The Globe and Mail - 16.10.2019

B4| REPORTONBUSINESS O THEGLOBEANDMAIL| WEDNESDAY,OCTOBER16,2019

OPINION&ANALYSIS

DILBERT

F

or years after the corporate
roll-up that created Restau-
rant Brands International
Inc., the company fought accusa-
tions that it was nickel-and-dim-
ing the franchisees at Tim Hor-
tons, its major moneymaker. As it
turns out, an awful lot of those
nickels and dimes – a few
hundred million – ended up in the
pocket of CEO Daniel Schwartz.
Mr. Schwartz departed his ex-
ecutive roles at RBI at the end of
September. It’s not a retirement,
really, because he is 38 years old.
In addition to serving as co-chair-
man of the RBI board, he is now
giving more attention to being a
partner at 3G Capital, the private-
equity firm that formed RBI and
gave him his executive role. And
he has accumulated about $250-
million from RBI stock awards in
his nine years of work at the com-
pany.
You can see this as a story of ex-
traordinary value creation: From
3G’s 2010 acquisition of Burger
King, the company’s predecessor,
the shares have increased 25-fold,
and Mr. Schwartz’s pay package,
heavily weighted toward equity,
has reflected those gains.

Then again, it’s also a story about the mismatches and ineq- uities of executive pay in the mod- ern era. Even in a time when the typical CEO makes hundreds times more than his subordinates, Mr. Schwartz’s pay stands out as more closely resembling the masters of the universe in the hedge-fund and private-equity industries. It’s even more conspicuous given how RBI’s front-line, customer- facing workers often make mini- mum wage. And while the early Burger King shareholders have certainly gained, RBI stock, by contrast, has posted below-peer returns since its 2014 debut – undermining the argument that Mr. Schwartz has been paid for performance. Mr. Schwartz joined 3G in 2005 as a 24-year-old analyst and became a partner in 2008. In Octo- ber, 2010, 3G put him at Burger King, which it had just acquired, as deputy chief financial officer. He became CFO two months later, chief operating officer in April, 2013, and CEO two months after that, while still 31. He ceded the CEO role this spring and served as the company’s executive chair- man until two weeks ago. Here’s how Mr. Schwartz’s stock awards have played out, according to company documents and share-trading records. In the four years Mr. Schwartz was an executive at Burger King, from 2011 to 2014, the company awarded him 2.6 million stock options. Nearly 1.6 million of those had an exercise price of less than US$4 a share. In October, 2017, when the company’s New York Stock Exchange-listed shares

were trading around US$64, he exercised them for a profit of US$95-million. (When he used the options, he sold fewer than half the shares on the open market and kept the rest.) In May of this year, he used the remainder of his options granted in the Burger King years, making a profit of just more than US$47- million. That left him with more than one million stock options and performance-share awards, all granted after the Burger King/ Tim Hortons merger in 2014. While Mr. Schwartz cannot sell any of the shares at this point, at the US$71.74 closing price on Sept. 30, the stock is worth about US$50-million. Sum all that, convert to Cana- dian dollars, and you’re looking at a quarter of a billion bucks. Duncan Fulton, the company’s chief corporate officer, said Mr. Schwartz only sold enough of the shares acquired in 2017 to pay taxes, and a chunk of his profits from this May went to taxes as well. So, he argues, US$147-million in options gains only translated to US$16-million in pocketed cash. Mr. Fulton said Mr. Schwartz led an aggressive global expansion of Burger King to about 18,000 today from about 12,000 restaurants in 2010, while also leading the merger with Tim Hortons in 2014 and the acquisition of Popeyes Loui- siana Kitchen in 2017. Jane Almei- da, spokeswoman for Tim Hor- tons, said the company “has de- veloped a much stronger relation- ship” with franchisees over the past year, including frequent meetings across the country and weekly discussions with an advi-

sory board elected by restaurant owners. Mr. Fulton said in an e-mailed statement: “Our growth story started around US$4 per share in 2010 and is more than than US$70 per share just 9 years later. US$30- billion of value has been created – in addition to returning more than US$4-billion to shareholders

so we would submit that our eq-
uity incentives have been entirely
in line with the benefits our share-
holders continue to realize in
their ownership of Restaurant
Brands.”
It depends, however, on which
shareholders, and when. Burger
King shareholders have certainly
won, as noted, and Mr. Fulton sug-
gests we look at stock returns
since the day before the Burger
King-Tim Horton’s deal was an-
nounced in August, 2014, an anal-
ysis that makes it a better per-
former than all five stocks in the
S&P Restaurants sub-index.
RBI was born when the deal
closed in mid-December 2014,
though, and it’s that company’s
currency that has paid out Mr.
Schwartz’s gains. And since then,
RBI has had a 120-per-cent divi-
dend-inclusive return, according
to S&P Global Market Intelligence.
While that looks impressive, the
stock has underperformed McDo-
nald’s Corp., Darden Restaurants
Inc., YUM! Brands Inc. and Star-
bucks Corp., which have all re-
turned at least 130 per cent. Only
Chipotle Mexican Grill Inc., which
inadvertently poisoned its cus-
tomers during the period, has
done worse.
It’s a Whopper of a payout for
Mr. Schwartz, for a Timbit of rela-
tive returns.

