#125 - Paul Desmarais III: Right to Win, Built to Last

26:03And then from there, how do you grow? And ultimately, none of those things are that massively impacted by the macro volatility or kind of whatnot. And some of the best advice I've received in my life is focus on what you can control and what you can control will grow. And that for me has been transformational in my life. And I stay razor focused on that. And I try and kind of block out the noise. And actually, it's an advantage being in Montreal. It's like our friends in Omaha. They get to block out the noise. Montreal's like the Omaha, Quebec.

26:40Paul Desmarais III:And it is increasingly more difficult, probably, to block out the noise. And I think it's also interesting to think about the fact that you can't really control the macro. And it's really hard to predict. And I think a lot of people, what they do is they view the macro, they view it as having a significant impact on the outcomes. And so they try to predict and position for it. And that, you know, opposite of what you just described, I think is very difficult to achieve through time. It's a huge distraction because actually there's two problems with the macro. You know, one is it's always a lot of fun for people to sit around a table and opine on kind of big ideas and macro, but I view it as a total waste of time.

27:22Reason one, very hard to predict. Reason two, even if you predict accurately, the action you will take relative to that prediction may not be the right one. So let me give you an example. If last year you had predicted that on Liberation Day, you know, all these tariffs were going to be announced, I am nearly certain you would have predicted that the S &P 500 was going to be down for 2025. And the reality is it was up. And so again, had you had perfect visibility on the announcement that Trump made, you probably would have bet wrong. And generally, I find that to be the case across a lot of kind of macro bets.

28:09You know, there's not only the prediction of the event that needs to be gotten right, But the impact of that event on business also needs to be got right. And getting those two things right consistently are very hard. So I rather just focus on things I control.

28:23Paul Desmarais III:That makes sense. You grew up around business across three generations. What did that environment teach you early about leadership, responsibility, and decision making? Well, you used a lot of terms that I grew up with very carefully. And so I often talk about Cigar's five values, entrepreneurship, innovation, collaboration, rigor, and authenticity. Those values are anchored in my family. My family also has very stated values, and responsibility is one of those. And I think that as you build a business and as you have success in your life, responsibility to those that work with you but also to your community becomes something that is very important.

29:09And so I live in Montreal. I'm very focused on building a resilient economy here in Quebec. Some of the businesses that we've built have created thousands of jobs in Montreal and millions of dollars of wealth for the city. But then you also have to care for your community. So I actually serve as I serve this chair of the United Way in Montreal. I currently serve as the chair of the large donors of the United Way in Montreal. And that responsibility is something important. Also, you know, hard work. Our family has a value of hard work. You know, I am one of four brothers. All four brothers are CEOs of companies.

29:48My mother is an entrepreneur and actually she is one of the drivers of our work ethic. and you know we were always told as a as children there are two things nobody can take away from you your education and your work ethic and so ultimately we are all you know very hard driving children and that is important the third thing that I really took away from my kind of childhood is that industries change and you know a lot of families make a mistake by calling themselves a family business. We view ourselves as a family in business. And that means that our values are transferred from generation to generation, but the businesses we own and build can change dramatically.

30:35You know, our business, our family originally was in the bus business. You know, the bus business is a lot less interesting today than it was, you know, in the 1940s and 50s. We were then in the newsprint business. We actually made newsprint for newspapers and then we owned all the newspapers. Thank God we got out of that business because that is definitely not a winner today. And then we transformed ourselves into a financial services group. And so that generational transformation has played a really important role. And I think for families, it's really important for them to remember not to be prisoner of their industry or their business, because the reality is that over a hundred year period, very few businesses survive.

31:20And so if you are going to be a family in business, you're a lot more likely to survive long term than if you're just a static family business. And so we take the same approach at Cigar. We're trying to always make sure that we're at the cutting edge of innovation, that we understand how our portfolio is being impacted by new technology. We accompany our CEOs through those technological revolutions of which AI is a major one right now. And we try and make sure that we're always on the front foot when it comes to new industries and emerging trends and play a leadership role there. And so responsibility to the community, hard work, constant innovation are things that we've definitely learned and I've definitely learned from my family.

