HOLLYWOODmeets Silicon Valley - Exchange Magazine · formed Robertson Simmons Architects, sums up...

40 l exchangemagazine.com l JUNE 2006

These are exciting times forWaterloo Region. This communi-ty is in the enviable position of

considering how to better succeedwhen other communities across thecountry are trying to learn how to sur-vive and avoid going into greaterdecline. Recently, as it short-listed theCity of Waterloo as one of the “TopSeven Intelligent Communities” in theworld for 2006, the Intelligent Commu-nity Forum stated: “Waterloo is aBroadband Economy success story,with a diverse mix of manufacturingand service companies, a well-educat-ed population (more than 25% of resi-dents are post-secondary students) andeffective economic development col-laboration among academia, businessand government. ICF recognizesWaterloo, not for efforts to transform afailing economy, but for its commit-ment to fostering institutions that drivetechnology innovation and share itsbenefits with the community at large.”

Where, though, will the Region gofrom here? How can it ensure the long-term viability, prosperity and sustain-ability of its economy and its commu-

nity? What can its governments, busi-nesses and academic institutions do toleverage the successes and move theRegion from “Good to Great”, as theProsperity Council of Waterloo Regionhas proposed?

In the growing “Knowledge Econo-my”, talented people and the opportu-nities to apply their creative talentstowards innovative enterprises arebecoming more and more in demandaround the globe. Perhaps the singlegreatest challenge for WaterlooRegion, to ensure its future prosperity,will be to keep the talent created at itspost-secondary educational institutionsfrom leaving the community.

Laird Robertson, partner with newlyformed Robertson Simmons Architects,sums up the challenge of recruiting tal-ent: “How do I sell [my company] to agraduate that has just come out of theUniversity of Waterloo [and convincethem] that they should stay right here,join this firm, which is the most pro-gressive and the best design firm in thecommunity, and ask them to carry ontheir career here, when they’re lookingat us and saying: ‘Well okay, but,

HOLLYWOOD meets Silicon ValleyNEW OPPORTUNITIES IN THE KNOWLEDGE ECONOMY FOR WATERLOO REGION

BY SUNSHINE CHEN

FEATURE STORY

Perhaps the single

greatest challenge

for Waterloo Region

will be to keep the

talent ... from leaving

the community.

HOLLYWOOD meets Silicon ValleyNEW OPPORTUNITIES IN THE KNOWLEDGE ECONOMY FOR WATERLOO REGION

BY SUNSHINE CHEN

Laird Robertson

exchange june06pgs 40-54 5/2/06 8:57 AM Page 40

JUNE 2006 l exchangemagazine.com l 41

you’re buildings are [not that interest-ing] and you’re just doing this and thatlocally – I’m looking to travel theworld.‘ Well, I can’t compete with beingin Vancouver, Montreal, Toronto, orany other international city; it’s KWafter all.”

The challenge of retaining talentwithin the Region when it can go any-where else across the country – oraround the world – is not limited tosmall and medium-sized companies.Carol Stewart sees this every day in herrole as Manager of Business Develop-ment for UW’s Research and Technolo-gy Park; however, she has also beenseeing greater interest in the Regionfrom major multi-national companieslooking to recruit talent and keep ithere. “There is this talent pool here thatthe rest of the world is just getting their

sneak peak at and so they’re accessingthat talent. It’s not relocating compa-nies, it’s setting up new developmentoffices, planting a seed and seeingwhat grows here, and I think that’s agreat opportunity for this region.”

For companies like Google, AdobeSystems, Sony Pictures Digital, IBM,AGFA, Leitch, Christie Digital and manyothers who are establishing a greaterpresence in the Region, Stewart says“it’s all about accessing talent andhuman capital – the quantity and quali-ty available to them [within the com-munity] – and the willingness of thattalent to come and work for them. Sothat’s how they test the waters –through co-op or starting a very smalldevelopment office and seeing howquickly they can grow that. These com-panies need talent. That’s their compet-itive advantage. Is it about real estate?Absolutely not. There’s lots of [other]real estate in the world.”

