As part of Saskatchewan Economic Development Week 2017, the Saskatchewan First Nations Economic Development Network interviewed leaders in the First Nation business and economic development community. Below, SFNEDN Board member Heather Exner-Pirot talks to Robert Fincati, CEO of Montreal Lake Business Ventures, about structuring First Nations business, transparency with band members, and creating wealth for self-determination.
Exner-Pirot: Can you tell me a little bit about Montreal Lake Business Ventures (MLVB) to get us started?
Fincati: MLBV Ltd. was incorporated in 2008 as the General Partner for a Limited Partnership structure. It was put in place because of the need to develop a viable business structure that could be successful at creating wealth for the Nation. Montreal Lake has a history of great ideas but never had a good business structure to take things forward. So there is a history of a lot businesses that failed, that just never made it, not because of a lack of a good ideas but because of poor corporate governance and business practices. MLBV didn’t really start moving forward until about 2010/11. I originally was on the Board because of my forestry background and in 2012 was hired as the CEO.
We have a small interest in Northern Resource Trucking, an interest in Prince Albert Development Corporation and two wholly owned subsidiaries that are Limited Partnership/General Partnership structures: Kaskew forestry products and Ne He Thow store in Montreal Lake. We are also a shareholder in Sakaw Askiy Management which holds the Prince Albert Forest Management Agreement (PAFMA). We also have a 240,000 m3 wood allocation in the PAFMA and a softwood wood supply agreement with Carrier Forestry Products.
Exner-Pirot: How would you describe your role as CEO of Montreal Lake Business Ventures?
Fincati: I oversee the wholly owned businesses, facilitate good governance, develop policies and ensure best business practices to help facilitate wealth creation and continue our growth. Our primary mandate is to create wealth, as well as employment opportunities. Any business that we’re in has to be viable and profitable.
The other part of my role is looking for investment opportunities and providing the due diligence necessary through a structured business investment process.
Exner-Pirot: What’s your relationship with Chief and Council, and with the community?
Fincati: We are a Limited Partnership (LP)/General Partnership (GP) structure. Montreal Lake Cree Nation (MLCN) band members are collectively the shareholder and Chief and Council are the shareholder representatives. They own 100% of MLBV LTD of which the Board of Directors are appointed by the shareholder representatives – the Chief and Council. The Board consists of three band members that are business orientated or have business experience, and two independent directors that are not band members, but have a strong business background. There are also three Directors from Chief and Council. It is important to keep the Chief and Council Directors as a minority Director presence on the Board in order to maintain liability protection for the Band.
The LP units are owned 99.99% by MLCN and .01% by MLBV LTD. That’s very important because there is a LP agreement between the LTD and the shareholder – the Band – and that agreement allows the LTD to manage the LP. The reason for that is: (1) it provides liability protection for the Band. The Band is not directly managing the company, so for example in the case of a lawsuit MLCN has liability protection; and (2) taxation purposes. In an LP, the taxes are paid by partner. In a corporation, they are paid by the corporation. If our businesses were held by LTD, the income would be taxable. In an LP, the taxes are paid by the partners. That means that 99.99% of revenues are the responsibility of the Cree Nation, which is not subject to taxation. So only 0.01% is taxable. That’s why this structure is used by so many First Nations.
Exner-Pirot: What unique characteristics do you think running a First Nation community-owned business brings?
Fincati: First of all, it’s owned by the community. It’s a very close knit community, people are all related. There are challenges with that. There’s a lot of politics, perhaps more so than in other businesses. The way we deal with that is through communication. Of course, a best business practice for MLBV is to operate with transparency – so being transparent with the community.
MLBV is a holding company, that’s the intent of it – we protect MLBV in the same way we protect the Cree Nation. That’s why we have subsidiaries. It’s been very important with those companies and with MLBV to report regularly through general assemblies, to the membership and Chief and Council. We have newsletters, open dialogue and open communication with membership. Each company has unique aspects, with regards to ways in which they impact the community. With forestry, when we are harvesting, we are impacting trappers and other land users, so it’s really important to have good shareholder engagement. We have a shareholder engagement policy and plan that is developed and approved by the Board. It’s specific to Montreal Lake, and we try to deal with issues in a way that creates win-win outcomes. We’ve come a long way in being able to communicate properly and to resolve issues that we’ve had in the past.
It’s similar with the community store; people need to understand why prices are where they are at. Our profit margin is small and we have to run a tight operation to make the margins. It is important to communicate this to the membership.
