Government, Business, and Hit and Run Politics

When the Hamm government was elected in 1999, one of the 243 promises in their platform was to get Nova Scotia out of the liquor retailing business. That platform was one that I doubt they ever thought they would need to deliver upon, but as things worked out, they were elected with a majority in 1999 and had to start doing the things they had promised. The liquor promise wasn’t a top priority, but by the year 2000 it had been decided to undertake a consultation on what to do regarding the NSLC, and Price Waterhouse Coopers was hired to undertake an analysis of the financial implications of 6 different retail options, from a full Alberta-style privatization to an IPO to improvements on the existing model and variations in between.

At the time I was working at the Priorities and Planning Secretariat and was assigned as the staffer on the file. Michele McKenzie, the Deputy Minister of Tourism who worked for Tourism Minister Rodney MacDonald, also the Minister responsible for the NSLC, led the process for government, and I ended up working closely with her. The consultation was interesting because there was little consensus among the public on anything. Some wanted the NSLC to disappear in favor of an Alberta-style private system, while others thought NSLC was just fine as it was except, perhaps, that even further restrictions on sale were needed. The majority were somewhere in the middle, saying that certainly some changes were necessary at NSLC, but perhaps not something as extreme as an outright selling-off. PWC’s financial analysis concluded that over time the “Alberta model” would bring the greatest return to the province, but that a revitalized NSLC with some agency stores could return about the same amount each year if done right. Given that the government had just gone through a fairly traumatic period in dealing with the unions on a number of attempts at service delivery reform, the ability to avoid that on the liquor file was welcomed, and the direction to reinvent the NSLC as a Crown corporation free of government interference was agreed upon.

In July of 2001 amendments to the Liquor Control Act were proclaimed making the NSLC a Crown corp, and an interim Board of Directors made up of government officials was appointed until a slate of outside Directors could be found. Michele was appointed Chair and I was chosen as one of the interim Directors, while still continuing to work as the government staffer on the file. The NSLC we walked into was a very odd organization, one which few in government knew much about. The NSLC had not been very open to government over the years, and aside from the regular transfer of profits few in government knew much about what went on there. We learned that many of the management staff had become accustomed to being told what to do by previous governments on things like store locations and property purchases, and we discovered that it was just a few years previous that they had finally gotten away from politicians telling them whom to hire. They had been forced to starve the organization of investment in facilities, technology and people in order to give the government the annual increases in revenue it demanded. Without proper management tools at their disposal to help the business perform better, the primary way they met those demands was with annual price increases. To say management was dispirited would be an understatement. After being told time after time that they couldn’t do things, they had, in some ways, given up even trying. Many of the rank and file staff saw themselves as government employees, with the mindset that entailed. Others realized that they had to provide customer service, but they often received mixed messages from above when they tried to do that. It was a very discouraging environment, especially for a retailer. It was, in short, a mess.

When the outside Directors were appointed in December of 2001, they began trying to change things, bringing in a new CEO and directing him to bring in new executive management. Over time, a new group of Vice-Presidents and Directors, most from the private sector, were brought in and began to change things. One of the biggest challenges was the need to build a culture of customer service among the staff. The idea that store staff could recommend products, ask customers what they were looking for, and make suggestions that would result in customers buying something other than what they came in looking for, was quite foreign to some at the beginning. But achieving that was absolutely necessary if the NSLC was to move beyond being order-takers and become a true retailer that drew people in and offered them an interesting experience. Around this time the first strategic plan was rolled out, with the theme of changing the NSLC from a place where you went just to buy something and leave, to instead become a place to shop, browse and linger.

By this time I had moved to the NSLC at the request of the Board and was working as their Corporate Secretary, trying to bridge both the brave new world of private sector management thinking while keeping the government either satisfied, or at times, at bay. Unfortunately the succession of Ministers over the years seldom seemed to fully understand the concept of a Crown corporation and the role of the Board, at times issuing directives directly to the CEO on various issues, leaving the Board wondering why they were even there. The problem is, of course, that when the CEO gets a call from the Minister giving an order, it is very difficult to say “no”. One can try to finesse the answer and immediately contact the Board Chair, who is the person the Minister is supposed to be dealing with, but the result is likely to be the same. Board members never were so upset by this to resign during my tenure there, although there were a few times when issues arose regarding orders from Ministers when some probably should have.