Bill Elliot, with Canada’s TechnologyTriangle, agrees with the importance ofbuilding relationships with internationalcompanies, but adds that in buildingthese relationships, the communityshould also re-consider the value of tra-ditional jobs and the impact on thecommunity compared to these “neweconomy” jobs. It should also look atthe larger context and long-termgrowth potential in the industries thatthese companies are working in. “Forexample, we have a company like Arva-to Services Bertelsmann that movesinto downtown Kitchener, leases 45,000s.f. of space and hires 600 people, andwhat impact does that have on thecommunity versus a 50,000 s.f. manu-facturing plant that comes to town andhires 150 people? And where’s thetrade-off? Traditionally, we’ve said themanufacturing job is higher paying andmore stable, but if we ask, where’s thegrowth area for companies like Arvatoas they move up the value chain, [wesee that] they’re much more then just acall centre. They do fulfillment work,support work; it’s not well known butthey provide world-wide support workfor Microsoft X-Box from DowntownKitchener.” Arvato Services is a sub-sidiary of Bertelsmann AG, which alsoowns Sony BMG Music Entertainment,and Random House Publishing.

For Elliot, “One of the strengths ofthe Region is its diversity, in terms ofthe make-up of its population, its multi-culturalism and ethnic diversity (beingthe fourth most culturally diverse cen-tre in Canada) but also its diversity interms of economic clusters. It was onceknown as the button capital of Canada,and textiles were huge– obviously thathas changed, and now you see facto-ries like Seagrams, Kaufmann, ArrowShirts being converted into lofts andcondos. It’s quite amazing to see thecommunity re-adapt.”

Elliot believes another emergingopportunity for the Region involves

“outsourcing” knowledge work in NorthAmerica. “Waterloo Region [is] verystrategically placed for outsourcingoperations that would complementsome of the operations that are goingto India, simply because we have busi-ness, accounting, and IT grads fromthree post-secondary educational insti-tutions. It’s no accident that IBM hastheir Global Centre of Excellence forInsurance here in Waterloo.”

Elliot says proximity and access tothe American marketplace – still thelargest in the world – means WaterlooRegion is well positioned to attract“near-shore” opportunities. “India is off-shore and Canada is near-shore, so wecan be a blended shore opportunity forIndian companies, because there arecertain functions and things they need

to do that require that they be closer totheir clients, and they’re starting to rec-ognize that. So, you’re starting to seethe larger [Indian IT] companies cometo Canada, like Satyam, Infosys, Wipro,TCS Services, and I think we have anopportunity to attract that kind of busi-ness to our Region – and that’s going tohave an impact within the community.”

David Plant, former film commis-sioner for Toronto, has taken an inter-est in the Region and believes that withall the technology companies located inWaterloo Region that provide equip-ment and tech support for the film andentertainment industry (like Dalsa,Christie Digital, Tannoy andLeitch/Inscriber), along with the Uni-versity of Waterloo’s connections tocompanies like Microsoft, EA (Electron-ic Arts), Pixar, and now, Google, theRegion is poised to develop “creativeindustries” that will evolve the Regionbeyond the information technology

“These companies need

talent. That’s their

competitive advantage.

Is it about real estate?

Absolutely not.”

Carol Stewart Bill Elliot


business, and allow it to become a cen-tre for media and cultural production inaddition to being a high-tech centre –think “Hollywood meets Silicon Valley”.Plant believes this could be a greatopportunity because “most of the tech-nology that’s being used by film and tel-evision production in digital Hollywoodcomes out of Canada; it’s either comingout of Montreal, from the old portlandswhere companies like Discreet Logichave their base, or... Toronto where youget Alias Wavefront, which designs thecomputer animation software used forvisual effects, or in and around Kitchen-er-Waterloo where many of the peoplewho work at places like Discreet andAlias come from, and where companieslike Dalsa, Christie, etc. are alreadydoing business in Hollywood.”