We recently invested over a half million dollars of our cash into the store for renovations, and it’s created a real sense of pride in the community. We are a debt free company which is something that we are very proud. We went through the process of Kaskew becoming a bonded company. This means that we can bid on contracts that require bonding. We are one of the few First Nation companies that have been bonded. That’s something the membership and the Board can be proud of. The reason we are bonded is due to the strength of our financial statements. We started with nothing and built up a lot of cash, we’re cash strong and investment ready, looking for larger investment opportunities.
One of the priorities in looking for businesses to invest in is that they have to support their own management. We can’t buy a mom-and-pop style operation, we need to invest in larger scale ones that have their own management system in place.
Exner-Pirot: Are there particular sectors or particular business attributes you look for when you invest?
Fincati: Well the number one thing is return on investment. We’re looking for companies that have good earnings to begin with, and that are stab le, and that by adding First Nation ownership could provide some ability for growth. Ideally companies with lots of growth potential, a healthy return on investment, and with good management in place. Employment is challenging because Montreal Lake is fairly isolated. There aren’t a lot of opportunities other than forestry, and that’s a challenging sector because the margins are so low. We made a decision to not buy forestry equipment, and that’s been a smart decision with the Americans putting a 20% counter-duty on softwoods.
We look for lower risk opportunities. If there’s employment, that’s great. And we encourage contractors to do training, we do our own training, we have agreements with tree planting companies to hire band members for example, so we approach it that way. And if any band members want to go into business, for example purchase a skidder, we provide opportunities to work with an existing contractor.
But in acquisitions, it’s challenging to find businesses close to the community that are viable opportunities. We’re not an employment agency, so we don’t develop businesses to just create jobs. First and foremost the business has to be viable and contribute toward wealth creation.
As INAC [Indigenous and Northern Affairs Canada] funding gets continually reduced, and it fails to keep up with inflation, it gets more and more challenging for the Nation to be able to meet their own needs. The big picture, longer term strategy is to pay more dividends. To do that we need companies that can grow and provide a good net income at the end of the day.
Exner-Pirot: What’s your biggest challenge right now?
Fincati: As we went through the boom times, a lot of businesses were overvalued. Now with a slower economy the business valuations are coming down. The blessing was that, during the boom times, we were able to improve our financial position to the point where we are ready to take advantage of good investments at lower valuations. The challenge is to find good value companies that have that growth potential, to maximize our return on investment. That’s not a challenge that is particularly an Indigenous issue.
Continuing to establish that communication, to have members understand what it is we’re doing is an ongoing challenge. We work to keep communications open and strong, be transparent so we can understand the needs and have the ability to address them.
New leadership was just elected, that’s a challenge – to educate them, make sure that they know and understand what we’re doing, and be supportive and proud of what we are accomplishing.
Another of our big challenges is with the federal government. We were bidding recently on a drainage project, putting culverts in and ensuring better drainage following a recent flood. We bid, we were competitive, and other non-Indigenous companies bid too. We were very close to projected costs on a $2 million project, we were in the ballpark, and we were out-bid. With the downturn, a lot of companies are really underbidding, undercutting, and low-balling bids. But INAC is not even following their own procurement policy, the PSAB [Procurement Strategy for Aboriginal Business]. PSAB would have allowed us to be awarded the contract and build capacity through employing Montreal Lake band members and using Montreal Lake equipment. It’s a shame INAC doesn’t use their own policy.
Exner-Pirot: What’s your greatest strength?
Fincati: Good governance. We utilize best business practices, we have a good, strong board, and good management. We also have a healthy balance sheet and are very investment ready. We are in a position to take advantage of opportunities, especially with the economy in a recessionary mode. We would like to find investments that are not as cyclical in nature. It’s tough in Saskatchewan to find those type of business opportunities because it’s a very resource intensive economy. But a lot of opportunities are starting to pop up, where there’s an aging business owners ready to retire and looking at succession plans. A slow economy and aging business owners has created incentive for businesses to be sold at a good value for us.
Exner-Pirot: Where do you want MLBV to be in 10 years?
Fincati: We want to continue to grow. We have a growth strategy mandate right now. In 10 years we would like to be very stable, and have a number of businesses in our portfolio that are contributing to the net income for reinvestment into the continued growth of MLBV. We want to be able to be in a position to increase the dividends we are paying to the Band. Give back to the community through dividends as well as other kinds of social projects.
In thirty years’ time, we would like to have substantial income – if you look at a First Nation like Membertou in Nova Scotia, INAC funding only represents a small portion of their income. Their businesses are generating most of their revenues. That’s what we are looking for: we want to provide economic sovereignty for Montreal Lake. I don’t think in ten years we’ll be able to accomplish that but in 30 years we can.