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Expressions of Business-Government Relations: MacDonald Detwiler (2008) and Nortel Bankruptcy (2009)

Updated on January 11, 2010

The following discussion compares and contrasts the aborted MacDonald Dettwiler sale of 2008 and the Nortel bankruptcy of 2009 as expressions of both ‘mutual dependence’ and the ‘uneasy partnership’ between business and government. I will focus most specifically on foreign takeovers, government intervention, and the subjective nature of ‘technological sovereignty’.

Vancouver-based MDA, maker of the RadarSat-2 satellite and Canadarm, was set to be purchased by Minnesota-based company Alliant Techsystems. The R2 allows for Canadian scientists to view objects three metres wide from around 800km above. It is able to spot moving ships, monitor forest resources, crop conditions, and environmental accidents. In business propositions like this, there is a specific sovereignty issue that should be considered. There is a good point in noting that the United States would never approve a Canadian takeover a home-grown firm that has the capacity to meet or exceed American surveillance technology. It is also important to note that these kinds of takeovers are not taking place between small widget firms, but with the so-called pinnacle of Canadian aerospace development. There is much more at stake when a country begins selling intellectual property, something that many Canadians will still attest to in the case of the Avro Aero. (Which probably had something to do with the federal Conservative’s eventual decision)

The proposed MDA-Alliant deal is a good example of the delicate position Mr. Prentice was faced with by multiple and competing interests. It reflected the uneasy partnership between government-business relations and Canadian sovereignty. From the shareholders’ perspective, over 99.9% of the shareholders were supportive of the sale, anticipating large windfalls. Not only did Mr. Prentice have to balance sovereignty and business issues in Canada, but under NAFTA provisions, blocking the deal could have given rise to legal action from Alliant.

The Remote Sensing Space Systems Act (Bill C-25) regulates remote sensing space systems to ensure that their operation is neither injurious to national security, to the defence of Canada, to the safety of Canadian Forces or to Canada’s conduct of international relations. The legal argument against the MDA-Alliant deal was that it would compromise both Bill C-25 as well as the Investment Canada Act. (which will be defined in greater detail below)

Technology Partnership Canada (TPC) was a special operating agency of Industry Canada with a mandate to provide funding support for strategic research and development, and demonstration projects that produced economic, social and environmental benefits to Canadians. This has been referenced in Hale: “The aerospace industry has been relatively successful in protecting subsidies delivered through the TPP despite critiques by international trade bodies and Canada’s auditor general.” (266)

Prior to 1984, the Foreign Investment Review Act (FIRA) had a tendency of making foreign investors feel less-than-welcome in Canada. The Investment Canada Act replaced FIRA and applies to non-Canadian investors when the company holds more than $5-6 million in assets, or there is a national identity or cultural heritage related business deal. The act requires some acquisitions to be reviewed by Industry Canada prior to the completion of the deal, which is supposed to be based on investments that contribute a net benefit to Canada. While the definition of a net benefit is highly subjective, Canada has such an attractive investment atmosphere that such a claim is not asking too much or diminishing competitiveness. The United States has similar legislation under the Committee on Foreign Investment, but it has traditionally been used in industries like the military and nuclear power.

Part of the reason the MDA-Alliant deal was so controversial is because the technology being sold was heavily funded by taxpayer dollars. If the technology was sold, shareholders would benefit where taxpaying citizens would be left with nothing. On the other hand, the only reason Radarsat-1 and the Canadarm were able to get into orbit is because of contracts tendered from NASA and cooperation with the United States military. If the U.S. does not grant certain military contracts, then it is hard to believe that a highly technical, space-age industry like MDA could survive and flourish in a market as small as Canada’s.

Post 9/11 security policy in the United States has caused some to speculate on the ownership conditions of images that would be captured by Radarsat-2. There is fair reason to believe that the Patriot Act and other legislation would seize any images deemed against American national or military interests. The question many people were asking at the time was why the United States would spend that much ($1.3 billion) on a satellite system that would be openly accessible to Canadians.

North American economic integration has changed dramatically since the takeover boom of the late 1990s. As early as that period however, strategists have acknowledged what Hale has referred to as the “hollowing-out debate”. (261) This was a period in which market forces started to catch up with the rapidly-expanding notion of economic globalization. Major decision-making functions that had previously been localized to Canada were now starting to take different forms as companies inter-listed their shares and made financial statements in American dollars, effectively functioning off of internationalized markets.

Hale argues that increasing international competition, economic integration, and the growing turnover in business ownership has had two significant effects on both federal and provincial government policies. “Rather than traditional policies of direct government assistance to particular national champions or industry sectors – except perhaps for the aerospace sector (MDA case study) – they have stimulated increasing attention to the creation of a macroeconomic policy framework of low inflation, low interest rates, sustainable public finance, and, to a lesser extent competitive tax rates on business and investment in order to make Canada an attractive and competitive market for export industries and foreign investment. (262)

When Mr. Prentice ultimately rejected the deal, it would mark the first time the federal government has ever blocked a corporate takeover through the Investment Canada Act and create a precedent for future business-government relations


Many claim that Nortel failed in their lobbying attempts when seeking assistance from the federal government. They offered at least six proposals, involving different assumptions about which corporate divisions would be sold off, or how quickly various telecommunications sectors would recover. The government would have liked to seen a clean rundown of the request, with a plan of action on the other end – something Nortel could not managed to solidify. In 2004-05, Nortel faced an accounting scandal that stalemated the company for a number of years. Due to its global reach, and subsequent size, one could argue that an apparent lack of modern accounting standards led straight to disaster.