32:08Paul Desmarais III:Before Cigar existed, what did your early career teach you about what the investment industry gets wrong most often? Well, this is really funny. And it actually touches on our family as well. I spent all the early years of my life at Goldman Sachs and was effectively a financial analyst and an investor, but I was really behind the desk. And after my early career there, I actually moved into operations. And I actually went to go work for one of our family businesses where we own one of the largest industrial mineral companies in the world called Imaris. And I was in charge of our supply chains in South Africa and in Ukraine.

32:50and and what was really interesting is that we had real issues with our supply chains and and and i was like this can't be that complicated i'm just going to model out the like supply chain on excel and i'll come up with a solution and so i get my excel out you know model out the solution i go see my boss and i say hey i solve your problem like this is what you need to do for it to work and he was like okay you know why don't you fly down to south africa and put your model into real life. And I quickly learned that there is a very wide gap between Excel modeling and real life. And the reality is that I think in the financial industry, you often overly rely on precisions that don't make sense.

33:37Model precision in Excel is not the real world. And the reality is that the outcomes that happen in business often end up very different than what you predicted in Excel and are often driven by humans and human relationships and your ability to motivate people and your ability to convince people that doing a certain thing is not only for the best of the company, but also their best outcomes as well. And one of the things I learned is that there's nothing that replaces leadership and inspiring people and motivating people and incentives, which often can't be captured in the pure financial math.

34:17And that is something that I learned early in my career. And I think it's something that differentiates us as Cigar from other investors is that many of our leaders have actually operated businesses. And so when we sit down with founders and, you know, they're walking us through their challenges, you know, we can often relate because we've been there, we've done it. and we can bring insights on the human side of business that I think sometimes a lot of purely financial investors miss.

34:50Paul Desmarais III:You brought up something that I think is really insightful. In my experience and one of my observations has been some of the most sophisticated and successful long-term investors who've been around decades, they tend to be less confident than the ones who have been doing it for less time. And it's because they've seen so many failures They've seen so many things that were modeled that didn't turn out the way that they expected. And the future oftentimes transpires very different from their recent past. And I think there is just this natural human tendency to try to create precision and model things that are hard to do.

35:28Paul Desmarais III:And on paper, it looks very reasonable and can be compelling. But if you just follow history, there's so many things that surprise people that you almost have to assume that's going to be the case going forward. Yeah. And look, I mean, perfect examples of this are COVID, right? Who would have thought that, you know, everybody would go and stay at home for a year? Like, how do you predict that? Now, like revenues can go to zero. Like revenues go to zero. You know, we were lenders to hospitality businesses. The revenues went to zero. But at the same time, we got lucky. We built a telemedicine company.

36:07like we went from like 200 000 users to like 2 million users in a month um we built the leading digital trading app in canada everybody was at home with nothing to do and so guess what they opened brokerage accounts you know so when you build these portfolios you know what's amazing is that you end up being like things end up happening that end up being very unlucky for certain businesses but extremely lucky and transformative for other businesses and and And that's what's fascinating about the world of investing is that, you know, you got to put in a lot of hard work. But the reality is that what people need to understand is that there are a lot of unknown unknowns out there.

36:47And the truth is, like, luck does play a role. And I've always said, I'm the luckiest guy in the world. But I spend my time preparing and positioning myself for that luck.

36:58Paul Desmarais III:Many investors admire entrepreneurs, but few truly organize themselves around serving them? Well, what does it mean to practice to be genuinely entrepreneur focused? So, you know, I'll give you a few concrete examples. And so we have a whole bunch of pods that are there nothing to serve entrepreneurs. So one of our pods is what we call our partnership pod. This is a pod that does nothing but look to make commercial introductions for entrepreneurs to help them grow their companies. The reality is that lots of entrepreneurs have brilliant ideas, but don't have networks. You know, like one of the privileges I have is I was born into a family with an incredible network.

37:38Most people don't have that. And so one of the things that I've done is I've industrialized our family's network to serve entrepreneurs. And I feel that that is one of the most satisfying things we do at Cigar. And so to put that concretely, I look to make two or three commercial introductions a day to our portfolio companies. And that is tremendously valuable. And so if you look at, for example, I mentioned, you know, our financial planning app, Conquest Planning, which we built, you know, we introduced them to the entirety of the Canadian financial services landscape, allowing them to get a 70 % market share of financial planning apps in Canada.