Beginning in 2004, the NSLC held management conferences with their store managers and Head Office managers. They were primarily store-focused given that store managers were the majority of attendees, but tried to offer something for anyone in attendance. With all the changes that the NSLC went through, there was a lot to talk about, from sharing feedback about store designs, new technology systems like SAP that were being implemented, interaction with the marketing and merchandising staff from Head Office, managing staff performance, and most of all, the idea of customer service. This was all new to the staff, but the NSLC wanted to build a customer service culture, and there were all sorts of things introduced at these conferences to support that. After a period of adjustment, most of the store staff began to buy into the concept. If you remember shopping at the NSLC in the old days, clearly there is a huge difference now. Customers would comment on it to us all the time. That ongoing effort to change the culture is the reason why.

The conferences didn’t happen in the same way every year. Some years there wasn’t one at all. Sometimes they were done in a roadshow format, where the executives and some presenters traveled to 4 or 5 locations around the province to meet with that region’s managers for a day. But there were several conferences of the kind that was supposed to happen this year, where everybody met in a central location for a couple of days. In addition to what was presented in the workshop sessions, these had the advantage of everybody meeting each other, sometimes for the first time. There is an advantage to sitting down next to the person you deal with on payroll or logistics issues by email or phone and getting to know them a little, or being able to talk to a V-P who you normally would not be dealing with and letting them know how you feel about something. Cultivating those kind of relationships is really valuable in an organization the size of the NSLC.

The other thing that happened in that style of conference was the ability to hear and ask questions of the CEO. Since the arrival of Bret Mitchell in 2006 this was something he made sure to do every time. He made a real effort to interact with the store managers, who otherwise wouldn’t get to see him very often, and to let them know the kind of organization he wanted the NSLC to be. That isn’t an easy thing to do sometimes, especially when you’re dealing with a well-established culture within a largely unionized workforce. But he always tried to get his points across to them, and made a sincere attempt to answer their questions honestly in a Q&A session he always held to wrap up the sessions. This wasn’t easy for some of the store managers to get used to, as many were used to almost a military style command-and-control, speak-only-when-spoken-to environment. I suspect that kind of free and open access to the CEO is pretty rare in a lot of retail operations, but Bret really tried to make it work, to his credit.

The other thing that Bret did was establish recognition for superior performance. A Store of the Year award was created, one for each region along with one overall winner for the whole province, based upon a long list of performance metrics. There were also individual award winners, chosen by Bret himself based upon nominations submitted by employee peers along with a written justification provided by the nominator as to why the person deserved it. These became very prized and prestigious within the organization, and the people who won them were certainly deserving, having gone above and beyond to help the NSLC succeed. The idea of celebrating success was new to the organization, and it made a difference in the mindset of people working there. It was very different from the traditional government employee mindset. Again, this was all part of the cultural change that we were trying to achieve, and it was working.

After having a few of these conferences in Halifax, there was a desire to move them around the province. Part of that was due to all the distractions in downtown Halifax, which meant that some people from out of town were tempted to wander off and not take part in all the scheduled activities. It was a lot easier to keep people in the fold when you were in a more controlled environment. There was also a desire to move them around because the NSLC was, after all, a province-wide organization. So in 2011 there was a conference in Baddeck, and in 2013 one in Digby. Those offered some logistical challenges, so buses were chartered to bring people in from around the province at the least cost possible. By this time the second strategic plan had been introduced, talking about taking things to the next level by becoming more customer focused by using data analysis to understand customer needs even better. The introduction of Air Miles was just one example of how this was being implemented, and managers needed to be able to understand what it meant to them.

