Company Of Adventures - Merchant Prince Part 6

*According to'l~d Barris, the Northcote's bell 11 now beckons a con- gregation to the Duck Lake Anglican (hutch each Sunday; while a hundred miles away the Gardiner Presbyterian Church-now Fred Light's tiny museum in the old town of Battleford-houses the Northcote's three-tone steam whistle. And three feet of Northcote deck plank functions as a ...

cribbage board in one Pi ince Albert living room."

THE GREAT FIRE CANOES 97.

as late as 1887, anti the North Tf cst ran a tramp service along the river for another dozen years.*

One by one the ships disappeared. Their final resting place was seldom at dockside. They died where they had lived, at river bends or at the edge of rapids. They were left to sink where they had rammed their final rock or crunched into their last riverbank. Eventually, their superstructures disintegrated into driftwood, and their rusting remains were blanketed by the shifting sands and weeping willows.

*Only the Keenora, converted from steam to diesel during her career and restored by the Marine A luseum of Manitoba, now survives. Of the scores of pa.s.senger steamers of the inland waterwavs of the West, only four sternwheelers-the Klondike and Keno in Yukon and the Aloyie and Sicamous in British Columbia-remain.

CHAPTER 5.

PROGRESSION AND.

BETRAYAL.

"Fine promises b.u.t.ter no parsnips.

HB(' traderjanies Lockhart

TRAVERSING THe STILL UNOCCUPIED WEST by stearnboat and canoe, on foot and snowshoe, aboard sleighs and buckboards, Donald Smith spent most of a decade after the Red RiNer Rebellion and the subsequent surrender of the Hl,(",s monopoly holding the Company together long enough to transform its core business from fur trading to real estate. Apart from laying down a dras- tically altered operational code in line with the HBCs new compet.i.tive environment, Smith's main concern was to deal with the increasingly strident demands of the Company's wintering partners for their share of the Canadian government's Y,300,000 cash down payment on Rupert's Land, According to the 1821 and 1834 Deed Polls, which set down the rules of their engagement, Chief Factors and Chief Traders were not employees but partners. To them belonged 40 percent of the Company's equity, divided on a share basis according to rank, and they were thus ent.i.tled to the same proportion of its net profit.This was not sorne form of earnings incentive; the dividends plus a modest subsistence allowance represented their sole Mcon-te. Having suffered through many

99.

100 LABRADOR SMITH.

downturns in fur prices, they seemed ent.i.tled to partic.i.p.ate in the Company's cash windfalls.They argued convincingly that Rupert's Land was available for sale mainly because they and their predecessors had legitimized an~ expanded Charles 11's original land grant through right of occupation. They felt particularly deserving because the transfer to Canada, which had destroyed the monopoly that made the fur trade so profitable, was bound to endanger their livelihood. At least one favourable court judgment had upheld the basis of their claim. When the Company's headquarters building on Fenchurch Street was sold at a profit five years earlier, London's Chancery Court had ruled the wintering partners were ent.i.tled to two-fifths of the proceeds, since the original purchase price had been paid out of the fur trade's gross income. Using that precedent, the overseas officers also claimed two-fifths of the $450,000 the Company had recently been awarded for giving up its Oregon territories to the United States.

When these points were raised by his Chief Factors and Chief Traders at the Northern Council meeting held at Norway House in the summer of 1870, Smith promised to make their case in London. Even if he was a stranger, the field men thought they recognized in the man they appropriately nicknamed "Labrador Smith" a colleague who had connections with the powerful and who could salvage their estates. "Our immediate destiny is in your hands," one of the Chief Factors pleaded with him. "You know our life-you know flow arduous our labours are. In nearly every instance they involved long servitude, separation from friends and relations, many hardships which we feel more sensitively as time wears away ... These might be, as they often are, borne cheerfully even for a long period, were the prospects of retire- merit on an adequate competency in sight; but failing this hope, they are almost insupportable."

PROGRESSION AND BETRAYAL 101.

