Don Reed could spend a month telling stories about Sir John Templeton.

The late finance industry legend hired Reed, now president and CEO of Toronto-based Franklin Templeton Investments Corp., in the late 1980s.

Templeton, a notorious contrarian, made his fortune by launching his investment business during the Depression and buying cheap stocks when they hit, what he called, the point of maximum pessimism.

Reed bases his investment decisions on similar principles.

Brennan O'Connor, Business Edge
Franklin Templeton Investments Corp. president and CEO Don Reed takes a global approach when it comes to managing his firm's portfolio.

But, if he had not taken a month to think twice about Templeton's job offer, he would never have been able to tell all those stories ...

1. What did your parents do?

"My father worked in the purchases and stores department with Air Canada. My mother was a school secretary. Education was very important when I was growing up. My parents were very encouraging when I was in school. In fact, my mother went back to school at the age of 80 to take a bachelor of arts degree at the University of Toronto. She studied to get her honours, but passed away the night before she was to receive the degree."

2. What were some of your early interests growing up?

"I loved to play sports. Hockey. I played tennis. Skied. Being from Montreal, there's lots of great skiing there. Swimming. Baseball. Football. Anything of that nature, I loved doing."

3. What steered you toward a career in finance?

"I made my first investment in the stock market when I was a teenager. It was a mining company based in New Brunswick and I made a little money on the stock. I think that whet my appetite for the business world. At university, I studied corporate finance and really enjoyed taking apart companies, looking at their financial models and figuring out what made them work. When I finished university, like most students, I didn't know what to do. I started in human resources at DuPont of Canada and then I worked at the Royal Victoria Hospital. It wasn't called human resources in those days. It was called 'personnel.' Then I worked for a computer company, first of all in human resources and then in sales, and then I moved into the brokerage business. It was great, because it was an opportunity to try a lot of different things. I'd work in an area for a year and a half or so, and then I'd say, 'Gee, this isn't really what I want to do for the rest of my life.' Finally, when I landed in the investment business as a stock broker, I thought, 'Well, I'll give this a try' and 35-36 years later, I'm still at it. I was very fortunate that I could do a lot of different things, because it's great to be able to come to work every day and be excited about doing it. It's not necessarily how a lot of people are."

4. Where was your first job as a stock broker?

"With a company called DuPont Glore Forgan. It was a brokerage firm run by Ross Perot, the U.S. computer millionaire. Then I worked for Baker Weeks, a U.S.-based investment research firm. Then I joined Montreal Trust as a portfolio manager taking care of individuals' money and subsequently moved into the institutional business in Toronto - with the same company - in 1977. I had my own firm for a few years with a couple of partners, and then I was recruited here by Sir John Templeton, who was the founder of the Templeton organization. I've been here since 1989."

5. How did you join the company?

Don Reed

"I first met Sir John in the early '80s, and then subsequently ran into him several times. He started recruiting me around '87-'88, but I was at a firm and really had no interest. One day, a chief executive from Templeton Galbraith and Hansberger - that was the name of the firm - asked me whether I would like to come to visit with Sir John in Lyford Cay (his home in the Bahamas), if I'd like to spend half a day with him. My response to him was: 'I would love to.' However, I didn't really think I was interested in making a move. If that was all this was intended for, I didn't want to mislead them. He said, certainly, they would like to recruit me, but going down there was not conditional. So I went down and I did spend half a day with Sir John. We talked about everything. We talked about investments. We talked about Canada. We talked about everything you can possibly imagine - even non-investment topics. I didn't take a resumé with me, because I had no intention of being recruited. Even today, the firm still doesn't have my resumé from that time. But as I was going back to the airport, the chief executive of the firm, who reported to Sir John, who was chairman of the firm, said: 'Sir John would like to hire you.' I was given the possibility to think about it for the next month. I discussed it with my family and decided that I would like to make that move. There were several reasons that led me to that decision, one of which was the group that I was with. I was not able to practise international investing (there). I had been a founder of the International Society of Financial Analysts and I liked the international markets, but the key reason was really meeting with Sir John, talking about his values, discussing his philosophies on markets and, I guess, on life generally. It was that time that I spent with Sir John that caused me to join the organization, and here I am now. It'll be 19 years later in September, and it's been just an incredible period of time."

6. What's a memorable experience that you recall with him?

"The first time that I ever attended a meeting where he spoke was in New York City. He was addressing a group of shareholders and he said: 'Ask me any question. It doesn't have to be on the investment area. It could be of any nature that you'd like.' I was blown away by the various questions that were asked at the time. One woman (said): 'Five years ago, when I attended this meeting, I asked you what I should do with my son, who was troubled at the time.' You said: "Your son should go out and take an MBA program and go into the business world.”

