The Truth about Canwest's Collapse

There are certain archetypical characters that come up again and again as we rush to scribble out the first draft of history. In business, the roles are particularly well-worn: the iconoclastic entrepreneur, the maverick gambler, the sage manager, the disruptive outsider, the establishment man, and, of course, the dilettante heir. We organize these characters into familiar storylines - the heroic rise, the humiliating fall, the tragic miscalculation - again and again, not just to elevate the mundane details of commerce into dramatic narratives, but because these storylines serve a purpose. People are good or bad, smart or stupid, and everything makes sense.

We never tire of these familiar fables because they impose a tidy order on the chaotic events of life. They reinforce certain ideas that make the world seem less arbitrary, less random, and less frightening. Triumphs are always the result of human genius, and failures are generally flaws of character written in our DNA. Everybody deserves their fate.

If you've been reading about the collapse of CANWEST GLOBAL COMMUNICATIONSinto bankruptcy protection this week, you'll recognize some of these characters and themes. Canada's biggest and most powerful media conglomerate, a colossus in television, radio, newspapers and the Web, has crumbled. It was built by the larger-than-life visionary Izzy ASPER. And his prodigious legacy was squandered by the second generation, particularly Leonard Asper, a son who lacked his father's drive and his instincts, and who now presides over the parcelling of his empire.

It's probably inevitable that the history books will remember it that way. But perhaps we can make room for one important little footnote: it wasn't nearly so simple.

To begin with, the patriarch of this clan is an awkward fit for the role of conquering hero. Izzy Asper was a bold and energetic deal maker who thought big and had the fire to make it happen. But his primary achievement was to amass a collection of regional television stations in an era when broadcast permits were government-issued licences to print money. He filled his air time mainly with American network programs, onto which he would graft Canadian ads. That was smart business and it made him phenomenally rich - but let's not confuse this with visionary entrepreneurship. In fact, the problems really began when Izzy started dreaming big.

He was not content for Canwest to be a wildly profitable player, secure in its Canadian niche. The empire was called Canwest Global and he was determined to make the second part mean something. He openly mused about creating an empire to rival NewsCorp and Viacom. His ambitions led him to expand to Ireland, New Zealand, Australia and elsewhere. It led to the direct-marketing businesses, film production, cable specialty channels, various Web ventures. And, of course, it led him to newspapers and Conrad BLACK.

Leonard became CEO in 1999 but, as he would frequently acknowledge, Izzy remained the driving force behind Canwest until his death in 2003. The deal to buy the bulk of Hollinger's Canadian newspaper business in 2000 for $3.2 billion was unquestionably Izzy's deal. It marked a quantum leap forward in Canwest's prominence and influence in Canadian media, and it marked the beginning of the company's long, losing struggle against the weight of its debt. A company that owed $549 million in 1999 owed $3.8 billion by the end of 2001.

It's all forgotten now, but in the three years after Izzy's death Leonard fought hard to pare down the debt load - whittling it to $2.6 billion. But then came the deal that everyone will remember as his undoing: the mind-bogglingly complex purchase of specialty channels including Showcase, the Food Network and HGTV from Alliance Atlantis. They're good assets, in the one part of the broadcast business that is growing rapidly. Even now, plenty of suitors would love to pry them from Canwest's cold, dead hands. But the deal came with another $1 billion in debt, and a shotgun clause that always made investors nervous. Those jitters gave way to full-on panic as the economy stumbled and the advertising business went into recession 18 months ago.

Leonard threw assets overboard as fast as he could. Canwest ceased to be Global as he exited Ireland, New Zealand, Turkey, jettisoned The New Republic magazine, and shut down money-losing local stations. But it's hard to hold a fire sale when your house is actually on fire. He learned that the hard way when it came time to sell his stake in Network Ten, the Australian broadcaster that had once been a crown jewel valued well over $2 billion. When private investors offered only about $1.4 billion in 2007, Leonard balked and decided to wager on better markets ahead. Of course, as we all know now, that was a disastrously bad bet. Rather than getting A$2.70 a share, he settled last month for A$1.30.

The deal was briefly hailed as a much-needed break for Canwest, but it was really a sign that Leonard was out of cards to play.

The empire Izzy envisioned has been foreclosed upon. Shareholders have been wiped out. The family fortune is vastly diminished. Vultures are circling above the assets. There's no way to put a happy face on any of it.

You can blame the heir if you like, but if Leonard had a failing as a CEO it was not that he was a bumbling spendthrift, frittering away the company gold. It's that he clung too tightly and too long to the vision that Izzy left behind. The collapse of Canwest is a story of a company whose ambitions always exceeded its financial resources, and its failure was set in motion years before the torch was passed. Circumstances conspired to bring the high-wire act to a painful end. Perhaps the CEO should have seen those problems coming, but he's got plenty of company in that.

Our need for familiar storylines demands that we cast Leonard Asper as the dupe who couldn't escape his destiny. That's the way history works. But that's a harsher fate than he deserves.

Maclean's October 19, 2009