C-Suite Report

7/31/2019 C-Suite Report

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The 27th Quarterly C-Suite Survey:Cash Reserves, Debt, Interest Rates and

CEO CompensationJune 18th, 2012

Sponsored by:

Published andbroadcast by:


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2222

Introduction

This is the 27th edition of the C-Suite Quarterly survey, conducted onbehalf of KPMG; published and broadcast by the Globe and MailsReport on Business and BNN. Previous quarters surveys are availableat GandalfGroup.ca .

This quarters survey and this presentation focus on:

Companies savings or cash reserves Debt levels

Access to financing

Interest rates

CEO compensation

Exporting, the dollar and emerging markets Methodology: telephone interviews were conducted with 156 C-Suite

executives from ROB1000 companies between May 17th and June 5th 2012.The margin of error for this study is +/- 7.85% 19 times out of 20.
http://www.gandalfgroup.ca/http://www.gandalfgroup.ca/http://www.gandalfgroup.ca/http://www.gandalfgroup.ca/


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Summary of Key Findings

Based on renewed optimism about the US economy, business expectations forCanadas economy are improved this quarter.

There are still a number of dark clouds that executives see, but none darkerthan Europe which is preoccupying the Canadian business community.

These concerns particularly manifest themselves in concern about another credit crisiswhere debt financing is unavailable.

Concern about those risks has business sitting on healthy balance sheets,

hoarding for a rainy day. There is considerable concern about the impact rising interest rates would

have, and most in Ontario are opposed to any move by the Bank of Canada toraise rates even a point.

Most business leaders think that CEOs compensation cannot be justified byimprovements in shareholder value, and see growing income disparity as anegative development in society.

Most Canadian businesses do not have and think they do not need a strategyfor emerging markets.

3


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4

The Economic Outlook

The outlook of executives for the US economy has improved slightly

since last quarter; confidence in growth is now back to the same levelas June of last year, recovering from a pessimistic September 2011.

The C-Suites evaluation of the Canadian economyat the current timecontinues a year long trend of steady incremental improvement. Fourin five executives said the economy is in moderate growth.

The outlook of executives for the Canadian economy is effectivelyunchanged from last quarter with the vast majority expecting theeconomy to grow only moderately over the next 12 months.

In the past we have typically seen a 15 point difference between Western andOntarian executives, but this quarter finds the two sets of executives on the

same page.


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555

Current Growth Levels In TheCanadian Economy

Which of the following do you think best describes the Canadian economy at the current time -strong growth, moderate growth, moderate decline, strong decline?

0 20 40 60 80 100

May/Jun. '12

Feb. '12

Dec. '11

Sept. '11

Nov/Dec. '10Sept. '10

May/Jun. '10

Mar. '10

Dec. '09

Sept. '09

May/June '09

Feb. '09

Nov. '08

1

1

3

1

1

10

5

1

81

77

75

68

89

84

85

90

75

67

17

2

13

14

15

25

29

9

16

5

4

23

31

71

73

78

1

1

1

1

2

11

25

8

3

7

1

1

1

1

2

1

Strong growth Moderate growth Moderate decline Strong decline DK


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6666

Projections For The CanadianEconomy

What are your expectations for the Canadian economy over the next 12 months, strong growth,moderate growth, moderate decline, strong decline?

0 20 40 60 80 100

May/Jun. '09

Sept. '09Dec. '09

Mar. '10

May/Jun. '10

Sept. '10

Nov/Dec. '10

Mar. '11Jun. '11

Sept. '11

Dec. '11

Feb. '12

May/Jun. '12

1

2

7

3

1

3

3

2

1

4

1

55

8489

92

89

85

89

93

93

74

69

81

81

42

128

1

7

14

8

4

5

24

29

12

15

3

1

1

1

2

1

1

1

1

2

3

1



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7777

The US EconomyOver The Next Year

0 20 40 60 80 100

May/Jun. '12

Feb. '12

Dec. '11

Sept. '11

Jun. '11

Mar. '11

Nov/Dec. '10

Sept. '10

May/Jun. '10

Mar. '10

Dec. '09

Sept. '09

May/Jun. '09

1

3

1

1

3

1

1

2

2

1

71

66

50

33

70

78

60

49

68

75

6568

55

26

26

45

59

27

16

37

45

29

21

2727

42

1

1

2

8

1

1

1

5

2

53

3

1

3

2

1

1

2

1

1

22

1


What are your expectations for the U.S. economy over the next 12 months, strong growth,moderate growth, moderate decline, strong decline?


