General Jim Leech redeploys the troops

All right, sports fans, Jim Leech is about to make one thing perfectly clear. He is under no delusions about the quality of the major league teams under his watch.

He is painfully aware that the performance of the Toronto Maple Leafs stinks. He understands, too well, that the Toronto Raptors are not a good basketball team. He knows that the city's professional soccer club, Toronto FC, ranges from putrid to mediocre, depending on the week. But Mr. Leech would like you to know something else. All of this losing genuinely bothers him as a fan - never mind as the head of the Ontario Teachers' Pension Plan, which has earned a small fortune on those franchises and is lately rumoured to be in discussions about a possible sale of its two-thirds ownership stake in them, at a price tag of somewhere between $1.2- and $1.5-billion.

Could a deal happen? Sure, if the cheque is big enough. Will it? That is speculation, and this is one subject on which Mr. Leech will talk only about facts. And the facts are these, Mr. Leech says: Rogers has not offered to buy Teachers' shares in Maple Leaf Sports and Entertainment Ltd. (MLSE), as a Toronto newspaper blared in a headline this week; nor has anyone else put forward a bid; Teachers is "not anxious to sell it," though, as with any investment, it would sell without hesitation if its managers felt they could earn more in something else.

And finally: the perception that Teachers cares only about the bottom line, and is indifferent to the product MLSE puts on the ice or the court or the pitch, is not true.

"Am I disappointed that they're not both winning their seasons? Absolutely," says Mr. Leech. His slim, 6'2" frame is bent over the remnants of a turkey wrap at The Orchard, the in-house lunch counter at Teachers' headquarters in the northern part of Toronto. The surrounding area, right at the top of the Yonge Street subway line, is a "gastronomic wasteland," Mr. Leech says, so a year ago he and the fund's executives decided to replace a smaller lunch room with this place. With its bright fluorescent lights and red faux leather chairs, it has slightly more ambience than a public hospital cafeteria.

The $96.4-billion Teachers fund is undergoing a more significant overhaul at the moment, just as it did under its previous chief executive officer, Claude Lamoureux, who transformed it into one of the largest, loudest and most important investment managers in the country, throwing its money and its opinions around the boardrooms of corporate Canada.

Mr. Leech was part of that metamorphosis, having been plucked out of the detritus of the technology bubble in 2001 by Mr. Lamoureux to run Teachers' private equity group. Though MLSE was (and still is) but a small piece of a giant collection of assets, it brought his first big task at Teachers: to gently shove off a cliff Steve Stavro, the sports company's financially-weakened controlling shareholder. After many months of diplomacy, he got it done in 2003, and Teachers increased its ownership from 49 per cent to 58 (since raised to 66 per cent).

There were other successes, too, and the returns from Mr. Leech's private equity group helped an extraordinary run by the fund. After losing almost nothing during the years of the tech-led market meltdown, Teachers reeled off five straight years of gains from 2003 to 2007, during which it only once failed to earn at least 13 per cent. When Mr. Lamoureux handed off to Mr. Leech in late 2007, the organization had a halo around it, not only for its track record but for its reputation as Bay Street populist, fighting against excessive CEO pay and the like.

That halo has been tarnished. There was the 18-per-cent loss in 2008, which carved $19-billion out of the fund. For Mr. Leech, the great financial crisis exposed some major weaknesses that better times had covered up - like the fact that Teachers' investment gurus owned too many risky bonds, and didn't really understand those risks until the market began to crumble. "We just weren't nimble enough – and we reacted very quickly, but it caught us."

The mistake that people remember, though, was the fund's near-miss on BCE Inc., which, unlike the bond fiasco, bore Mr. Leech's own fingerprints. He was the one who forced the mighty Bell into play with a now-infamous "activist shareholder" filing in the spring of 2007. He organized the consortium that offered $35-billion for it at the absolute height of private-equity mania that summer. Then his group staged an arm's-length coup by forcing out CEO Michael Sabia before the acquisition had even closed - only to walk away from the deal on a technicality soon after Lehman Brothers dropped dead, when KPMG deemed that the buyout would have rendered BCE insolvent, by the strictest definition of the term. That triggered an escape clause.

What would have happened had he not been rescued by the accountants? On paper, Teachers would have taken a large, and immediate, bath on what was intended to be a $4-billion investment. In reality, it would have been no disaster, Mr. Leech still maintains, two years later. "The key was, will the business throw off enough cash and make enough money to support the debt load? And just looking from the outside - I mean, this is all 20/20 hindsight - it looks to me as though they're on their business plan," he says. "I don't think the world would have been topsy-turvy if we'd closed [the deal]."