38:16I mentioned earlier the telemedicine platform we built. We had the insight that telemedicine was an incredible adjacent sale to group health insurance policies. And so owning one of the largest life insurance businesses in Canada, we have a big group business, but then we also knew all the other insurance companies that had big group life businesses. And so very early, we were able to plug our telemedicine company into all that insurance ecosystem and have them cross sell telemedicine. And so every day we're focused on how do we bring value to these entrepreneurs and how do we introduce them to exactly the people that they want introductions to.

38:55And so concretely, often the companies we invest in will send us a list, a wish list of clients, and we'll just kind of work through that wish list with them and kind of open doors. And because we spend a lot of time doing a lot of favors for a lot of people, most people end up picking up the phone because what comes around goes around. Another example of how we set ourselves up to help entrepreneurs is we bring them together. We organize our growth conference where we actually bring all the entrepreneurs in our ecosystem from around the world and we share best practices on digital marketing and other ways of acquiring customers.

39:28This is an extremely valuable gathering where we convene these entrepreneurs from around the world. We do the same thing in fintech at a big event in Montreal that's called the fintech forum or the confluence conference where we basically bring these entrepreneurs together and we connect them. And then finally, operationally, just given financials, financial math is our forte. We tend to support entrepreneurs a lot in the most ambitious goals that they have. And so there's a family here in Montreal that own the leading distributor of fruits and vegetables. And they really wanted to build a Canadian champion.

40:05But they were worried that, you know, they didn't have the contacts to be able to buy the leading player in Ontario and the leading player out west in Canada. And we basically facilitated that. And we've done the same in Europe and equipment rentals where we helped create the leading equipment rental company in France called Kilo2. And there's about 42 other examples where we've partnered with entrepreneurs who are super ambitious, but needed that extra partnership to have the confidence to go out there and win and consolidate an industry and the financial resources to do so. And so those are the different ways that we partner with entrepreneurs and view ourselves as a kind of founder-focused firm.

40:44Paul Desmarais III:Do you feel like some of those insights came because you began by building companies, not just allocating capital? Definitely. I mean, there's nothing like having to build a company yourself to help you understand what it's like to be an entrepreneur. And we at Cigar, over the last 10 years, have founded over 30 companies from scratch. We actually have a team who does nothing but that. And we look to found between five and 10 companies a year now at a pretty good clip across financial services and call it the energy transition economy. And that knowledge of, you know, knowing what it takes to build from scratch and seeing how hard it is definitely gives you empathy.

41:28And, you know, it's interesting because you mentioned my family upbringing and empathy is another value that we were taught very early on. And I think that when you're an investor and a board member, having empathy for the difficulty of being in management and the challenges of being an entrepreneur is really, really important because I often see that there's a lack of that empathy around different tables. and it often comes from people that have never been in the seat of having built anything.

42:02Paul Desmarais III:It's also a very good counterbalance to pushing people to be their best. If you also approach it from an empathetic standpoint, you can probably gain respect a little bit faster than if all you did was ask for more. Absolutely, absolutely. And in different cultures, it can be even more important. In Europe, I find some of these values are particularly important because often like you actually can't fire people. You can't motivate them necessarily as financially. And so giving them vision and giving them empathy ends up being really powerful to getting things done. Many firms talk about collaboration, but few are able to sustain it long-term.

42:48Paul Desmarais III:What behaviors quietly erode collaboration even when incentives seem aligned? I mentioned earlier, collaboration is one of our core values as a firm. And I think there are cultures that get collaboration right, and there are cultures that do not. And so if you look at where the senior leadership of our firm came from, we have a large amount of Goldman Sachs alumni, and we have a large amount of McKinsey alumni. Those are two firms that are effectively, when it comes to collaboration, I think very similar. They have extremely collaborative cultures. And one of the lines that we learned to Goldman is that information only has value if it is shared.