You might say why not pick a more central location, which is a fair question. The problem was finding a spot that had both the conference facilities and the guest rooms required. I gather that typically you need about 150 hotel rooms in one location for this. For whatever reason, places like Truro couldn’t accommodate us at the times we wanted. Given the type of conference it was, with lots of interaction, any sort of video-conferencing simply wasn’t feasible. It was something that had to be done in person. For a lot of people, especially those coming from smaller communities, it was a highlight. Yes, parts of it were fun, but it also built a real sense of pride and loyalty to the organization.

The last conference in Digby cost $140,000 apparently, and the one that was scheduled this year was going to be about the same. I remember that we had discussed it over a year ago when I was still working there, so it had been in the works for a while. The $140,000 wouldn’t include all the internal resources that would have gone into planning and organizing this over the last several months, where a few people would have been working to line up presenters, organize accommodations, work with the host venue, get registration organized, prepare agendas and presentation materials, and get people’s preferences for roommates, meal choices and the like taken care of. Sadly, all of this significant work is now out the window given that the event scheduled for a few weeks from now was cancelled by the Minister after a sideswipe by the PC Party in the midst of the embattled government’s attempts to defend their budget.

Take a step back and look at this from a business point of view. The NSLC is a company that employs about 1500 people working out of over 100 locations. It generates over $600,000,000 in sales revenue every year, and returns about $228,000,000 to the province in profits. Compared to that, the $140,000 cost is insignificant. Compared to the provincial budget of nearly $10 billion, it is really, really, really insignificant. Now, if it was wasteful as some have suggested, then the amount shouldn’t matter – it should go. But I can attest that it wasn’t wasteful given what these sessions helped achieve. I don’t care if someone thinks that nobody should have been offered a scallop when it was held in Digby, or that there shouldn’t have been an evening where people were entertained after Bret presented the awards to that year’s winners during a dinner, in order to both celebrate success and keep folks occupied for a few hours rather than going back to their rooms and doing who-knows-what. I have no problem arguing that it is a cost of doing business in an organization like this. The $140,000 cost is the same as hiring a senior administrator in a government department, university or health authority. And nobody would have a clue if they added one, or 100, of those this year across the system. It would just happen and nobody would be the wiser. Who knows, maybe it has.

This sort of thing is, in fact, exactly why the NSLC became a Crown corporation in 2001, to avoid having politicians make hit-and-run attacks like this to which the government feels compelled to respond. The correct answer for the government to respond with should have been something along the lines of how the business plan includes a bottom-line increase this year, that they always ensure due economy in their operations, and that any questions should really be addressed to the Board of the NSLC. Some would say that the $140,000 should instead be used for health care or some other good cause. That is exactly the kind of thinking that led to the old NSLC not being able to invest in their facilities and people, and which kept them from being able to achieve the results the new NSLC has turned in over the last decade. The old saying “you have to spend money to make money” is something most people in business would understand and agree with, but seems to be foreign to those in the political arena. The focus on cutting costs in government is necessary. But NSLC is not like a government department. It does not simply generate costs like a government department. It is a business, trying to satisfy consumer wants and needs in order to generate revenue. You have to spend to do that. The secret is spending wisely. In my opinion, conferences like these – not an extravagant party, as some have tried to characterize it – are a necessary thing for a successful business.

Last week’s broadside by the PC Party about the conference wasn’t the first time this sort of thing has happened. You might remember 2 years ago, Jamie Baillie made some noise in the press questioning why NSLC’s expenses had gone up by what he claimed was over $100 million over the previous 10 years while the volume of liquor sold had only increased by a smaller percentage. While that is a fairly foolish way to measure things in a retail organization – your expenses are going to go up over a 10-year period even if you don’t sell one more drop of product, simply because of inflation – more importantly, it ignores where the NSLC started from and where it is now in terms of facilities, product assortment, technology, and people. It was a broken organization before, and now it is not. It is that simple, and he likely knew that given his financial background. But hit-and-run attacks by politicians always get them some headlines, and that is really all they are designed to do. If the government reacts without thinking and makes a bad decision, so much the better from their perspective. Perverse, but sadly true.

