top] or it’s on linear TV, both are exploding in usage. The applications in the home, a few years ago, you’d have two computers hooked onto the Internet. Now we have eight, 10 devices and, ultimately, every appliance is going to be plugged into these broadband pipes. We’re really rebuilding the telephone company that was built 100 years ago.
Q And the third thing?
A We took three levels of management out in 100 days. Because the company was to go private, there was an expectation that there was a cost structure challenge in the company. When you get a company that large and there’s a potential takeover, it’s also the capital markets saying there’s an opportunity here. They weren’t buying this company with a plan not to make money. One of the benefits was the cost, but more importantly, it was cultural. We were going to be made up of a team of doers, not people who told the next person we’ll get back to you on that decision. This place is so large there was no time left anymore for people who made their living having knowledge that somebody else didn’t have. I think IBM had fewer layers [between the CEO and the customer] than we did and they are a global company. So we took layers out, which got us closer to the customer for sure, but it also meant we had to have an expertise in the business to execute it. That was a big change for us. I think some people internally worried, you know, will the glue all hold together? The truth is, in hindsight, we could have done more. I don’t think we were ready to do more, but over the next couple of years, we continued to streamline our management structure and put resources on the ground so we’re actually in the home. If you had Internet problems, it was taking us eight days. Now if you have an Internet problem, we’re there this afternoon or tomorrow. It takes a long time to win a customer back when you have disappointed them. We had a lot of work to do.
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Q With 57,000 employees who cover all of Canada, how do you and the rest of the c-suite stay aware and close to the customer?
A They’re so accountable for their results and their divisions are lean. Our directors, a team of five or 600 people, arguably run the day-to-day public company and those directors report to our vice-presidents. We’re very disciplined around financial results. Everybody has to be on their game when it comes to knowing their numbers. I see a 220-page deck on a monthly basis and I go through the 220 pages. Everybody knows I do. It creates discipline. With $21 billion in revenue, to ask someone about a $30,000 [expense] line item isn’t uncommon.
Q Speaking of expenses, how do you juggle the fact that how you time your costly infrastructure projects could mean posting poorer results than what analysts expected?
A A capital investment like Gigabit Fibe that we’re doing across Ontario, Quebec and the east coast is about where the game is going, not where the game is today. It’s incredible if a customer today has our one-gig service, but the reality is, though, three, five, seven years from now, everybody is going to need access to that technology. You have to have confidence to know that is the right place to invest. Then, it’s very driven by financial models. What’s the affordability window? How much revenue growth do we need to justify this type of capital program? The pressure on quarterly results comes from media, shareholders, board, everywhere. CEOs don’t turn over every hour like shares can turn over. You actually have a real obligation to focus both on the long and short term, and both operations and strategically.
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Q In the late 2000s, when you started your fibre build-out, was it a mistake to stop short of the home and only wire to the neighbourhood’s node?
A Do I wish I could snap my fingers and have Gigabit Fibe in every home tomorrow morning? Sure, but we can’t. And have I ever thought that we should have done it in ’08? No, I don’t think I’ve spent a minute thinking about that. One: We really didn’t have the headroom. Two: We really didn’t have the evidence yet. Three: I think history is going to show that with what we’re doing and what our competitors are doing, we will arrive ahead of the demand for everyone to have one gig. We’re not going to miss that demand. Will I drive our folks nuts and want it tomorrow? Yeah, absolutely.
Q By not going all the way to the home then, have you lost out to the cable companies on speed and capacity?
A If you look, fibre to the node combined with our IPTV product, I think you’ll see that we’re leading the industry in net market share of Internet. It’s been the combination in getting our product back to leadership, launching Fibe TV and having that bundled with our Internet, which meant our ability to offer 25-50-meg services came from getting the fibre closer to the neighbourhood. Our market share of Internet has grown, I think, every quarter in the last eight quarters. And what’s interesting is it’s only in the last couple of years that we’ve had a critical mass of fibre to the node footprint. We were still a couple million homes and now we’re at six million homes. We still have homes that aren’t done. I haven’t spent any energy on, gee, would we have done something quicker? The other thing people have to remember is we had to rebuild our entire wireless network from scratch. We were on a platform that really had run its course, on CDMA, and we had to rebuild from scratch an entire HSPA network, which is now LTE. And that amongst other things in wireless was absolutely critical for us to turn the game around in wireless, getting ourselves back to a network leadership position in wireless.
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Q Any strength in Bell’s wireless network today wouldn’t be possible without the decision to expand the rural network-sharing arrangement Bell already had in place with Telus to cover a much wider area across Canada back in 2008. Was that deal your idea?
A I honestly can’t remember if Telus called me, or I called them. It was so compelling what we learned on the rural deal that we should do it on a national basis. It seemed so obvious. It’s such a benefit to our shareholders and such a benefit to our customers that Bell would have no interest in not seeing that going forward. I can’t speak for our competitor, but I would be very surprised if they’re not seeing the same type of benefit. At the end of the day, it would be very hard for me to say there’s a better model. In fact, competitors have tried to duplicate it.
Q How has your approach to capital markets changed over the years?
A Because we know it’s a “show me” story, management is very focused on results, both short and long term. We’ve generally exceeded expectations of the analyst community all the way through to try to get the story, and we’re building on it so it’s not just all about “show me.” There’s some comfort that we’re executing a long-term strategy. They understand that wireless has done very well now. There’s no question about wireless. It’s more like, Can you keep doing it?

On media, it is, Can you manage the transition issues going on? And the real question has been, Can you get enough growth out of the wireline to have positive growth? With the local phone business, even though it’s going to continue to decline, Is TV and Internet growing fast enough to offset that? The story investors want to hear is that you can keep the capex up, stay competitive and drive enough growth to continue the cash-flow, dividend-growth story. And that’s really been our focus.

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Q Your dividend policy states the dividend will be priced between 65-75% of free cash flow? Why did you settle there?
A It’s our understanding of where we think the capital markets are comfortable. If you look at companies that have payout ratios of 80-90%, there’s no problem with them. They wouldn’t be as capital intensive a business as ours because the Street would start to worry that maybe there’s not enough growth to keep growing the dividend if you’re paying 90% of your cash flow out. Our balance has been at 65 to 75%. There’s a healthy amount of free cash flow to deal with the leveraging, or whatever the debt market wants to see; enough free cash flow to invest in small, tuck-in acquisitions, or to deleverage, or for our pension plan; and enough comfort for people to know we have enough room to grow the dividend. Our job every year is, How do you grow that free-cash flow to have dividend growth and yet invest in broadband? Everything after taxes, we multiply by that 70% and that’s how much is going to go out as dividends and the other 30 is surplus.
Q Do you have any regrets with your turnaround plan?
A Everything always takes longer. You always want things to go faster. I remember when we were going private someone said to me, “This is a good plan, but it’s going to take twice as long to do what you’re telling us.” They were right. It took a long time to just get ourselves back in the game, competing head to head. Every day, we slug it out on the streets against some great brands.
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