43:31There are many organizations that hog information. That is a huge mistake. We've really created a culture at Cigar where information only has values when it is shared, and all of the senior leadership are constantly sharing insights with each other. So how do you create that? You know, in our case, there's a few things that drive to that, you know, behavioral approach. One is leadership from the top. You know, we do not have senior leaders or we do not hire people that are not collaborative people. And we test that in the interview process. And these types of things can be seen actually quite easily.

44:11Two is obviously incentives. You know, all the partners of Cigar are shareholders of the firm. We have cross carry across different funds. So in each one of our funds, 60 % of the funds incentives go to the direct team. But we have a 15 % pool that is then shared across the leadership of the firm. And then we do cheesy things like we give people awards for collaboration. We highlight people's collaborative behavior at town halls. We celebrate it publicly. and like a lot of things, the things you celebrate end up being the lived experience of people. And the more you celebrate, the more you reward, the more you remind people of the values and the more you lead from the top with those values, it's important.

44:57The way I personally live the value of collaboration is I make myself available. So when any teammate asks me a question or sends me an email, I try and respond within 24 hours and ideally within an hour. So the kind of level of service that I look to provide to our internal teammates in terms of being available and collaborative is very high. And then when the CEO does that, it sets the tone from the top where obviously where everybody else in the organization ends up being available as well. And I think that ends up underpinning a really good culture. And so celebration, incentives, and then lived ways of kind of living those values.

45:43And I think when we describe our values, actually, we actually have subtext that explains specifically the type of actions we want to see in people living those values. And I think it's really, really important whenever you're a company thinking about your values to identify and communicate very specifically the type of actions you're hoping to see your people participate in, in terms of their way of living those values.

46:11Paul Desmarais III:You've highlighted the importance of culture, but how do you preserve culture as organizations grow larger, more complex, and more global? preserving culture for us, given our fast growth and the fact that we're continuously looking to make more acquisitions is probably our biggest challenge and what I spend the most time on. And as your company grows, the methods of preserving that culture have to adjust and change. And I've seen as the leader of the organization, as a CEO, my job description changes every year. And you constantly need to be rethinking your job description, and rethinking about where you're going to have impact and doubling down on that.

46:53Ultimately, as the organization grows, the number one role of the CEO is to be the cultural high priest. And the way you do that is, you do like a priest, you give mass. And so you go and you go to all these different offices and you sit down with people and you explain to them exactly what you expect in terms of culture and exactly the types of behaviors you expect. and you can be very clear and directive. And then you reward people on those behaviors. Like at Cigar, when we have discussions as a team about who's going to get promoted to be a partner, a big part of that discussion is, is this person a culture carrier of the firm?

47:33You know, collaboration being one of the most important ones. When we look to acquire a team, we spend a huge amount of time with that team, like sometimes in really funny ways. And so there was one team that we were acquiring, we were like, look, we really want to get to know these people. So we invited them and our senior leadership team to go fishing together for three days. And we put each leader of the team we were looking to acquire with one of our leaders on a boat alone for the day. And that kind of forced discovery and forced seeing how they behave with the guide and with the frustration of losing a fish.

48:09There's tons of things you could learn from like doing an activity with someone. And so we spend a lot of time trying to really understand kind of culture before buying teams. And so far, we've been extremely lucky. You know, the teams we've partnered with have been very much, you know, well integrated into our culture. And in fact, many teams choose to be acquired by us because of our culture. And what's interesting is when people join us from outside firms, they always common to us about the power of our culture, especially the value of collaboration and how that is a value that is lived deeply here.

48:48And people feel it right away because I often say cigar is a place where you should never need to ask for help. Your colleagues should notice that you are in need of help and come to your help before you even ask for it. And that is the type of culture that I want to have and I think makes us a very different firm in our industry.

49:08Paul Desmarais III:And the more pronounced and emphasize that culture, the more likely you are to attract those that are a good fit and deter those who are not. Absolutely. It is definitely self-selecting. And I think we're really proud of what we've built here from a human standpoint. You touched on this a little bit earlier, but you talked about how networks matter more, potentially more as the world becomes more complex. What makes a network genuinely useful rather than just merely impressive? That's a really great question because a lot of people are really good at networking, but miss the second thing, which is the commercialization.

