Industry Committee on Oct. 24th, 2016

[Susan Rohac]

I can answer for the finance department in the field.

It's absolutely true that people have objectives, but they're not bottom-line objectives. We have objectives to do deals. No one would be penalized if deals go the wrong way and don't turn out. It is expected, in fact, and encouraged to take risk within the bank.

Our scorecard does emphasize certain types of deals that we think we will have greater impact with the Canadian economy, so start-up companies are on the.... I actually put some notes about our scorecard. High-growth firms are a specific target. Doing more equipment and ICT loans are specific targets for us, because we feel it addresses the productivity and efficiency concerns that we have. Doing loans to exporters is also a target.

When our loan officers are in the field doing business development, we absolutely expect them to be in the ponds where these types of companies swim. We're going to export association trade shows. We're going to sponsor events where we'll see exporters.

Clearly, their objective is the number and dollars and deals that they put into the market to do deals. No one's salary would be penalized if these deals did not turn out.

[Brian Masse, NDP, Windsor West, ON]

With that, too, on the opposite scale, since we're actually filling a market of risk the private sector won't deal with, why don't we fill part of the non-risk private sector and compete there? That might make them competitive overall in the other risk sector.

I don't think it's fair to.... It predates a post-war agenda for us to move on what has been developed by the people of this nation. It's not something that's just been invented out of air, so why let them off the hook for everything else?

I'll play the devil's advocate in a sense here and ask why the banks should get away with this. Why shouldn't we actually have greater risk in terms of what we can do for small and medium-size manufacturers and businesses and so forth by taking some low risk when we have the capital to step in with a better loan opportunity that could actually be a better investment for those large ones as well?

You could take the profits from that, which are guaranteed, and put them into greater risk portfolios for other people. I don't understand why we wouldn't be doing that.

[Susan Rohac]

It is a tight rope to walk, because if we are too aggressive in the market, then the chartered banks will say, “You're being too aggressive and not being complementary.” If we're not being aggressive enough, then we're not taking enough risk. We always try to walk that balance. There are some times when the chartered banks will say that we are being too competitive.

[Brian Masse, NDP, Windsor West, ON]

I say, "So what?" at this point in time.

[Susan Rohac]

Maybe in the field that's been said once or twice. Certainly if we've helped grow a company and they're looking for another round, we will try to support that company as well.

Don't forget that we also rely on chartered banks to give us referrals. Often a client, an entrepreneur, will go to the chartered bank first, and if they can't do it, they'll pass it to us. We try very hard to play nice with the bank. On a case-by-case basis, there will be times where they feel we're being too aggressive, offering too much money, not pricing to risk, or offering terms and conditions that are off market.

[Brian Masse, NDP, Windsor West, ON]

I don't want to suggest that we should go out and pick a fight. The reality is that they've had generous corporate tax-cut reductions with increased user fees, increases to a number of different benefits for their shareholders, including their management, where salaries have gone up. They've closed bank branches across this country and all those different things. I guess I haven't seen the love coming the other way to the Canadian consumers, while potentially they have an executive branch of themselves here that could offer some of those services and certainly have some real competition.

[The Chair, Liberal, Dan Ruimy]

On that note, we are going to move to Mr. Arya. You have seven minutes.

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Mr. Chair.

I want to continue on a couple of points Mr. Masse raised. One is on the performance model. In my view, you're not taking enough risk. You are not sharing the risk with the entrepreneur.

Do you consider yourself a development bank?

[Susan Rohac]

Absolutely, yes.

[Neal Hill]

Yes. In fact, our new CEO has been in place just about a year now, and his theme is to remind us that, yes, we're a bank, but we're a development bank. We hear and think about that all the time.

[Chandra Arya, Liberal, Nepean, ON]

In venture capital, what percentage of your venture capital investments are in manufacturing?

[Neal Hill]

We did run some numbers. Manufacturing and venture capital is all about definitions, because manufacturing, as a sector, is not one that's targeted by any venture capital fund in the world.

Venture capital invests in brand new technologies that have hopefully disruptive large-scale potential or are brand new applications of existing technologies. The process by which that technology is brought to market is a secondary consideration, but I can answer your question precisely if you'd like me to. We are able to identify at present in our portfolio 31 companies that qualify in our minds as advanced technology. They have a substantial manufacturing component to their business, and that total investment is about $90 million.