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8

Companies Expectations

We have found for many quarters now that executives with Canadastop companies have a more positive outlook for their companies thanfor the economy.

Although resources executives have tended to be more confident of theircompanys growth relative to other sectors, this quarter sees resourcesexecutives approximately as confident about their companys growth as

manufacturing executives.

Previously about half of resources executives predicted strong growth fortheir companies. The past few months have seen that drop to about one inthree.

Western executives remain much more confident of growth for their

companies than executives in the Rest of Canada.


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9999

Expectations: Company

0 20 40 60 80 100

Total

West

Rest of Canada

Resources

Services

Manufacturing

27

36

20

31

21

30

66

56

74

58

76

64

6

8

5

9

2

6

1

1

2

Strong growth Moderate growth Moderate decline DK/NR

What are your expectations for your company over the next 12 months, strong growth,moderate growth, moderate decline, strong decline?


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10

External Impacts On The CanadianEconomy

Growing optimism about the Canadian economy results from

executives thinking that a strengthening US economy outweighs aEurope-in-crisis.

Most executives are modestly concerned about weakness in the US, aslow down in China, and high levels of household debt.

Many are also concerned about a renewed credit crunch, labour

shortages, and the high value of the Canadian dollar. The majority of Western and resource executives are concerned about labour

shortages, while just over one third of those in Ontario and in manufacturingare concerned.

Only one in ten business leaders is highly concerned about a rise in Canadian

interest rates. Overwhelming all of those concerns is optimism about the

US, Less than a year ago most Canadian business people sawrecession and many were very concerned; now most seegrowth.


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0 50 100

European political instability

The US economy

High levels of household debt among

Slowing Chinese economy

Ability of companies to access financing

The possibility of higher interest rates

Labour shortages

The value of the Canadian dollar

US retail sales

Canada's housing market

Canadian retail sales

49

17

14

15

15

9

17

18

5

5

9

40

62

56

54

40

44

35

32

43

42

34

9

19

21

21

38

29

28

29

37

35

43

2

2

10

10

7

18

20

20

13

17

12

1

1

2

1

3

Very concerned Somewhat concerned Not very concerned

Not at all concerned Don't know

11111111

Im going to read a list of market forces and economic factors and Id like you to tell me howconcerned you are about each. When it comes to ____, are you very concerned, somewhat

concerned, not very concerned, not at all concerned?

Where Do The Threats Lay?


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0 50 100

May/Jun. '12

Sept. '11

Mar. '11

17

43

27

62

48

58

19

7

12

2

3

31

Very concerned Somewhat concerned Not very concerned

Not at all concerned Don't know

12121212

Im going to read a list of market forces and economic factors and Id like you to tell me howconcerned you are about each. When it comes to the US economy, are you very concerned,

somewhat concerned, not very concerned, not at all concerned?

Tracking Concerns Over USEconomy


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13

Debt Levels and Financing

Most leading Canadian businesses will need to borrow money over thenext year, and the balance of risk is seen as shifting back towardrestricted credit.

Two thirds of those that said they are not holding cash said they would accessdebt financing, while less than half of those that are holding onto cash saidthe same.

Executives were more likely to say they expect equity financing, rather thandebt financing, to become more difficult over the next year compared to last.

The majority of executives said their companies were not close to themaximum limit of loan covenants.


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14141414

Accessing Financing

0 50 100

Debt

Equity

Do not plan on accessing financing

Acquisitions and Mergers (incl. jointpartnerships)

59

39

14

4

Please tell me with a yes or no answer if your company is likely to access financing through anyof the following means in the next 12 months? (% saying yes)

21% said dont know.


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15151515

Accessing Financing

0 20 40 60 80 100

Debt

Equity

25

16

37

21

34

47

3

13

1

3

Less difficult No different More difficult N/A Don't know

Are you anticipating that it will be less difficult or more difficult for you to raise money from

_____ over the next year, compared to the last twelve months? Will it be much more difficult,somewhat more difficult, somewhat less difficult or much less difficult or no different?