He has been very successful, and thank you for that.' There were a lot of those types of things - from every area that you can possibly imagine. One individual said: 'Sir John, why don't you have Quaker Oats in the portfolio.' He said: 'Every morning when I get up, I eat my Quaker Oats oatmeal, and it's good for me and it tastes good. " 'But everybody knows that's the case with that company, so everybody is paying prices that are too high - and that's why I don't own the stock.' There were all kinds of anecdotes over the years. We could probably spend a month and not go through them all."

7. How did he influence your career?

"Essentially, he was my mentor all the way through my career and also became a very good friend. Looking back, what an incredible opportunity it was to be able to spend all that time with one of the very few gurus in the business. The way that I invest my clients' assets, whether it's the mutual funds I manage or part of a client's pension fund, is based on core principles that have been in the organization since he first started the organization in the 1940-41 timeframe. He believed in value investing, as I do."

8. What is your philosophy when it comes to investing on behalf of other people?

"Long term. My focus is really international. I've managed Canadian equities - and I still do - but the biggest part of my job is managing international money. The mutual fund that I manage is the Templeton International Stock Fund. It's a $2.7-billion fund. In addition to that, I manage assets for parts of pension funds for corporations and government agencies and so on."

9. What do you see as emerging industries that you might like your clients to have their funds in?

"We're bottom-up investors, really meaning that we're populating our portfolios on a stock-by-stock basis. With that comes a diversified portfolio. We're not thematic. We're not looking for industries. We're value investors and we're looking on a long-term basis for securities that are cheap and have good potential.

Typically, we'll hold a stock for five years - probably longer than anybody else you've ever talked to."

10. Although you're not thematic, do you see any emerging industries?

"When I take a look at the portfolios that I manage, exposure is heaviest in telecom. That would mean a lot of my process shows a lot more bargains in telecoms than it has in other areas. The other area where our exposure is the least is in the financial sector. That means we can't find as many good-value situations in the financial sector. So there's no theme to the way we invest. But you get up one day and you see your exposure as heavy in one area, or several areas, and it got there on a stock-by-stock basis. We have pretty good exposure to the energy sector as well."

11. What's your secret for riding the highs and lows of the stock market?

"Our clients pay us for our investment capabilities, so we tend to be fully invested. When you have a market correction that we've gone through over the first quarter of this year, that's when the best opportunities appear. At that point, we like to add to our positions. "When things get a little bit pricey with companies, then we sell those positions. It sounds simplistic, but it's a fact."

12. What is your approach when it comes to handling risk?

"In terms of risk management, we have several different operations within the company. First of all, we have people that use quantitative measures ... to monitor the risk in our portfolios. Secondly, we have a peer-review process, where my portfolios are put in front of the whole research department - 34 analysts. There are other people as well. The portfolios are put forward just to make sure that my portfolios are lined up with our overall investment philosophy."

13. Do you use any technologies when it comes to gauging trends and picking stocks?

"We don't use technical analysis, but we have a very comprehensive database on companies that we're looking at, companies that we may want to buy in the future and companies that we currently own. That gives us the ability to collect about 260 pieces of information on every company. We have a research technology group of four or five people that do screens on those situations and our analysts, in addition to those databases, will have industry-specific databases on the companies that they follow. Each analyst will follow an industry sector or part of a sector, depending on the size of the sector, and do the research and present the ideas to the research group."

14. Do you feel pressure managing all of that money?

"I'm not sure pressure is really the right term. In the mutual fund, for example, I put a lot of money into it personally so that I'll be really living with the investors. With a long-term focus, I'm not really worried about what happened yesterday or whether the price of oil went up a dollar a barrel today or whether the Canadian dollar was down half a cent or gold is up $10 an ounce over the last couple of weeks. That's not the kind of thing that I'm looking for. As long as I'm comfortable with the companies that are owned in the portfolio, then I can operate pretty comfortably and be rational, as opposed to getting over-excited about things."

15. How do you see the situation in the U.S. affecting your investments?

"Well, I don't invest in U.S. securities to a great degree. The credit crunch in the U.S. really started five years ago as we saw consumer credit rising, and then in August last year somebody pushed a button and, suddenly, the sub-prime mortgage market blew up. That seems to be shaking out, and it's hurt a lot of the banks in the U.S. But I think, when those banks are trading at a point of maximum pessimism, as we like to call it, then we'll probably find some value in that sector. New-house sales in the U.S. are at a 13- or 16-year low.

"That works very closely in line with the financial institutions and where the financial institutions are lending money. The consumer is quite key, so we're seeing a slowdown and a credit crunch simultaneously. From our standpoint in Canada, if we see consumption declining dramatically - we're the second-largest exporter to the U.S. now, we used to be first - that could have an impact on us, and the level of the Canadian dollar could have an impact on us in terms of our export industry and our tourism industry. It is having an impact on us, and that's hurting manufacturing. I don't see it having a great impact on the money that I manage, since I invest very little in the U.S. and Canada. But if you look at our global portfolios that invest in every country, then one thing you'll notice is our exposure to the U.S. is well below the amount that's in the world index."