He adds, “One of the most excitingand stimulating aspects of the KWRegion is that so much of this technol-ogy, and the development of the tech-nology, and the underlying engineeringand computer science concepts thatmake it possible for these things tohappen, come from here. The only partof this puzzle that is missing is thecontent creation and the content pro-duction aspect – which is a function ofthe cultural energy that is in the town.”

Waterloo Region can learn from theexample of downtown Toronto as itcontinues to redevelop the core areas inits urban centres. For Plant, “It’s allrelated to the fact that a little investmentin supporting creative artistic activitiesand supporting small businesses thatare involved in design, in creating tele-vision, film and other types of multi-media production will do more forurban renewal over a 10 or 15 year peri-od than either putting up a condomini-um or dropping in a convention centre,

or taking down an old building and put-ting in a parking lot so that there’s freeparking for the local retailers. Thosethings are short-sighted, short-term andultimately will fail in about five years ...if you invest in making it attractive for

creative people, the creative people willbring all of these other things. Great cre-ative minds, whether they are holding apaint brush, or a [digital] stylus orscratching equations on a wall are stim-ulated by a broad and diverse cultural

surrounding. And when they’re done[their work] ... they want to be able togo out and meet and talk with other cre-ative individuals. And that’s ... the keyfor what could be the next explosivegrowth in this community.”

For Laird Robertson and his challengeof attracting and keeping talented archi-tects in his office, David Plant’s com-ments couldn’t ring more true. Robert-son believes, “You can’t imagine a bet-ter starting place as an environment tobuild from”; but as he looks at the shapeof the Region’s core areas, he thinks, “Iwould imagine there must be some peo-ple, that are now gone, that if theylooked at what we have now theywould be a little ashamed of where wegot to, from where we were. Becauseyou think about this town before Kitch-ener and Waterloo had grown together,and you think about ... downtown Kitch-ener, and think about the industrialists,all the money and the infrastructure thatthey put into the core; and now, subur-ban blight ... has taken over.”

He does have hope: “I think that we’rejust about ready, the culture is just start-ing to get to the point to realize that sub-urbia is not the answer to a great life. Itdoesn’t give you all those things thateverybody really wants. Sure, you gotyour little house, on your little plot of landand all that, but being out in this tract ofhouses that are all too similar and gettingin your car and driving forever to getsome milk and all of that ... I think peopleare going, ‘I’m ready to come back intothe core, I’m ready to come back to a col-lective integrated community‘.”

Revitalizing the Region’s core areaswill become more and more pressing asWaterloo looks for opportunities toensure its long-term prosperity. Muchwork and effort is already underway,with projects like the School of Archi-tecture in Cambridge and the othercampuses being proposed for down-town Kitchener, but these only give apromise for potential benefits in the dis-tant future – five, 15, or 25-plus yearsfrom now as they produce new talent.The insights and ideas presented by thepeople interviewed for this articlelooked at the assets that are alreadywithin the Region. They propose avision, that Waterloo can capitalize onits strengths and assets, revitalize itscity centres and ensure the future pros-perity of the Region – today.

“I’m ready to come

back into the core, I’m

ready to come back to a

collective integrated

community.”

FEATURE STORY

David Plant




“Up, Up and Away”Resource stocks have been going straight up; make sure you’reprotected when the shine fades!

BY DANIEL E . G IRARD

WEALTH MANAGEMENT

Last issue I discussed the wisdom in not allowing your portfolio to becomeover-weighted in a single booming country. Since then, global markets havebeen posting strong gains – the Bloomberg European 500 was up 6.9% in

March as opposed to 3.6% for Alberta – oops, I mean Canada! While I’m on thisrare, and I’m sure short-lived, roll of accurate prognostication, let’s discuss anotherrisk threatening many a portfolio thesedays – an over-concentration in theresource sector.

The TSX Energy index is up over 300%over the past five years. It’s not showingany signs of letting up. However, as theold saying goes, trees don’t grow to thesky. Rallies this long and intense havetended to end badly. The catalyst couldcome in the form of an over-extendedU.S consumer turning off the spendingspigot, a calming in the Middle East, or innovations in alternative energy sources.