49:47And so if you think about, you know, what makes a valuable network or how do you build a network, you first have to kind of go meet people. You then have to build the relationship and maintain the relationship. And then you have to figure out a way? How am I going to make this relationship commercializable? And the reality is that all three of those things relies on a two-way exchange. I often tell people a relationship and a network is an energy exchange. If you are an energy giver and you give a lot of love and contacts and attention to the people in your network, guess what? You get that right back.

50:29And I've always told myself, look, in the world, there are kind of, you know, people that are givers and there are people that are takers. If you build a network of givers and you give a lot into that network, you're going to get a lot back. What's often hard for people is that last bucket of commercialization. I mean, the truth is for different people, each one of the buckets is hard. For people that are very shy, the going out and meeting new people is hard. And what I often tell people is like, go to an event, go to a cocktail and look for mispaired groups. You know, if there's a group of three, there's one person that's not participating in the conversation.

51:07So that's the lowest risk way to go meet someone. You go up to a group of three and odds are one person's being excluded from the conversation and you could strike up a conversation with them and you'll make them really happy and you'll build a friend. Second is how do you maintain a network? And there are really easy tricks, right? Sending people a happy birthday note. You know, today with social media, you could see everybody's birthdays. And so have someone on your team go through the birthdays of the day and just, you know, send out a quick happy birthday note for everybody. It's a great way to keep in touch with people and a great way to reconnect with people.

51:42And then commercializing people, commercializing that network is also really important. And sometimes for a lot of people, the hardest because making the ask is hard. And what I've generally found is you make it an exchange. Spend time understanding what the other person's greatest needs are, resolve one or two of those needs for them, and then make your ask. Because the reality is that everybody's going to feel really great after you've done them a favor and will be very willing to do you a favor right back. I mean, it's human nature. We want to give back to those that have given to us. And so ultimately, I have these tricks for the three buckets.

52:26And it's allowed me to, I think, be very successful at not only having a broad network, but actually doing a lot of business with that broad network and sharing that network with others has been a real joy in my life.

52:40Paul Desmarais III:And the other concept you discussed earlier about, you know, a business doesn't typically last 100 years is this idea of innovation. And I know Innovation is often declared, but rarely executed in practice. What conditions must exist inside a firm for innovation to emerge naturally? That is a great question. And it's a really important question, especially for large incumbent companies. You know, our family holding is 100 years old. You know, our investment management business, Investors Group Financial, is 100 years old. These are businesses that have kind of survived around across cycles and have reinvented themselves.

53:21The greatest impediment to innovation is fear of failure. It is really important to have a culture where trying things and high quality failures are embraced. You never want to have a low quality failure, which is often a failure process, but high quality failures need to be celebrated in an organization. for there to be innovation.

53:45Paul Desmarais III:When you say high quality, is that like an attempt to innovate? Is that what you mean? No, that's just giving the right process. So it's thinking about, you know, hey, you know, this is the context of our industry. This is a problem I've identified. I think these are the five solutions to this problem. And this is the one solution that I think is the highest probability solution to work. Now, after you've gone through that process and you've tried the solution and it doesn't work, that's a high quality failure. You know, a poor quality failure is to barely understand a problem, be like, oh, AI is going to be the solution for everything, adopt the wrong AI solution into the business, and all of a sudden be like, oh, it doesn't work.

54:29That's a low quality failure. And I think in business, you know, understanding, you know, the thought process that has gone into taking a bet and sometimes that bet not working is really, really important in terms of determining, you know, is it a high quality failure or low quality failure? I think the other important thing for innovation and companies is to empower people. You know, a lot of companies, a lot of large groups are very top down. The reality is that innovation often best happens bottoms up. and you often see like some of the most innovative companies are created by people that leave you know incumbents from an industry they're often leaving not particularly because they hate their current employer it's often because they feel like they can't try what they believe is the best thing for that industry and so by allowing people throughout your organization to have agency and have the entrepreneurial, you know, ability to try things.

