Bloomberg News

Jarislowsky to Step Down From Helm of Money Manager

November 06, 2012

Jarislowsky Fraser Ltd. CEO Stephen Jarislowsky

Stephen Jarislowsky, head of Montreal-based Jarislowsky Fraser Ltd. Photographer: Don MacKinnon/Bloomberg

Stephen Jarislowsky, the billionaire investor who tangled with Conrad Black and Research In Motion Ltd. over corporate governance and fought to protect Canadian firms from foreign takeovers, will step down as head of the money management firm he co-founded almost six decades ago.

Jarislowsky, 87, will remain chairman of Jarislowsky Fraser Ltd. and “begin to transition out of his responsibilities” as chief executive officer as he nears retirement, the Montreal- based firm said in an e-mailed statement dated yesterday. Pierre Lapointe, a 27-year veteran of the company, was promoted to chairman of the executive committee. President Len Racioppo, who chairs the investment committee, will leave Nov. 30.

Jarislowsky, who arrived in North America from Europe when he was in his early 20s, has been one of Canada’s most vocal advocates for better governance. After co-founding the Canadian Coalition for Good Governance with Claude Lamoureux in 2002, he championed the creation of a national securities regulator and fought to trim CEO compensation at companies from Manulife Financial (MFC) Corp., the country’s biggest insurer, to auto-parts supplier Magna International (MG) Inc. He also pushed Canadian banks to separate the posts of chairman and CEO to improve accountability.

“If you look at the major corporate governance trends in Canada, one of the chief architects of all the changes you’ve seen in the last few years is Stephen,” said Lamoureux, former head of the Ontario Teachers’ Pension Plan. “His persistence is one of the reasons banks started separating the posts of chairman and CEO, and other companies followed. He thinks an independent board adds value.”

Low Risk

Jarislowsky isn’t giving interviews today, his assistant, Janice Burnett, said by telephone.

The company, which runs about C$37 billion ($37.2 billion), remains “committed to the disciplined, low-risk, bottom-up approach that the firm has taken throughout our 57-year history,” Jarislowsky said in the statement. “In the coming months, the firm will announce additions to its investment team to strengthen the committee approach and to ensure succession at all levels.”

“Stephen has managed to stay independent longer than any firm in Canada, and in this industry, that’s the biggest accomplishment,” Michel Nadeau, executive director of the Montreal-based Institute for Governance of Private and Public Organizations, said in a telephone interview. “He works for his clients, and nobody else. Jarislowsky Fraser is the Canadian equivalent of Berkshire Hathaway.”

Assets Declined

The announcement marks “the first step and by no means the final step of this transition,” Lapointe said in a telephone interview. “Mr. Jarislowsky is removing himself from the day- to-day operations, but he remains chairman and a very big shareholder, and he manages several accounts. He is still busy, and if he can stay healthy I think he’ll do this as long as he possibly can.”

Fund managers Erin O’Brien, Margot Ritchie and Chris Kresic will join the executive committee, Jarislowsky Fraser said. The committee “remains empowered with the overall management of the firm,” the company said.

Jarislowsky Fraser is abolishing the positions of CEO and president, Lapointe said.

“We’re basically making the executive committee a little larger and more responsible for the day-to-day operations,” he said.

Lapointe, a former executive vice-president at the firm, has been a director and member of the executive committee since 1995. Racioppo, based in Toronto, has been with Jarislowsky Fraser since 1987.

Client Redemptions

Assets have declined from about C$54 billion in 2006, past Bloomberg stories show. Client redemptions and the growing tendency of pension funds to move some of their holdings into “non-traditional” investments such as private equity contributed to the drop in Jarislowsky Fraser’s assets, Lapointe said, as did the 2008 slump in global stock markets.

Based on U.S. filings and data compiled by Bloomberg, the firm’s holdings of $21 billion in stocks listed in the U.S. and Canada returned about 0.8 percent in the past five years, compared with a 6 percent decline in the Standard & Poor’s/TSX Composite Index. (SPTSX) The firm underperformed over the last decade on that basis in U.S. dollars, returning 198 percent versus 287 percent for the index.

Bank Stocks

Three of the firm’s five biggest U.S.-listed holdings are Canadian bank stocks, Bloomberg data show. The stakes in Toronto-Dominion Bank (TD), Royal Bank of Canada (RY) and Bank of Nova Scotia have a combined market value of $4.1 billion. The firm also holds large stakes in Calgary-based energy producers such as Suncor Energy Inc., Encana Corp. and Nexen Inc. (NXY)

“Canadian stocks are their strength,” said Nadeau, a former investment chief at the Caisse de Depot et Placement du Quebec, Canada’s second-largest pension-fund manager. “Stephen’s philosophy is to invest in what he knows, and he doesn’t understand technology that well. No historical model will tell you what to expect from Facebook or EBay. Since 2008, markets haven’t done very much, and neither has his firm.”

Among other key holdings, Jarislowsky Fraser has built up stakes in Canadian companies such as Metro Inc. (MRU), a grocer, and engineering firm SNC-Lavalin (SNC) Group Inc.

“When Stephen invests, it’s not for six months,’ said Lamoureux. ‘‘Many of his investments, he made at the start of his career. He will often build up a 15 percent company stake and stay there. He is going to give management his opinion.”

Behind Curtains

Nadeau, who spent 20 years as an investment executive at the Caisse, recalls how he and Jarislowsky would often travel to visit plants as they weighed whether to invest in companies.

“Stephen wants to understand what he invests in,” said Nadeau. “He wasn’t buying an image. He wanted to see what was happening behind the curtains. CEOs didn’t always like that.”

With a net worth of about C$2 billion, Jarislowsky ranked 27th on Canadian Business magazine’s 2011 list of the richest Canadians. His private foundation supports various organizations in health and education, including several university chairs across Canada.

Born in Berlin, Jarislowsky emigrated to the U.S. in 1941. He studied engineering at Cornell University, served in the U.S. Army during World War II and got an MBA from Harvard Business School in 1949. He moved to Montreal to work for Alcan Aluminum Ltd. as an engineer before starting his firm in 1955.

Southam Battle

As a Southam Inc. director in the 1990s and chairman of the company’s compensation committee, Jarislowsky clashed with Conrad Black over the management fees he was receiving, according to “Robber Baron: Lord Black of Crossharbour,” a 2007 book by author George Tombs on the former newspaper publisher. Jarislowsky later quit the board and sold his stake in Southam, contacting the Ontario Securities Commission about the matter.

Jarislowsky also fought to prevent takeovers of Canadian firms by foreign investors, concerned the sales would give him fewer investment options. He opposed the 2010 sale of Potash Corp. of Saskatchewan Inc. to BHP Billiton Ltd., which was eventually blocked by the Canadian government.

“What benefit does BHP bring to these potash mines? None,” Jarislowsky said at the time. “From the point of view of the country, it’s an enormous negative.”

Jarislowsky hasn’t been shy about wading into the political debate in Quebec. A fervent opponent of Quebec sovereignty and economic nationalism, he penned a letter in Montreal’s Le Devoir newspaper in September to criticize the province’s isolation from Canada and the rest of the world.

“Stephen is never afraid to speak up,” Nadeau said. “He may have lost clients because of his opinions but he has always had the courage of his convictions. He truly is an exemplary individual.”

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net

To contact the editors responsible for this story: Jacqueline Thorpe at jthorpe23@bloomberg.net; Ed Dufner at edufner@bloomberg.net

Stephen Jarislowsky, head of Montreal-based Jarislowsky Fraser Ltd. Photographer: Don MacKinnon/Bloomberg

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