Sir Stafford Northcote, who was named 1113C Governor when the Earl of Kimberley resigned to become Lord Privy Seal in the Gladstone government, balked at sharing theE300,OOO award, insisting that the value of the wild land had not been improved by the fur traders' activities. In fact, Northcote enjoyed little nianoeuvring room. For the first time in its long history, the Hudson's Bay Company was no longer controlled by the London Committee. Since the sale to the International Financial Society in 1863 there were no more "sleeping partners" who could be counted on to vote automatically with the directors on the conduct of the fur trade.* Instead, the stock was actively traded on the London Exchange, and annual meetings were swayed by whatever coalition of shareholders emerged on any particular issue. These new-style investors, hard City men with long pedigrees but little sense of history, felt no allegiance to the traditions of the Company; their only concern was to increase stock yields. During some of the early years -.ifter the end of the Company's monopoly, net revenues had been so paltry that winding up the Hl3c and splitting up its a.s.sets seemed entirely appropriate-but no one was quite certain how such an ancient royally chartered enterprise could be extinguished.

Smith spent the summer of 1871 in London advancing his officers' claims.

Even as he was arguing their case, he was haunted by that train ride he had taken eighteen months earlier on his way to Red River, through the fertile farmlands lining the railway tracks north and west of St Paul.

With the flBC about to receive t.i.tle from Canada to seven million acres of what was the northward extension ofthat rich soil, he was convinced ofsomething most of his Chief Factors only vaguely suspected: that furry

*For details of this transaction, see Caesars of the Wilderness, hardcover, pages 369-373.

102 LABRADOR SMITH.

animals would not be the main source of the Company's profits much longer.

He realized that where buffalo roamed, cattle would one day graze, and had ascertained that much of the land about to come into the Company's possession was favoured with two more hours of sunshine a day during the wheat-inaturing season than other farming areas. But that wa,; only the beginning of Smith's vision. He knew that to switch the prairie economy from fur to grain would require large-capacity transportation-a railway network, initially (town to St Paul, Minnesota, and eventually right to the Pacific. Reverting to character, Smith merged his own aspirations with the country's future and turned the combination into a personal mission.

He became determined that in some as yet unpredictable way hewould partic.i.p.ate in construction of a railway across the Canadian West.

Although he was only two years out of Labrador, circ.u.mstances had conspired to place Smith at the vortex of a historic transformation.

Despite his very recent promotion, he suddenly commanded enormous leverage within the councils of the HBC. The Red River incident had made him all but indispensable in rearranging the Company's overseas affairs.

He had proved during his long Labrador stewardship to be a capable fur trader, worthy of the Company's confidence. In his dealings with Riel he had gained the respect of Canada's Prime Minister, the confidence of the North-West's settlers, and the trust of the HBCs officers. Having accomplished all this so quickly, Smith began to sense that his destiny was not on the gumbo streets of Fort Garry or even in the relatively sophisticated offices and curtained salons of Montreal. It was in London, among the patricians of Empire transacting the world's important commerce, that he wanted eventually to claim his roost.

As a first step, Smith set out to ingratiate himself with the Hudson's Bay Company's directors, especially PROGRESSION AND BETRAYAL 103.

Governor Northcote, a seasoned political juggler who had honed his skills as secretary to Prime Minister William Ewart Gladstone, President of the Board of Trade and Secretary of State for India. He intended to show Northcote and the HBC Committeemen that he was reallv one of them, that he had the Company's best long-term interests at heart rather than the dispensable concerns of the wintering partners. He did this by suggesting a workable compromise to resolve the fur traders' demands that they share in the government's E300,000 payout. Northcote later won shareholder approval for the scheme, which provided the winterers with a one-time payment ofY,107,055, It also guaranteed continuation of their 40-percent equity position and perpetuated their 40-percent share of trading profits.

In return, they had to sign a new Deed Poll that specifically exempted them from proceeds of future HBC land sales.

Having expected little, most of the fur traders were pleased with the suggestion, particularly the cash, since the service then had virtually no pension provisions. When he returned to Montreal, Smith was feasted by the outback veterans, who presented him with a silver serving set worth Y,500. Only a few of the more astute characters realized that Smith had signed their professional death warrants. By giving up future land profits, the onetime lords of the forests had been rendered powerless and poor. The appropriately grateful London board showed its appreciation by immediately promoting Smith to Commissioner at a generous annual Y,2,000, and a year later to Chief Commissioner, with a healthy salary increase.