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16161616

Accessing Debt Financing

0 50 100

Total

Support keeping interest ratesat current level

Oppose

Concerned about ability to

access financingNot concerned

4

3

6

2

8

21

19

22

10

37

37

29

44

35

41

24

32

17

34

11

10

14

5

15

3

3

4

3

3

1

1

1

Much less difficult Somewhat less difficult

No different Somewhat more difficult

Much more difficult N/A

Are you anticipating that it will be less difficult or more difficult for you to raise money frombanks or other debt financing over the next year, compared to the last twelve months? Will

it be much more difficult, somewhat more difficult, somewhat less difficult or much lessdifficult or no different?


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17171717

Accessing Equity Financing

0 50 100

Total

Resources

Service

Manufacturing

Concerned about ability

to access financingNot concerned

3

2

5

3

1

6

13

14

10

18

11

17

21

6

33

24

14

30

26

33

21

24

30

21

21

38

10

9

32

5

13

8

16

18

9

19

3

5

3

3

2

Much less difficult Somewhat less difficult

No different Somewhat more difficult


Are you anticipating that it will be less difficult or more difficult for you to raise money fromequity markets over the next year, compared to the last twelve months? Will it be much

more difficult, somewhat more difficult, somewhat less difficult or much less difficult or nodifferent?


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18181818

Accessing Equity Financing

0 50 100

May/June

2012

Sep-11

3

2

13

12

21

28

26

39

21

17

13 3

3

Much less difficult Somewhat less difficultNo different Somewhat more difficult


Don't know

Are you anticipating that it will be less difficult or more difficult for you to raise money fromequity markets over the next year, compared to the last twelve months? Will it be much

more difficult, somewhat more difficult, somewhat less difficult or much less difficult or nodifferent?


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19191919

Accessing Financing

0 50 100

56 10 3 27 5

Not close to limit Close to limit At the maximum N/A Don't know

Is your company close to or at the maximum limit of its loan covenants?


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20

Company Cash Reserves

Almost half ofCanadas biggest companies - 45% - are holding on tocash reserves rather than investing that money in capital, humanresources or otherwise, as policy makers are urging them to do.

Mostly, they are doing so to give themselves a buffer against the risksthey see out there.


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21212121

Holding onto Cash Reserves

0 50 100

16 29 54

Strongly applies to your company

Somewhat applies to your company

Does not apply at all to your company

Recently, its been noted that companies have been choosing to hold on to cash reserves, ratherthan reinvesting or distributing it. Would you say this:


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22222222

Reasons for Holding onto CashReserves

0 20 40 60

Uncertainty in the economy

Need to conserve/ reserve profit/ capitalfor the future

Need it for future/ current growth

Obtaining financing is difficult

46

27

14

8

Why is your company choosing to hold on to cash reserves rather than deploying or investingthem?


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23232323

How Cash Reserves Will Be Deployed

0 10 20 30

(Re)investing in growth

Capital investments

Mergers and acquisitions

Putting money back into company(general)

Dividends

R & D

Do not plan to spend

Debt retirement

23

16

14

7

6

6

5

4

How is your company likely to deploy the money it has been holding on to?

Other responses less than 3%.28% said dont know.


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24

The Role and Importance OfEmerging Markets

Most leading Canadian business executives do not think that it is

critical that their company be globally competitive, nor do they thinkan emerging markets strategy would be strongly beneficial.

Again this shows the divide between the exporting Western companiesthat are focused on global markets and the manufacturing or servicesectors in Ontario that are locked into North America.

Many manufacturers are undertaking emerging markets strategies, but thinkthe Canadian dollar is working against them in global markets.


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0 50 100

36 29 22 12 1

Very important Somewhat important Not very important

Not at all important Don't know

25252525

How important is global competitiveness to your companys business plans? Is it:

Global Competitiveness


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0 50 100

The Canadian economy

Your company

28

26

53

26

13

45

3

1

1

1

3

1

Strongly positive Somewhat positive No impact

Somewhat negative Strongly negative Don't know

26262626

The Government of Canada and others have said trade policy and Canadian companies have to puta greater focus on emerging markets. Is an emerging markets strategy something that would have a

positive or negative impact on_______?

Emerging Markets


27/47

0 20 40 60 80 100

Total

West

Ontario

Resources

Manufacturing

Services

26

39

14

34

24

17

26

27

21

27

30

22

45

32

58

36

39

57

1

4

3

2

1

2

1

2

4

3

2

Strongly positive Somewhat positive No impact

Somewhat negative Strongly negative Don't know

27272727

The Government of Canada and others have said trade policy and Canadian companies have to puta greater focus on emerging markets. Is an emerging markets strategy something that would have a

positive or negative impact onyour company?