The bloom will come off the rose at some point; the problem is, you don’t knowwhen.

The bull-run in resources may lastanother month, year or decade (as JimRogers’ book, “Hot Commodities” sug-gests). It is wise to have exposure, butyou should participate in a manner thatmitigates the risk of a substantial, andprolonged, pullback.

One way to avail yourself of theresource trend and also have a bit of a

safety net for when the momentumshifts to elsewhere in the market, is toutilize a long/short growth-orientedhedge fund manager.

Now before you start running for thedoor screaming “Portus and Norshield”(quasi hedge fund investments thathave gone broke recently) understandthat a long/short hedge fund simplybuys stocks long and/or sells stocksshort. They are not the esoteric tradingstrategy cowboys that dominate theU.S hedge fund landscape.

DANIEL E. GIRARD IS

AN INVESTMENT

ADVISOR WITH CIBC

WOOD GUNDY IN

WATERLOO.

email:

[email protected]

Rallies this long and

intense have tended to

end badly.

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The value with a long/short growthmanager is two-fold: they gravitate tomarket sectors that are showing thestrongest signs of earnings growth, butthey don’t have to stay there. If themomentum starts to slow, and thenshift elsewhere, they can move with it.Unlike resource funds, they do nothave to stay in resource stocks evenafter the trend has ended (think tech-nology funds after the implosion).

Secondly, they have the ability tosell stocks short. When you short astock you profit from a price decline.Therefore, not only can the managermove to stocks or sectors with betterprofit potential, they can actually make

money from a sell-off in the formerlyhot sector!

Utilizing the talents of a long/shorthedge manager, however, is not with-out its risks. Hedge funds do notattract the same level of scrutiny fromregulators as do mutual funds – a ben-efit as well as a source of risk. Properdue diligence is required. Also, toaccess true hedge funds (properlycalled non-prospectus offerings) in areasonable manner, you need to be anaccredited investor – meaning yourfamily net worth is greater than a mil-lion dollars and/or your annualincome exceeds $200,000 as an indi-vidual or $300,000 as a couple. If youdon’t meet the accredited investor cri-teria, you’ll need to put up a minimum$150,000 per fund (if you’re accredited,$25,000 is the minimum).

The last time the resource sectorsoured – in 1997 and 1998 — resourcefunds lost on average 10% and 30%,respectively. There are, no doubt, sub-stantial gains to be had in resourceswhile the boom lasts -– just make sureyou have some protection for when theshine fades. A long/short growth man-ager can help provide that protection.However, as always, make sure you (oryour advisor) do your due diligenceand only allocate a reasonable amountof capital to such a strategy.

Hedge funds do not

attract the same level of

scrutiny from regulators

as do mutual funds.

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as to the adequacy of internal con-trols, has been cited by both the HuronConsulting Group and Glass-Lewis intheir reports on financial statementrestatements. Mark Grothe of Glass-Lewis responded to criticisms of 404:“It’s precisely because of the height-ened auditing standards mandated bySOX that investors today are getting atrue sense, finally, of how much workremains to be done before they canfeel confident about the accuracy ofthe financial statements prepared bycorporate managers.”

Despite the outcry from corporateleaders about the intrusive nature ofthe regulations and the excessive cost,

regulators stuck to their mandate andthe result will be improved financialreporting. As part of a compromise, USregulators held off the introduction ofaudit certifications for small publiccompanies; however, at a recentspeech at Stanford University, Christo-pher Cox, Chairman of the SEC statedthat small companies currently exemptshould not expect the exemption tocontinue: “Our emphasis is on making404 work and implementing it in acost-effective and investor-protectedway, rather than simply waiving it.”

Iconfess, the title of this article is misleading. To align this furry rodent with thepolitically correct members of the Canadian Securities Administration (CSA)would be an insult to the woodchuck. For instance, the groundhog hibernates

from mid-October to that infamous day in February, whereas members of the CSAhave been known to have a far greater propensity for slumber. The groundhog isknown to stick its head out of a hole at least once a year. It is questionable whenthe last time a member of the CSA stuck their head out of their protective shell,and it is an even greater stretch to grasp what they could possibly have seen the

last time they did survey the Canadianbusiness landscape.