The Factors held desultory discussions about resigning to establish a new independent fur-trading company and several retired on the spot. Among those who quit in disgust was Chief Trader Roderick McKenzie. "If we had insisted in partic.i.p.ating in the sale of lands there might 104 LABRADOR SMITH.

be some hopes of a certain remuneration for our services, which under the present r6gime with all the expense is very doubtful," he wrote to a colleague in the Peace River country. Another senior trader, James Lockhart, noted: "It is all very well for Donald A. Smith, with his Y,2,000 secure annually, to puff the new arrangements. But 'fine promises b.u.t.ter no parsnil)s,' and you will all find yourselves fooled. . . . For your sake and the sakes of a few other true friends of mine still in the service, I hope things may turn out all right, but I do not expect it, and would advise you to do as others have done, i.e. send back their commissions with the note, 'Declined with thanks."' Still, under pressure from Smith, most of the traders signed the fateful Deed Poll.

Northcote, by then Lord Iddesleigh, returned to British politics in 1874, becoming Chancellor of the Exchequer and later Foreign Secretary in Lord Salisbury's second ministry. He was succeeded in the 11BC Governor's office by George Joachim Goschen, later first Viscount Goschen, who had attained a Bank of England directorship at the age of twenty-seven and had more recently served as first Lord of the Admiralty in the Gladstone government. Instead of trying to offset bad times by branching out into retail stores or aggressively pursuing government contracts, the HBC under Goschen withdrew into a form of suspended animation. He tried sporadically to revitalize the fur trade; but initial progress in land sales was slow, and revenues dipped so steeply that HBC stock prices in London slipped from 0 8 to E 12. One of his few positive contributions was to strengthen the 11BC board by recruiting Sir John Rose, partner in the London merchant banking house of Morton, Rose & Company, who had served as finance minister in Macdonald's first Canadian government and had since become the country's unofficial amba.s.sador to London's financial district.

PROGRESSION AND BETRAYAL 105.

The trio of patrician govern ors-Kim berley, Northcote and Goschen-who ran the Hudson's Bay Company between 1868 and 1880 raised its social profile but accomplished little else. The Company's unostentatious headquarters in a former silk warehouse of the East India Company on Lime Street had only a tiny permanent staff that was made up of the corporate secretary, an accountant, a warehouse keeper, a few shipping clerks and some fur graders. Governors presided over fur auctions two or three times a year but measured annual time spent on I]BC affairs in hours rather than days. The head office's budget, which in 1870 barely exceeded El 3,000, had dropped by Y,2,000 thirty years later. Once a month or so the Committeemen would meet in the Governor's office to debate policies and prepare for the semi-annual gathering of shareholders (still quaintly referred to as General Courts of' Proprietors), held at the London Tavern or the Ciq Terminus Hotel. Even when these a.s.semblies were stormy, the election of directors was customarily confined to approving candidates from the Governor's house list, and most Committeemen contributed little beyond their physical presence.

INTO THIS VOID SFEPPED Donald Sinith, the freshly nunted head of the HBCs North American operations. The fur department, which had been without strong leadership since the death of Sir George Simpson in 1860, had suffered during the decade of neglect, and badly needed Smith's brand of energy and dedication. Curiously, it didn't get it. Smith's heart was no longer in the fur trade. Since leaving Labrador he had partic.i.p.ated in grander events and had expanded his personal agenda in too many new directions to be drawn back into daily concern with the messy business of buying pungent pelts and selling them on a reluctant market. He did manage 106 LABRADOR SMITH.

to keep the fur trade going, but he continued having trouble with its mundane bookkeeping details (as he had had while a youthful clerk), failed to maintain his inspectiort timetable to outlying districts, and allowed the HBC infrastructure to slide into dilapidation. "The Chief Commissioner cares nothing and hopes nothing from the fur trade," complained Chief Trader Lockhart.