Emerging Markets


28/47

0 20 40 60 80 100

Total

West

Ontario

Resources

Manufacturing

Services

22

20

26

19

42

14

46

45

46

50

33

50

24

23

23

17

24

31

6

11

4

13

3

1

2

2

2

2

Strongly agree Somewhat agree Somewhat disagree

Strongly disagree Don't know

28282828

I'm going to read some statements about exporting. For each, please tell me if you strongly agree,somewhat agree, somewhat disagree, or stronglydisagree.

The high value of the Canadian dollar makes it difficult for companies to move onan emerging markets strategy.

Exportation


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0 50 100

Canadian companies have become toocomplacent in relying on the US for

exports

The high value of the Canadian dollarmakes it difficult for companies to move

on an emerging markets

Fear of the unknown is keeping manyCanadian companies from expanding or

selling into offshore markets

23

22

20

58

46

44

14

24

24

4

6

7

1

5



29292929

I'm going to read some statements about exporting. For each, please tell me if you strongly agree,somewhat agree, somewhat disagree, or stronglydisagree.

Exportation


30/47

0 20 40 60 80 100

May/Jun. '12

Feb. '12

Dec.'11

Sept.'11

39

42

31

39

61

49

59

58

9

10

3

Yes No Don't know

30303030

Doesyour company have a strategy in place to access these markets?

Emerging Markets


31/47

0 10 20 30 40

Began/ continue operations in emergingmarkets

Partnering with foreign markets/ ventures

Strategic planning/ analysis of expenditures

Product/ service development for themarket

Customer/ client demand and satisfaction

Don't know

39

16

15

15

3

11

31313131

What are key initiatives your company is undertaking as part of your strategy to access emergingmarkets? [Among those who have an emerging markets strategy n=61]

Emerging Market Initiatives

The Bank Of Canada and Interest


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32

The Bank Of Canada and InterestRates

There is significant resistance in the business community, especially inOntario, to even a one point increase in interest rates.

Most Ontario executives are prepared to tolerate higher inflation inexchange for keeping rates where they are.

Those who think the economy has a little wind in its sails areattributing that to current low interest rates.

The majority of executives in the resources industry support raisinginterest rates, while only about one third of those in manufacturingand services said the same.

Ontario executives overwhelmingly said that keeping the dollar at alevel where Canadian exporters can compete is important, while fewer(two-thirds) from the West said the same.

When setting rates, executives want the BOC to be considering anumber of, sometimes contradictory, objectives, but most want theBank to place more emphasis on encouraging growth than on fightinginflation.


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0 50 100

13 37 33 14 3

Strongly support Somewhat support Somewhat oppose

Strongly oppose Don't know

33333333

Would you strongly support, somewhat support, somewhat oppose or strongly oppose theGovernment of Canada imposing new rules to tighten lending standards used by the banks to loan

money?

Government Action on Borrowing


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0 50 100

Warning Canadians about the dangersand risk inherent in high borrowing levels

Raising interest rates by as much as

necessary to keep inflation below twopercent

Leaving interest rates at the current leveleven if that means rising inflation

Raising interest rates by one percent

49

13

12

7

41

40

36

38

4

29

36

35

4

16

15

18

1

2

1

1



34343434

Would you strongly support, somewhat support, somewhat oppose or strongly oppose the Bank ofCanada doing the following?

Bank of Canada Actions


35/47

0 50 100

Preventing an interest rate shock thatcauses mortgage defaults

Stimulating economic growth

Keeping inflation in check

Keeping the dollar at a level whereCanadian exporters can compete

Not damaging consumer spending

55

38

29

38

20

39

57

56

40

56

4

4

12

13

18

1

2

2

9

7

1

Very important Somewhat important Not very important

Not at all important Don't know

35353535

How important should the following considerations be when the Bank of Canada is setting interestingrates?

Considerations for Setting InterestRates

Interest Rates and Consumer


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36

Interest Rates and ConsumerSpending

Most executives agreed that the level of household debt in Canada

represents a serious threat to the economy. Yet most also agreed thatthe economy needs more consumer spending, not less.

Most Canadian business leaders think the success of their business isnot strongly linked to domestic consumer spending. Western andresources executives were overwhelmingly likely to agree that their

business is not materially affected by Canadian consumer spending.


37/47

0 50 100

The level of household debt in Canadarepresents a serious threat to the

economy

Our economy needs more consumerspending, not less

Your business is not materially affected

by Canadian consumer spending.