One need only look at CSA Notice 52-313 to realize just how out of touch withreality those entrusted with the regula-tion of our securities markets really are.With this decree, the administrators havereinforced the banana republic reputa-tion of Canada’s securities markets.Against a backdrop of financial state-ment restatements in record numbers,

the CSA has determined that Canada’s public companies will not require the verything that has revealed significant shortcomings in US reporting entities.

With the massive accounting frauds of Enron, Worldcom, Healthsouth and otherentries to the Accounting Hall of Shame, legislators in the US determined throughthe Sarbanes-Oxley Act that US corporations having shares publically tradedwould require CEOs and CFOs to certify as to the adequacy of the internal controlsover their financial systems ... and, public accountants would be required to auditand certify the appropriateness of the certification. The results have been alarm-ing. For the years 2004 and 2005 over 1,500 companies – or one out of 15 – wererequired to file restated financial statements.

The increase in restatements is caused by Section 404 of the Sarbanes-OxleyAct. This section, requiring auditors to attest to the certification of CEOs and CFOs

Groundhog Day at the CSAThe Canadian Securities Administration is out of touch and miss-ing the mark

BY ALLAN FOERSTER

GUEST COLUMN

ALLAN FOERSTER

IS A LECTURER AT

WILFRID LAURIER

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[email protected]

In the long run, financial

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Regulators in the US, despite mount-ing pressure, are holding firm in pro-tecting investors. With this background,the Canadian response becomes evenmore perplexing. With CSA Notice 52-313, the Canadian Securities Adminis-trators announced that rather than anaudit certification, Canada’s regulatorsare prepared to accept management’scertification as sufficient. Congratula-tions to the lobbyists who whinedabout costs to the extent that the politi-cally obligated CSA has relegated Cana-da’s capital markets to a short termmagnet for capital while, in the longrun, financial accountability has been

relegated to a back seat. One couldstretch reason to accepting this posture,assuming that Canada’s regulators pos-sessed a strict enforcement mindset.That argument hardly passes the laughtest. When was the last time regulatorsin Canada (security enforcement or lawenforcement) succeeded in a meaning-ful prosecution? Does the name ConradBlack ring a bell? He’s currently underindictment in the US, while Canada’slaw enforcement saw no action to prosecute.

What is the significance of “internalcontrols”? Simply put, internal controlsare the systems, checks and balances

that companies employ to ensurefinancial transactions are properlyaccounted for, on a timely basis in anaccurate manner. It has been the care-ful scrutiny of these controls, throughindependent verification and reportingby outside auditors, that was the intentof SOX 404. It is this process of verifi-cation, not the CEO/CFO certification,that has uncovered the weaknesses atthe epicenter of the increasing numberof financial mis-statements.

It is obvious that, without this attes-tation of internal controls by auditors,stakeholders would continue to rely onfinancial statements that are materiallymis-stated. Part of the backlashagainst the process of verification aris-es from skyrocketing costs associatedwith the audit of internal controls. This

cannot become a cash grab by themajor audit firms to compensate forrevenue lost due to the requirement tospin off their consulting arms thatwere causing concerns with respect tothe independence of auditors. Theaudit profession has a vested interestin the strengthening of internal con-trols and the resulting reduction infinancial statement restatements, acause of growing litigation against themajor audit firms.

Is Canada’s financial reporting sosuperior to the US that rigorous reviewand audit is not required? Let’s not for-get too quickly the Brampton Bungleas Canada’s foremost entry into theAccounting Hall of Shame, where themantra remains “Getting it Wrong theFirst Time, All the Time”. In a recentspeech, David Wilson, Chairman of theOntario Securities Commission, said:“Where business is done with a winkand a nod, prosperity is a dream, not areality.” Before the dream becomes anightmare, securities regulators needto seriously reconsider the role ofauditor attestation with respect tointernal control certification.

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