Despite his preoccupation with more weighty issues of state-politics and railways-Smith's position at the head of the I IBCs Canadian operations required him to live and work at Red River, which had been incorporated as Winnipeg in 1873. In the spring of that year Smith purchased Silver Heights, a comfortable mansion in the St James district, where he could spend time with his wife, Isabella, between trips to Montreal, Ottawa, London and St Paul.

Captivated by the potential of real-estate speculation, Smith resigned his fur-trade posting in the spring of 1874 to become the Companys first Land Commissioner and moved his main office to Montreal. He was succeeded as head of the fur trade bv a cheerful nonent.i.ty named Jarnes A. Grahame, a Chief Factor then in charge of Victoria and the Western Department's sub-commissioner. His main historical legacy seems to be that his beard was even longer than Smith's. When he switched responsibilities to what was then the more junior posting, Smith made certain he preserved his valuable privilege of reporting directly to London. In a circular letter to Chief Factors and Traders announcing his decision, Smith added a telling post- script: "It may not be out of place for me here to add that I shall informally give my attention to the personal interests of my friends connected with the service who have investments with 'private cash' in my hands. This latter, as you are aware, having throughout been entirely PROGRESSION AND BETRAYAL 107.

independent of my relations to the Company as their Commissioner. ..."

Here was the first hint of Donald Smith's most daring gamble-and the source of his betrayal of his onetime fur-trade colleagues. lie had not only deluded them into giving up their share of the HBCs land sales profits but he also intended to buy control of the Company right out from under them-using their inoney to do it.

The scheme that made this possible had originated with Sir George Simpson. As overseas Governor, he had helped the Company's thrifq, backwoods Factors invest their earnings. He eventually controlled a large block of funds, adding to his clientele such churchmen as Alexandre-Antonin '566 and Henry Budd, and the famous plainsman James McKay. As early as 1848, when Smith was still in Labrador, he had started buying shares in the Bank of Montreal and later in the Hudson's Bay Company. His reputation for shrewd money decisions attracted fellow Factors, who turned to him for investment management after Simpson's death. By the early 1870s, Smith was running thirty-seven trusts with considerable financial leverage-a fact the Bank of Montreal recognized in naming him a director. Whenever one of his investors retired or wanted to withdraw from the money pool, Smith would pay out the capital and agreed-upon 3-percent annual return, but purchase the shares for his own account. He eventually became first president and chief shareholder of the Royal Trust Company, specifically established to handle these transactions, which were quickly making him very rich. Smith used these funds-plus his generous credit lines at the Montreal-to purchase large blocks of HBC stock at depressed prices when termination of the Company's monopoly triggered a market 108 LABRADOR SMITH.

panic. Smith, who was all too aware of the HBC's underlying land values, could thus pick up stock at E9. (Within his lifetime those shares would become worth more than Y 13 0 each- -an increase of 1, 3 00 percent. *) These strategically timed purchases and his subsequent dealings in illic stock confirmed Smith as Canada's father of insider tradiDg. Granted, there were no laws against using privileged information to play the stock market in those days, but Smith abused the system mercilessly-and deliberately didn't share his knowledge with the ftir traders whose financial destinies had been entrusted to him.t

"MIERE EVFRY AIAN'S A LIAR-that's where the West begins!" That anonymous boast, quoted by Prairies historian Grant NlacEwan, caught the exuberant spirit and somewhat less glorious reality of history's greatest voluntary migration. The movement of new settlers into the West didn't really begin on a ma.s.s basis until the last half-decade of the nineteenth and the first decade of the twentieth centuries, but the people who eventually

*That capital gain does not take into account the Companys generous dividend payouts. Between 1872 and 1911 the HBCs entire capital stock was repaid to shareholders six times over in special bonuses. To maximize returns on the profits generated once the real estate started to move, the nominal par value of shares was reduced and the difference paid out in cash directly to shareholders. in the fifteen years after surrender of the IIBCs monopoly, for example, HBC shares were written down from E20 to.Cl 3, with E700,000 distributed to stockholders.

tAt about this time Smith also purchased major equity interests in the Paton Manufacturing Company of Sherbrooke, Quebec, a spinning and weaving mill, and the Cold Brook Rolling Mills Company of Saintjohn, New Brunswick.