13

15

35

60

51

27

21

27

16

3

3

21

2

4

1



37373737

Im going to read you a few statements about consumer spending and debt. For each, please tell me ifyou strongly agree, somewhat agree, somewhat disagree, or strongly disagree.

Conflicting Economic Needs


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38

CEO Compensation

Half of executives believe that the growing wage disparity between

executives and average workers has a negative impact on society. Those that said it has a positive impact were mostly from the West, and those

in resources were the least likely to say it has a negative impact, relative to theother sectors.

Executives are more likely to think growing CEO compensation has anegative impact on shareholder value than think it is a benefit.


39/47

0 20 40 60 80 100

Total

West

Rest of Canada

Resources

Services

Manufacturing

Expect strongcompany growth

Moderate growth

6

11

2

9

3

3

143

33

38

30

42

24

33

3830

54

47

61

41

66

58

4557

7

5

7

8

7

6

210

A positive impact on society No impact on society

A negative impact on society Don't know

39393939

The 100 highest paid CEOs of TSX listed companies earned just over $8 million on average in 2010,or 180 times the average worker's salary. In 1995 average pay of Canada's top 50 CEOs was only 85

times that of the average worker. Does this growing disparity have:

CEO Compensation


40/47

0 50 100

19 43 32 6

A positive impact on shareholder returns No impact on shareholder returnsA negative impact on shareholder returns Don't know

40404040

And what impact has the upward trend in CEO compensation had on returns to shareholders? Is it:

CEO Compensation


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41

CEO Compensation

Most believe that the disparity will not continue to grow - most expect

the ratio between CEO and average workers salaries will decrease orstay the same.

Indeed, almost no executives believe Canadian CEOs are underpaid.

A minority believe that CEOs are overpaid.

Roughly half said they think Canadian CEOs are paid about what their

performance is worth. Executives outside of the west were twice as likely to say CEOs are paid more

than they are worth, as western executives.

Executives who expect strong growth were less likely to agree that CEOs arepaid more than their worth, compared to executives who expect moderate

growth for their companies.

i


42/47

42424242

In the next five years, do you foresee this disparity between CEO's and average workforce salaries:

CEO Compensation

0 50 100

28 39 33

Continuing to grow Staying at the same ratio Decreasing

h ld di i


43/47

43434343

You said you foresee wage disparity continuing to grow, why do you say that?

Why would CEO pay disparityincrease?

0 50 100

Due to societal/ economic trends

Good CEO too important

Society/ public does not have enoughcontrol

Boards not doing their job, continue tosupport high wages

Due to public/ shareholder/ governmentpressure

Greed

Cannot see them justifying anythinghigher

Don't know

35

21

21

16

7

7

7

2

h ld C O di i


44/47

44444444

You said you foresee wage disparity decreasing, why do you say that?

Why would CEO pay disparitydecrease?

0 50 100

Due to public/ shareholder/ governmentpressure

Boards not doing their job, continue to supporthigh wages

Due to societal/ economic trends

Society/ public does not have enough control

Change not strongly supported

Cannot see them justifying anything higher

52

15

10

4

2

2

CEO C i


45/47

45454545

Do you think Canadian CEOs are paid:

CEO Compensation

0 20 40 60 80 100

Total

West

Rest of Canada

Expect strongcompany growth

Moderate growth

33

21

44

14

39

49

68

37

67

44

4

2

7

10

3

13

9

13

10

15

More than their performance is worth About what their performance is worth

Less than their performance is worth? Don't know

Hi h I S


46/47

46

High Income Surtax

Most executives oppose the new 2% surtax on annual incomes above

$500k, introduced in Ontario, while one third support it. Support nearly matched opposition among those that said that the

CEO wage disparity has a negative impact on society.

Most executives who said the CEO/worker wage disparity will continueto grow support the surtax.

Hi h I S t


47/47

0 50 100

Total

Ontario

CEO compensation has a negative

No impact

CEO wage disparity to grow in next 5 yrs.

Same ratioDecrease

14

7

20

6

26

154

24

30

26

21

33

1131

17

18

21

12

12

2019

41

44

30

60

28

4844

4

2

2

2

2

72



Recently the Ontario Liberal government amended its budget to add a 2% surtax on annual incomesover $500,000. It is a temporary deficit reduction measure. Would you say you strongly support,

somewhat support, somewhat oppose or strongly oppose this measure?

High Income Surtax

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