AWhopperofapayday

FormerRBIchiefearned

about$250-million

overnineyears

despiteaTimbit

ofrelativereturns

DAVID
MILSTEAD

OPINION

Eveninatimewhen thetypicalCEO makeshundreds timesmorethanhis subordinates, Mr.Schwartz’spay standsoutasmore closelyresembling themastersofthe universeinthe hedge-fundand private-equity industries.

I

n recent years, there has been
growing concern worldwide
with the privacy risks associat-
ed with mass data collection on-
line, the potential for rapid dis-
semination of hate speech and
other harmful content on the in-
ternet, and the competitive chal-
lenges posed by technology com-
panies – often labelled “web gi-
ants” – that are enormously pop-
ular with the public but do not fit
neatly into conventional cultural
and economic policies.
The internet-policy proposals
contained in the Liberal and Con-
servative platforms offer dramat-
ically different answers to the
question that sits at the heart of
these policy issues: Who should
bear responsibility for the poten-
tial risks that arise from the inter-
net?
For the Liberals, this is largely
an internet-platform issue. Their
policy proposals adopt European-
style regulatory reforms that seek
to impose a host of new digital
taxes and online regulations. The
position represents a dramatic
shift from 2015, when the Liberals
emphasized innovation, welcom-
ing the economic and cultural op-
portunities arising from the on-
line environment.
By contrast, the Conservatives
focus primarily on personal re-
sponsibility. While the platform
includes some new measures re-
lated to internet platforms, the
party largely rejects the global
“tech-lash” that seems to have in-
formed the Liberal position.
Consider the competing ap-
proaches to harmful online
speech. The Liberals promise to
introduce new legal require-
ments “that all platforms remove
illegal content, including hate
speech, within 24 hours or face
significant financial penalties.”
The policy, which borrows from
similar rules in Germany, is in-
tended to put pressure on inter-
net platforms to more aggressive-
ly remove online content. The
Conservatives do not propose
comparable regulations. Instead,
the party’s platform focuses on
cyberbullying with plans to estab-
lish civil liability for parents and
guardians for the cyberbullying
activities of their kids. In other
words, responsibility lies with
people, not platforms.
The differing approach is also
evident in their approach to on-
line privacy. The Liberals point to
their Digital Charter, which prom-

ises a host of new reforms including stronger enforcement, consent standards and European- style rules. The Conservatives are also focused on better privacy protection, but they point to the need for plain-language policies in order to obtain valid consent. The difference is subtle but important: The Liberals view better privacy safeguards through better regulation, while the Conserva- tives believe it can be achieved by better informed personal choices. Even the much-discussed policy battle over “Netflix taxes” fea- ture important differences. After years of rejecting new taxes, the Liberals are all-in, promising new digital sales taxes, a new 3-per- cent corporate tax on technology companies and a mandated con- tribution in support of Canadian content. The Conservatives are clearly much more reluctant to embrace new digital taxes. The policy platform says nothing about either new digital sales taxes or mandated cultural contributions. In fact, the cultural policies instead talk generically about working in a “consultative way” to ensure that government policies adapt to the digital environment. The signal is clear: The internet provides new opportunities to compete, not for new handouts. Even the Conservatives’ one new “Netflix tax” comes with a ca- veat. The party also proposes a 3- per-cent tax on large tech companies that provide social media,

search, and online marketplace services (in other words, Face- book, Google and Amazon, but not Netflix). But the platform also notes that its preference would be for those companies to invest and further establish themselves in Canada. If they do so, the party promises to waive the extra tech company corporate tax. Perhaps the biggest surprise in the Conservative platform is that it does not touch on the affordability of wireless and internet services. The party plans to rejig ru- ral broadband initiatives, but seems content to leave communi- cations services to the market and the existing regulatory efforts led by the Canadian Radio-television and Telecommunications Com- mission. Given the frustration of successivegovernments – both Liberal and Conservative – to ad- dress the wireless affordability is-

sue, maintaining the existing approach does not inspire much confidence. The differing approaches to internet policy offer a somewhat unexpected choice with one party embracing regulatory solu- tions to the online platforms and the other placing its belief in em- powering people with better in- formation and personal responsibility. The best policies likely in- volve a combination of the two. Privacy policies alone, no mat- ter how easy to understand, will never fully replace legal safeguards and enforcement. Mean- while, the evidence suggests that a competitive cultural sector need not rely on a suite of new Netflix taxes. Getting the right policy mix will not be easy, but it should emerge a top priority for whoever forms Canada’s next government.

Whoisresponsibleforinternetsecurity?

MICHAELGEIST

OPINION

CanadaResearchChairininternet
ande-commercelawatthe
UniversityofOttawa,facultyoflaw

LiberalLeaderJustin Trudeauand ConservativeLeader AndrewScheertakepart intheFrench-language debateinGatineauon Oct.10.ADRIANWYLD/ THECANADIANPRESS

The Globe and Mail - 16.10.2019

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