PROGRESSION AND BETRAYAL 109.

occupied fifty-eight million acres of the Canadian plains were driven by a common motive. What lured them was less rumours of fortune than the personal freedom they might gain. Here, as ploughs creased the startled land, came the supreme blessing of a new start. Men and women could till the good earth and make fresh lives without having to face an entrenched aristocracy, established church or preordained political order.

All they had to pledge was their youth, strength and endurance-and it certainly wasn't easy, freedom or no.

Settlement of the land was painfully slow. It was delayed by absence of railway transportation, an economic depression triggered by the collapse of American financier Jay Cooke's debt-burdened Northern Pacific Railway, the casual gait of government surveyors and the HBC's determination to get a better deal. Under the orig inal Deed of Surrender, the Company could retain about 45,000 acres around its major posts and had the right to claim, over fifty years, one-twentieth of any township within the Prairies' "Fertile Belt"-the desirable agri cultural tracts enclosed by the American border, the Rockies, the North Saskatchewan River, and (on the east) Lake Winnipeg and Lake of the Woods. That amounted to a valuable seven million acres, but no one seemed certain how the HBC 9 s actual acreage within each township should be chosen.

The Dominion Land Act had established a survey system based on the American model, with each township divided into thirty-six square sections of 640 acres each (plus road allowance) to ensure that farms would be large enough for commercial wheat production. Originally the HBC lands were to be chosen by lot or chance, but Smith prevailed on the government to allocate the same pattern of sections in each township. Purchasers of HBC land were allowed fairly generous terms: a down payment of one-eighth the market price, 110 LABRADOR SMITH.

with the balance payable in seven annual Instalments at 7-percent interest. (A similar arrangement spread over five years applied to town lots.) In a typical ten-year period (1879-89), the fmc sold 514,009 acres and had to repossess all but 195,150 acres when breaking the land broke the farmers instead.*

Although Smith had lobbied for the job as HBC Land Commissioner, his record in that office was no more impressive than his time as head of the fur trade-and for the same reason. His interests had grown too diverse.

He was too deeply immersed in railway nianipulation and politics to devote his prime energies to being the Company's chief real-estate agent.

Typically, the Hudson's Bay Company sat on its land, allowing prospective buyers to make bids but doing very little to promote sales. No effort was made to lure railway builders towards its territory, and London even turned down the opportunity of acting as paymaster, on Ottawa's behalf, for the newly created North West Mounted Police. During Smith's temire, little farmland was sold. He did open -.i land office in Winnipeg, though he himself stayed mostly in Montreal, and successfully auctioned off town lots in Winnipeg and Portage la Prairie. The urban plots, measuring fifty feet by a

*16 the 11BC went Sections 8 and 26 in everv fifth township, and in all other townships all of Section 8 plus & southern half and northwest quarter of Se(tion 26. Of the remaining sections, two (29 and 11) were set aside as educational endowments, and all eN en-numbered secrions were reserved for homesteads, available to heads of families for a nominal ten dollars plus the requirement of carrying out specific improvements. The odd-numbered sec6 . ons were reserved for later sale at one dollar an acre, witha limit ofone to a customer. Mien the CPR clainied its land grants, the odd-numbered sections four deep on either side of the tracks became railway property PROGRESSION AND BETRAYAL 111.

hundred, were sold at the equivalent rate of $7,000 an acre.:~ An enduring mystery of this interregnurn in his career is why, as the l1BCs senior representative in North America, Smith didn't even attempt to convince his British princ.i.p.als that they should take advantage of the I 113c's primacy in the North-West. Although he was right at the centre of the action, in charge of the I 113Cs most future-oriented dcpartnient, he (lid little to expand the Company's revenue base and nothing to involve the f i13C in railway construction. Smith put up a small hotel at Portage la Prairie, built a few grist mills, and began operating a ferry service across the a.s.simboine at Fort E'llice--and that was the full extent of the HBC's diversification during his stewardship. Asleep at the edge of the rapidly awakening new territories, the 1113c land department under Smith's direction gave up its head start by default and lapsed into a period of ill-tempered hibernation. It was typical of the [IB(:,s mentality that while great opportunitics were being lost, the Company was concerning itself mainly with such fusty detail as setting rates on the Fort Ellice ferry. Crossing tariffs were minutely differentiated at twenty cents for a cart with one horse or ox and thirty cents for the same vehicle drawn by two animals. Foot pa.s.sengers were charged a straight eight cents.