That is the past, though, and the hostility at BCE for him has faded now that Mr. Sabia and former chairman Richard Currie have left. (Mr. Currie's replacement at BCE, accountant Tom O'Neill, is a Leech friend.) But there also is an unmistakable sense that Teachers is turned the page in other ways, too - that it is breaking from the Lamoureux era, and in the process losing some of the relevance it once had in the Canadian market. The fund had whittled its holdings of domestic stocks to $8.4-billion by the beginning of this year, from nearly $20-billion in 2005, a decline that has accelerated in the Leech era. This year, Teachers jettisoned its 35-per-cent stake in Maple Leaf Foods Inc., one of the country's largest consumer products makers, and its minority interest in CTVglobemedia Inc., the largest Canadian private broadcaster (and also the owner of The Globe and Mail, for the moment); before that, it ditched its BCE shares.

The number of major, publicly-traded companies in which the fund has a sizable equity investment is now exceedingly small, as it shifts money into real estate, commodities and other hard assets, like airports and toll roads, often overseas. And with that change comes a loss of influence - not that Mr. Leech isn't influential, but how can he, or Teachers, have the same muscle in the boardroom as before? Teachers was, in some quarters, even mocked for buying one share of Magna International Inc. so that it could formally oppose the auto parts company's nauseating $1-billion exit package to Frank Stronach this year. Who cares about the opinion of somebody with one share?

I challenge Mr. Leech on this, and get brushed back. "I disagree with it," he says. "Our muscle is in our voice and our reputation, our brand." On governance, there is still work to be done, especially on reforming how senior executives are paid. "Making sure boards are accountable for tying compensation to performance - that's the key. I mean, they say they are, but in a lot of cases, you scrape it and look at the [executive pay] plan, and it's not really tied to performance." Could that describe Maple Leaf Foods, which has paid Michael McCain $19.8-million over the past three years, despite a flaccid stock price and Teachers' presence on the board?

"No comment," says Mr. Leech.

There are so many other things he'd rather talk about, such as what he says is one of his most important tasks: preparing a new generation ready to take over the fund. When he became CEO, there was one woman on Teachers' executive team; now there are five. The investment department is "a few grey haired guys … [and] a lot of young people." And this, more than anything, is what gets him excited and will keep him working past his 65th birthday, which is only 18 months from now. "What cranks me up is being around a whole bunch of people who are really smart and are young, and they've got high energy levels. And it keeps me going too."

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CURRICULUM VITAE

Beginnings

Born June 12, 1947, in St. Boniface, Man.

His father was a high-ranking military officer. Studied math and physics at Royal Military College. Later got his MBA from Queen's University

Home

Lives in Toronto. Married to Deborah Barrett, vice-president of finance of Woodbridge Co. Ltd., the Thomson family's holding company. Three children, four grandchildren.

Career

At the age of 22, a Canadian Forces career manager pointed out to him that Canada didn't have a general younger than 46. The next week, Capt. Leech handed in his resignation.

Cut his teeth as a deal maker in the 1980s at Unicorp, a conglomerate known for aggressive takeover tactics Lost his job in the early 1990s, read Nuala Beck's Shifting Gears: Thriving in the New Economy, and decided to try a career in the technology sector – though he didn't even own a computer. After playing a senior role at a series of small tech companies, landed at Teachers in 2001 as head of private equity.

Passions

Enjoys cross-country skiing, hiking, and other outdoor pursuits.

Favourite scuba diving spot: Belize.

He and Deborah are keen on adventure travel. This fall, they went on a safari to Kenya.

Non-profit work

Serves on the boards of Toronto General & Western Hospital Foundation and Right To Play, a charity dedicated to helping disadvantaged children get involved in physical activities.

Chairs the advisory board of the Queen's School of Business. Participates on the advisory board for The Learning Partnership and the advisory council for the Toronto Board of Trade.

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IN HIS OWN WORDS

On why Canada fared better than the U.S. in the financial crisis:

"There is this thing about Wall Street. … Once it finds something good it just exploits it to the nth degree, beyond reasonableness. There does seem to be some sort of a brake in a lot of Canadian minds that say, 'Yes, I know I could push this a little farther, but I'm not going to, because it doesn't feel right.' Wall Street doesn't work on that principle."

On the public-relations headaches that come with being the Toronto Maple Leafs' biggest shareholder:

"We don't get beaten up now nearly as much now as before, notwithstanding the fact that the performance of the two teams is not very good, because I think the media has gotten off the kick that we're somehow engineering the hockey trades."

On one more reason he's rooting for the Leafs:

"We'd make a lot more money if they were winning."