Jim Leech wants to save Canada's pension system

In the mid-1980s, long before the term "activist investor" became familiar in Canadian business, a young Jim Leech helped lead Unicorp's bitter takeover of Union Enterprises, the parent company of Union Gas. The former outsider is now the ultimate insider. On Dec. 31, he retires, at age 66, as CEO of the $130-billion Ontario Teachers' Pension Plan. He's distilled much of what he's learned into The Third Rail, a book on saving Canada's pension system.

Are you really the same young whippersnapper who led the Unicorp assault on Union?
We were a merchant bank—we just didn't know what a merchant bank was then. We were looking for anomalies where the underlying value in a company was far greater than that reflected in its share price. The takeover was the most hostile the country had seen. That shook up the Canadian establishment.

So how did you become this pillar of the establishment?
It's about the same principles. Today people are more attuned to holding managers of companies accountable. "Listen," they say, "you're supposed to be stewarding my dollars and you should be doing the best job possible." But I worry a bit about the current shareholder activism as practised by some.

What do you mean?
I'm worried about short-termism, things like the constant guidance on companies' earnings. We're all guilty of it to a degree, by saying, "How is the performance this quarter?" Teachers' itself has steadfastly stayed away from releasing its own quarterly numbers. We do it annually.

How did it feel to become Teachers' boss just before the 2008 financial crisis hit?
It came on kind of fast. I knew my predecessor, Claude Lamoureux, was smart, but I didn't realize he was brilliant—with his timing. We made some mistakes, but not ones everyone else did. That was probably the most galling thing. We steadfastly avoided asset-backed paper, but we found other places to step in it—strategies that were, in retrospect, dumb. But the place was pretty resilient.

How did you react at first?
There was value in one or two of us old guys around who could stay calm. I remember telling a meeting that "this is bad, but in October, 1987, there were fortunes made the week after the crash." The decisions you made from that day forward could make billions.

What have been the biggest changes in the stature of pension plans?
When the governor of the Bank of Canada visited Toronto 10 years ago, he wouldn't have met with a pension plan. But starting seven or eight years ago, the plans were included. The Bank sees that they are big suppliers of liquidity to the markets and major players. Yet not long ago, plans were dumb money. They gave their assets to outsiders to manage, paid huge fees and didn't ask many questions.

Is your book and advocacy about pension plans aimed at leaving a legacy?Five years ago, I got passionate about the polarization of the debate over defined-contribution versus defined-benefit pension plans, and so much misinformation. In the next decade, I said, elections will be won and lost on pensions. The more people kick the can down the road on this issue, the bigger the problem.

You also want to require at least three women on every public company board within seven years. Why the rush?
We can go through the exercise of "comply or explain" [a voluntary approach widely supported on Bay Street] for a few more years, but that won't change anything. CEOs have to allow their senior women executives to go on other companies' boards. You can't say, "We need diversity," yet if you have three senior women working for you, then say, "We won't let you sit on boards."

But, really, quotas?
I'd like to put Catalyst [the women's advocacy group] out of business. I have the highest respect for them, but how many dinners have you attended where male CEOs said, "We've got to do this"? We all feel good, yet nothing has changed. I think we can get it.

This interview has been condensed and edited.