16. What is your take on Asia?

"The portfolios that I manage are overweight (compared to the global index) in Asia, but under-weight in Japan. Japan is about 21 per cent of the EAFE (Europe Australia Far East) index and I'm at 1,500 basis points so I am below that weighting. But I'm overweight in Asia, in places like China, Hong Kong, Taiwan, Korea, and a little bit in Singapore as well. I think we're going to continue to see good growth in China and that has a major impact on the rest of Asia, whereas Japan is struggling a little bit - it has been for over a decade ... But we're still able to find some companies there."

17. What traits do you have to have to succeed in your position?

"I look after the Canadian company and I sit on the executive committee of the overall company and I manage money. To manage money, it takes patience. There's a lot of homework to do, looking at companies. That's a big part of my job. Managing the company here in Canada, that also requires some patience and identifying people that can do jobs better than I can."

18. How would you assess corporate governance in Canada at this point?

"I think corporate governance is quite good in Canada. I am on the board of the Canadian Coalition for Good Governance and governance, in general, has been improving over the last number of years. There are many things that we've done work on, like majority voting. That's starting to creep into proxy voting. Also, work that we're doing on compensation. It's not to keep compensation low, it's to make sure CEOs of companies are fairly compensated so that if things are not going well for the company, you do not see CEOs making inordinately high amounts of money.

Pay-for-performance is really the name of the game. There is improving transparency in companies. The compensation committee of the company should not have the CEO sitting on it, determining his own compensation. Having independent directors that work on your boards and having meaningful positions on the committees, and many, if not all, of the committees having a majority of independent directors. And separating the chairman's role from the CEO's role. Those are two different functions. One is overseeing the board. The other is overseeing the day-to-day (activities) of the company. Those are important things to see in a company."

19. What is your view on CEO compensation rates?" Without getting specific about any companies, if we're seeing good growth, and if there's a compensation plan in place that's established by the compensation committee of the company and the board members, and they sought outside counsel, and if you set goals and the goals are achieved, then I don't have an issue with the compensation levels. If the company fails, then there shouldn't be huge bonuses. Severance packages are, in many cases, a little bit outlandish. But once the board has agreed to a compensation package for the CEO, then they have to honour that commitment."

20. If you weren't running Franklin Templeton in Canada anymore, what would you do?

"Hard to know. Probably working as an investment counselor for a small investment-counselling company, sitting on corporate boards and investment committees. I don't do well sitting back and chilling out. I like to be active. You can only play so much golf."

Franklin Templeton Investments Corp.

* Brass: Don Reed, president and CEO; James Cook, executive vice-president of strategic initiatives.

* Profile: Franklin Templeton Investments Corp. is a wholly owned subsidiary of U.S.-based Franklin Resources Inc. The parent company was formed from a merger involving firms that were founded by two business legends, the late Sir John Templeton and Charles B. Johnson. Templeton launched the Templeton Growth Fund, one of Canada's oldest international equity funds, in 1954. Rupert Johnson formed Franklin Resources in 1947. His son Charlie took over the business in 1957 and Franklin merged with Templeton in 1992, creating Franklin Templeton Investments. Its Canadian interests include Bissett Investment Management, a Calgary-based investment company focused on Canadian securities. Franklin Templeton has a presence in 29 countries around the world.

* Stats: Franklin Templeton's Canadian operation manages $54 billion out of $623 billion worth of global assets. The firm employs 700 people in Canada.

* Website: www.franklintempleton.ca * HQ: Suite 1400, 200 King St. West, Toronto, M5H 3T4 * Phone: (416) 364-4672.

Don Reed

* Title: President/CEO, Franklin Templeton Investments Corp.

* Born/raised/age: Montreal/63.

* Education: Bachelor of commerce from Acadia University, chartered financial analyst and chartered investment counselor designations.

* Family: Married, two sons, one granddaughter.

* Career: Reed started his career with DuPont of Canada's personnel department in Montreal, then held a similar position with Royal Victoria Hospital, and moved on to a sales and human resources position with a computer company. In the early 1970s, he became a stock broker with various firms and later joined Montreal Trust as a portfolio manager. In 1982, he headed his own firm, Reed Monahan Nicholishen. In 1989, he was recruited by Sir John Templeton and joined Templeton Management as president and CEO. He retained the title after it merged with Franklin.

* Moonlighting: Founder and board member of the Canadian Coalition for Good Governance; member of the Acadia University board of governors; sits on the boards of the Investment Funds Institute of Canada; and serves on the executive committee of Franklin Resources in San Mateo, Calif. Past president of the Toronto Society of Financial Analysts.

* Passions: Golf, reading, swimming, work, family, travel.

(Monte Stewart can be reached at monte@businessedge.ca)