55:33One, I think, ends up allowing you to attract better talent, but it also allows you to retain that talent and allows you to create a culture in your organization that is innovative. And I think those things are really important. Celebrate failure and allow for entrepreneurship, allow for bottoms up ideas. Because if you don't, you know, the truth is you're going to end up missing out on a lot of opportunities.

55:59Paul Desmarais III:And I think a foundation of a lot of what you've described throughout this entire conversation is having a longer term perspective. You know, because we live in a world of immediate gratification and people look just a few steps ahead. I think when you have a longer term perspective through owning businesses that have been around 100 years, multi-generational. It's probably a broader lens that you're viewing some of these problems through. Absolutely. And, you know, for us, you know, we have the benefit of being a private markets organization, right? Cigar, you know, four asset classes, private equity, private credit, venture, real estate.

56:41These are all long-term asset classes. You know, venture capital, at its best often takes 18 years to return capital. And so the reality is that by definition, we are taking long-term bets. We are backing entrepreneurs that we have a feeling that we're going to spend the next 10 years together building these relationships. I mean, what's fascinating in our industry is that, you know, some of the investment bets we make and some of the relationships we built with entrepreneurs are as long as marriages. And so taking that time to make those bets are important. And then being there through thick and thin, you know, because throughout a 10 year period, there are going to be ups and downs.

57:20There are going to be moments where you and that entrepreneur, like a marriage, you know, are fighting or are frustrated at each other. But like a marriage, you need to invest in those relationships and what you give will come back. And so ultimately, my view is that, you know, that long term perspective in business is really, really important. And for our family, you know, we, what's interesting is like, we have certain partnerships that we're now in the third generation of that same partnership. And so we really think long-term and we think that in business that allows you to make bets, like the digital brokerage app we built in Canada, Weld Simple, which is now the dominant consumer fintech in Canada, that would have been impossible for someone to bet on if they were short-term minded because it took four or five years to build and get the scale needed for it to obviously make sense.

58:13And so if you look at a lot of the greatest successes in technology, it took a long time for them to get that breakout velocity. I mean, you look at companies like Palantir, you know, it took a long time for them to build what is the success of today. And so in In my business, having that long-term perspective is absolutely essential because you need to have the patience and the resilience to see through many investments.

58:40Paul Desmarais III:When you look back, are there any lessons from your upbringing that mattered far more than you realized at the time and only revealed its value years later? One thing that always was emphasized over and over to us is treat people with respect and humanity. You know, one of the great things from my grandfather, who was one of the great kind of businessmen in Canada at the time, and it's still, you know, you know, seen as such is he treated everyone with incredible respect. And many, many times I will sit in a restaurant and a waiter will come up to me like, oh, you know, your grandfather treated me so well 30 years ago.

59:20And, you know, I was a young waiter and he gave me a big tip and he was so generous and kind and it made me feel so good. And I just want to thank you. like the amount of times that has happened to me is incredible. And I think in today's world, that humanity and that treating people with respect is being more and more lost. And I think it's really important for us to have role models that are people that are humans, that are respectful and that really kind of go through their lives, you know, leaving a trail of good. and I look at my grandfather's life, I look at my parents' life and they've left a trail of good and I hope that my life will be very similar where when I'm no longer there, those thousands of entrepreneurs that I will have impacted in a positive way and the hopefully millions of people that I will have crossed along the way will all kind of remember that I was a person that was a great human, that treated them with respect and that cared about them and had an impact on their lives.

1:00:23Paul Desmarais III:Yeah, that's wonderful. Paul, I appreciate you spending the time sharing all your insights, your experiences and telling us your story. Thank you for joining us. Thank you. It is my pleasure. Thank you, Alex.

1:00:43Paul Desmarais III:Important information. This podcast is provided for informational purposes only. It should not be considered legal, tax, investment or business advice. It is not a solicitation, recommendation, or endorsement. All opinions expressed by participants are their own and do not necessarily reflect the views of the Evoque Advisors Division of MAI Capital Management, LLC, or Evoque, its affiliates, or any companies mentioned. Information shared has not been independently verified by MAI or its affiliates. MAI Capital Management, LLC, or MAI, is registered with the U.S. Securities and Exchange Commission, SEC, which does not imply any particular level of skill or training.

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