The patriotic theme that ran through the MDA case study was definitely lacking in the Nortel analysis. This is for multiple reasons but largely because we can consider Nortel a true global firm; less than 20 per cent of the company’s 30,000 employees are based in Canada. Another thing to consider is that Nortel’s timing was absolutely horrible; between a looming recession and a headline-devouring automakers crisis, I think it is fair to argue that Nortel did not get the public attention that it deserved and needed in order to reap financial assistance from the feds.

Nortel is an interesting case because it was an important company, but important for the wrong reasons, which unfortunately led to its demise. From a strictly observer perspective, Nortel might have been considered a more important Canadian company than General Motors or Chrysler which nonetheless received large donations from the federal government. From a political perspective however, Nortel had no one left to champion the company. The automakers had blue-collar support as well as a patriotic fervour, which is a large reason why they were bailed out and Nortel was not. It is also fair to note that the automakers had large and effective unions, where Nortel was highly non-union. Also, automaker employees were in vote-rich constituencies of economically weathered cities, where Nortel was largely in suburban Toronto and Ottawa.

One point of interest in the otherwise stale world of industry politics was the fact Canadian company Research in Motion (RIM) wrote a strongly worded letter that claimed their business prospects for Nortel had been blocked at every turn. RIM was vocal about their concerns throughout the entire bidding process, but their motives were questionable, and sometimes purely diversion tactics. As noted below this kind of public attention can sometimes work against a company and to a greater extent, their credibility in future proposals. “What RIM is doing to Nortel is what Mr. Balsillie did with NHL hockey: he turned the league’s rules into a legal circus. The big public appeal to national interest may work in creating a media stir, but it also has the effect of tainting the process. Appeals to deep nationalism, with flags flying, is usually the redoubt of somebody with a weak hand to play or of someone who wants to manipulate the political system for personal gain.” (Corcoran)

There is a significant aspect of intellectual property with Nortel, which effectively means that RIM will be competing with foreign competitors who are using intellectual property acquired from Canada. However, one important difference between Nortel and the auto manufacturers is that the federal government viewed the auto crisis as an industry-wide problem, where Nortel had been plagued by company-specific problems.


The MDA-Alliant case study could be considered similar to Nortel because where MDA was dealing with national security risks; Nortel was seen by some to be an equally sensitive industrial security firm. This was true to some degree because Nortel was the largest corporate research and development spender in Canada. Another similarity is in the intellectual property component of MDA and Nortel, which in both cases had added to the complexity of the final decision.

The ‘too-big-to-fail’ label has been discussed a lot in recent years, but perhaps the question should be rephrased. In fact, there is no generic rule that will dictate whether a company should or will succeed. The likelihood that a given company will receive necessary government support should be analyzed in a case-by-case format because the final result will be contingent on a large number of factors. Such factors include industry type, industry performance, firm size, firm location, number of jobs, national identity, national security, competitiveness, labour relations, and the potential to create value-added goods and service, to name a few.

Between MDA and Nortel, one could probably successfully argue that Nortel was the more significant company of the two. This would also probably be true in the case of Nortel and the automakers. These studies function as a good illustration of the complex and seemingly contradictory nature of business-government relations in Canada.

The reality of mutual dependence between business and government is clear in both of these case studies because we naturally want to protect our national interests, especially those that came into existence through taxpayer dollars and have some root in the Canadian economy. Having said that, Canadian business relies heavily on the government’s ability to provide the business environment with a stable set of rules in which they can effectively function. Analyzing the Canadian business environment reflects an “attempt to balance competing business interests with those of other social and economic groups which is vital to understanding many different elements of the political system and how these different parts fit together.” (Hale, 8)

Of course, this mutual dependence has resulted in the uneasy partnerships described in the two assigned case studies. We can consider these partnerships ‘uneasy’ because there is no correct answer to the decision-making processes within them. In both case studies, there are good reasons both for and against government intervention but as mentioned above, there is no generic rule that can be applied to decide what is best for each individual firm. Technological sovereignty might be an outdated concept, in the sense that the internationalization of capital markets permeates beyond national borders. However, Canada should be wary that the ‘hollowing-out’ effect is indeed real and could put us in a serious disadvantage, especially with regards to innovative patents and intellectual property.

Corcoran, Terence (2009), “Balsillie back in corner, elbows up”, National Post, 22 July, A1.

Friesen, Joe (2008), “Sale of Canadarm maker to U.S. company threatens Arctic sovereignty, Garneau says”, The Globe and Mail, 24 March, A1.

Hale, Geoffrey (2006), Uneasy Partnership: The Politics of Business and Government in Canada. Toronto: University of Toronto Press.

Pitts, Gordon (2009), “RIM calls on Ottawa to review Nortel bid”, The Globe and Mail, 21 July, A1.

Pugliese, David (2008), “Space firm sale a ‘betrayal of public interest’: Hanger”, The Ottawa Citizen, 15 March, A1.

Sturgeon, Jamie and Matt Hartley (2009), “Foreign control of Nortel wireless R&D raises worries”, National Post, 28 July, FP1


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