[Chandra Arya, Liberal, Nepean, ON]

Advanced technology and manufacturing still go hand in hand. In fact, the previous witness has mentioned that in the United States, 25% of all the new patents come from the chemistry industry. That's a point to be noted.

I understand that BDC is doing quite well in the rural areas in Newfoundland. What is it that you're doing there? Why is it not being done elsewhere in Canada?

[Susan Rohac]

You're absolutely right that in Newfoundland we have a higher market share than in other parts of the country.

About a year and a half ago, we embarked on something called an increased reach and visibility program, where we were to look at the market penetration in other markets to see how we can increase that to have more impact.

In some parts of the country, the market penetration is as low as 3% for our target SME market. That means 97% of SMEs don't know about us. That's a shame. We do client surveys. In 2015, we surveyed 7,345 clients; 62% of them said they were very satisfied and 34% said they were satisfied. That's 96% that were satisfied or higher. That's unheard of in commercial lending.

I think it's a really good thing that these 97% of entrepreneurs that haven't dealt with us have to hear about us. There's a myth among entrepreneurs that haven't dealt with us that we're very bureaucratic and slow, and it's the 3% that deal with us that realize we're a very good organization to deal with.

We've embarked on this increased reach and visibility to have more impact in areas where we don't have a lot of impact now. That involves partnering with more rural agencies to share space and to have satellite branches. It also involves doing some advertising and sponsoring events. It involves hiring people who have specific market skills that we didn't have before.

For example, we now have an automotive team focused on the automotive sector who have special skills that are specific to the automotive industry. We have a food and beverage team specific to food and beverage manufacturing, so we can have more impact with that manufacturing industry. We have an aerospace team looking at aerospace opportunities to make sure we have more impact with that. We've targeted some key manufacturing industries and hired experts to increase our reach and visibility.

[Chandra Arya, Liberal, Nepean, ON]

You talked of so many manufacturing sector segments there, and you financed close to $1 billion to manufacturers, so with your experience in the financing and manufacturing sectors, what specific advice do you have for the federal government to promote advanced manufacturing?

[Susan Rohac]

I'm going to go back to the consulting question a little bit, because when we survey our manufacturers, access to capital absolutely comes up, but so does the access to talent. I'm not talking about talent as in labour talent; I'm talking about talent in the ability to learn.

Exporting for the first time takes a skill that a lot of these entrepreneurs don't have, so we're talking about a skill set that is missing in a lot of our Canadian manufacturers, and that's why we felt consulting was very important to us. We're bringing the talent component to these entrepreneurs, and it has to go hand in hand with capital. If we want our entrepreneurs to be successful and play on a global stage, they have to have the talent of exporting.

[Chandra Arya, Liberal, Nepean, ON]

Witnesses have mentioned that the number of medium-sized business is actually shrinking here. Why do you think that is so?

[Susan Rohac]

I don't know if you know the statistic, but you're right. Our research department did a survey that did show, in fact, that medium-sized business in Canada are not growing and did shrink a couple of years ago.

[Chandra Arya, Liberal, Nepean, ON]

What do you think the reason might be? Maybe as a venture capital expert, you may have some thoughts on that.

[Neal Hill]

Yes, in venture capital, which is the sector I know the best, unfortunately the path that tends to happen for our most successful businesses is that they grow to a certain size, and then they get an acquisition offer from a foreign company, usually, and in the owners' minds it's an offer that's too good to refuse, and they take it, and they're gone. That's something that concerns us a great deal, and we've been working with—

[Chandra Arya, Liberal, Nepean, ON]

I only have a few seconds left. The last question is, do you have different strategies to fund businesses in rural areas compared to urban areas?

[Karen Kastner]

Yes, we partner with the CFDCs. There are about 270, and we have agreements with about 230 of those, and it's one of the key ways that we try to access the rural markets.

[The Chair, Liberal, Dan Ruimy]

We will go to Mr. Lobb.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Thanks very much.

Mr. Chair, I'm going to give my time to Mr. Dreeshen and Mr. Baylis.

The only thing I would say is that it's great that the BDC is here again. I would just disagree with our inviting witnesses back when we have many witnesses who likely won't be heard at this committee.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you, Mr. Lobb, for sharing your time.

I want to go back to something that was mentioned earlier, which was your BDC Academy, the online classroom learning type of thing. I am asking whether or not included in that you are also looking at mentorship as being one of the issues that you work on.