If you look at the first 10 years the NSLC was a Crown corporation you can see what I’m talking about in terms of spending money to make money. Over that period, overall sales went up by $197 million. Volume of liquid sold increased by about 100,000 litres or about 13%, so more product was sold. Gross profit increased by $120 million, and more significantly, the margin on that product went from 49.5% to 54% thanks to better management – things like better purchasing, better marketing, better selling skills, and better inventory management. While expenses went up due to investing in the business, bottom-line profits after accounting for all those expenses increased by over $62 million annually. That is money that goes straight back to the government to spend on all those good causes every single year. That’s a pretty good return on investment. If you could, you would do that every day of the week. It is simply a money machine.

Working in the capacity I did at the NSLC you sometimes got the impression that everyone hated the organization based upon what you saw in the press. The customer satisfaction data told us otherwise – they were consistently some pretty impressive numbers after the changes that the organization made had been in place for a while – but that didn’t stop the politicians and press from trying to convince people otherwise. Liquor retailing is something most people seem to have an opinion on, and they apparently love to talk about it.  If you look at the comments in the online versions of the coverage of this in the Herald and CBC sites, you see a shocking degree of misinformation among those sharing their wisdom. Many used the $140,000 cost as a jumping-off point to say the whole organization should be sold or dismantled. Talk about throwing the baby out with the bathwater (privatization is a very complex question that goes well beyond this discussion, but suffice it to say that it is not a slam dunk by any means). Some contended it wasn’t actually a business at all, that there was no need for strategy or management, because the product magically sold itself. Now, I have yet to have a product walk up to me and tell me to buy it, but apparently such things exist. There were several saying that the NSLC “got caught” doing something it shouldn’t have been doing. Ridiculous, as this was hardly a secret. They had done it for years, Ministers had always been briefed in advance, end of story. There were many along the lines of “I can’t get this so why should they?”, the all-too-typical attitude of many, and “they all make too much and get bonuses too!” (nobody at NSLC gets bonuses, and haven’t for years). And then there was the ever-popular “Booze is too expensive and this is why”, which fails to recognize that prices all across Canada are generally comparable within a narrow range, and that the cost of this is virtually nil on a $600 million sales line. It’s really quite sad overall.

I can guess that the decision to cancel the conference led to a very bad day at the NSLC last Friday. Not because it was an extravagant party that was kiboshed, and not because anyone got caught doing something that they shouldn’t have. The costs associated with this would have been included in the NSLC’s business plan, which was included in the provincial budget and which would have been already been approved by their Minister. It would not have been a line item because that is not how NSLC budgets (or those of any Crown corp) get submitted. They are supposed to be free to manage the details of what they submit within a framework of management responsibility and policy. There is no policy of which I am aware that does not allow conferences involving employees of the broader public sector (NSLC employees are no longer civil servants). One wonders if employees of health authorities, school boards and universities will also now be prohibited from attending conferences. Nor would they have known anything in advance about the cuts to other areas of government that were announced in the provincial budget. In the midst of the barrage of criticism about the cuts to the provincial budget, the PC Party found an opportunity to fling another spitball at the government, and they did something dumb in response.

This was simply a bad, reactive decision by the government to force this to be cancelled. It won’t save anywhere close to the $140,000 budget since many of the costs would have already been paid or committed and are unavoidable. In the end, I’d guess that maybe 50%-60% of the total can be avoided. But there is a new price to be paid, because the bad day experienced by those at the NSLC was ultimately due to that decision being very reminiscent of the bad old Nova Scotia Liquor Commission days when government meddled in their decisions on a regular basis. One can only hope this isn’t the start of a pattern that affects the ability of those at the NSLC to run their business operations without undue interference from politicians. The chances of the government changing their minds on this are virtually nil, given everything else they are grappling with right now. Bad on the PC Party for making it an issue, and bad on the government for their response. But regardless, it’s a shame.

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