As the Canadian historian Michael Bliss astutely noted in his epic history of Canadian business, Noi-theiW E17tC'rP7-i.W, "If ever an organization had a head start on

*The HUpresented fift ' y acres to tile new Government ofN1311- itoba as sites for office buildings. The first sale froiri the HBC's 500-acre Fort Gai ry Resen-e was to the Canadian Pacific I lotel Company for S8.,8 per lot; the first land sale, 640 acres riear Fmer~on, Manitoba, was to William AlcKechnie for six dollars an acre, or $3,840 112 LABRADOR SMITH.

the commerce of an area it was surely the Hudson's Bay Company in the lands that became western Canada. If the Company of Adventurers of the 1860s and 1870s had been as shrewd and supple as its founders had been two centuries earlier, it would have diversified and adjusted its organization to exploit the new order being brought about by Canadian expansion. It would have dominated, if not monopolized, trade and development in the new West. It would have been a leader in transportationone of the Company's historic strengths." Bliss is right. Although the CPR wa~ built by a syndicate in which Smith was a dominant influence, there is no record in the HBc archives of any suggestion by him that the Company become involved in railways.

The inevitable and hardly surprising conclusion is that, once again, Smith applied his self-serving code to the situation and chose the CPR instead of the 11BC as his favoured instrument. 'I he railway, at least in those years, must have seemed to him an attractive personal invest- rrient with the possibility of unlimited perks for early shareholders; the 11BC, on the other hand, was only ]its employer, and it would be another decade before Smith would hold enough sto(k to control its policies. For more than forty years he lived with a deepening conflict of interest between the two organizations-at first in terms of which group would build the railway and later in terms of whose land he would try harder to sell. This meant appraising the conflicting geographies of the two conipanics: the HBCs infrastructure glued to the rivers that had once been highways for the fur trade while the new population centres followed the ribbons of steel. When he eventually became the dominant shareholder of both, Smith was free to balance the land-sales policies of the CPR and 11BC, which at least in their time frarnes were conipletuentarv rather than cornpet.i.tive. Interested in building up traffic along its new tracks, the Canadian PROGRESSION AND BETRAYAL 113.

Pacific was anxious to sell Its land sooner than the Hudson's Bay Company, which regarded real estate as part of the price for surrendering its monopoly and was determined to obtain top dollar, no matter how long it had to wait. Certainly it was no accident that by 1914, tile year of Smith's death, onlv one of the fifteen prairie towiis with HR. department*

stores (Fort Qu'Appelle) ,A as not served by CPR trains.

It took five years for Smith to lose his patience with the land business.

When he finally decided to resign In 1879, his departure was applauded by the London board, fed up wiih his inability to keep the books straight. "Looking to the small amount of work connected with tht accounts of the Land Department it was hoped that the details would have been promptly and regularly rendered," m3c Secretarv William Armit had scolded, "but as the Committee are again disappointed in this re~,pect, they direct me to state that a minute was pa.s.sed directing your special attention to the matter and calling upon ou to render the accounts in questioii regulai ly." Smith had grown exasperated by tile slmA pace and bureaucratic nature of the Land Department. Real-estate sales seemed to be in remission until the advent of the railroads, and t.i.tle transfers of the few acres that were sold could be handled by clerks. Smith was by now itiore of a railroader than a Bay man and for the next four years occupied no official post with the Company.

It was a sign of the times that lie was succeeded as Land Commissioner by a rallwayman, Charles John Brydges, who had been general manager of the Grand Trunk and general superintendent of government railways under Alexander Mackenzie's administration. A confidant of leading Cana&ui politicians, a good friend of Sir John lZose, who was about to be appointed the I IBCA Deputy Governor, Brydges carried himself 114 LABRADOR SMITH.