Sealaska CEO Chris McNeil, Jr., wants to make it clear that despite hefty losses in 2013, the Southeast Native corporation is going to be ok going forward.
The company’s press release on its annual report announced a loss of $35 million in 2013. That figure is actually about half of the real loss by business operations if money given to Sealaska by other Native corporations and returns on the company’s vast investment accounts are factored out — a practice used by Sealaska internally to gauge the businesses’ standing.
McNeil, who announced last fall he’d retire this summer, was travelling Thursday when a press release was sent out about the annual report, and he was unable to give a full interview with the Empire for the story that ran Friday. Instead he was able to respond to a limited number of questions via email for that story.
McNeil sat down with the Empire Saturday morning at the Sealaska headquarters to discuss the company’s financial picture in greater depth.
McNeil on the revenue-sharing component of the Alaska Native Claims Settlement Act (Section 7(i)) as part of Sealaska’s business operations.
McNeil: It is not a gift — it’s money to which every corporation is due from the others. We have distributed about $300 — almost $315 million — to the other corporations over the years; in return, we’ve received about $166 million from that. ...Every time we cut a tree, the revenue earned from that tree, $0.55 out of every $1, goes to the other corporations. Has been the case since the first tree we cut. We have that obligation no matter what...(7(i) money travels) from us to them, and from them to us. That’s just part of the resources that are available to us, in the same way as if we had more trees.
Editor’s note: According to Sealaska’s annual report, the company has contributed about $317.2 million to 7(i), and Sealaska CFO Doug Morris said the company has received about $400 million since the program’s inception — the $166 million figure represents the portion that went to Sealaska and not shareholders, he clarified.)
Speaking on the 2012 strategic plan and how it will transform Sealaska going forward...
That plan was in recognition of this need for the corporation to have sustainable income sufficient to support the company from its operations alone. We did several things that, I think, are significant to transform Sealaska. The transformation is not easy; there are a lot of things that we thought we would have to do to do that. One was to narrow the operations to be able to say, ‘We’re only going to stay in the things that make sense from a strategic standpoint.’ We made the choice to sell Nypro Kanaak, which had three plastics-injections operations, all of which were profitable when we sold them. That was an important moment for us because they all were ... running out of profit, but here we turned around and sold the operation. ...The other thing that was very important for us is that we wanted an opportunity to build capacity for our own tribal member shareholders. These operations were located in Alabama, Iowa and Guadalajara, Mexico, and we just concluded that we didn’t really see that would happen. ... What we decided to do is just consciously narrow the scope of our operations. It takes as much effort and more effort in some ways to manage a series of small operations than to manage just a couple of very large ones. (Editor’s note: 70 of Sealaska’s 362 employees are current tribal shareholders.)
McNeil said that for the strategic plan to succeed with its focus on developing and expanding the company’s natural resources sector, it is imperative for Congress to pass its land entitlement legislation that has been in the works since 2006. “If Sealaska does not get its land entitlement legislation in the relatively near term, it’s not just going to impact Sealaska shareholders,” McNeil said. “It’s going to impact the region, because it will mean the timber industry in this region may effectively come to a close. ...It’s our right under the ANCSA to have this land, but it impacts literally everyone else.”
Natural resources is your #2 of these revenue-generating sectors — that is, second-largest, behind only the services sector. Is there concern that timber seems to be stalling, if not getting worse over time? With that in mind, how realistic is this goal to get off 7(i) funds completely?
It’s very realistic. It’s a very challenging standard; it is doable, and we believe that it is doable for us to do that. When we speak of the timber industry, in terms of the challenges, you’ve got to understand it’s not so much the market as it is public policy. The vast amount of acreage here is owned by the United States through the United States Forest Service, and their public policy on what level of harvest and how and when that will concern is a public policy decision, it’s not a market decision. ...The markets are out there, but public policy considers much greater issues than just the markets themselves, and that’s the nature of public policy today. Part of that, we believe that the public policy in the Tongass National Forest also considers as a central tenant the health of the people, not simply the health of animals.
Between 2012 and 2013, all five (of Sealaska’s revenue-generating sectors) did worse in 2013 than they did in 2012. Is there concern there? Where are you attributing that decline in net revenue?
Part of it is the federal contracting sector. It is well-known among the Native corporations that there was a change in public policy three years ago ... that essentially put a cap on the size of sole-source contracts that are available to federally recognized tribes and Native corporations, and that impacted virtually everyone. Some people had some growth during this period for sure, but I will say that the vast majority saw very significant revenue declines in the federal sector because of that and we had some declines as well.
Q: Each year since 2009, Sealaska’s business operations have posted net losses of $19.6 million, $15.2 million, $12.8 million, $21.7 million and then last year almost 73 million. Is there some concern over the trajectory there?
We’ve changed the trajectory. When you take the direction we’ve taken in terms of all the things we’ve said we’re doing and the transformation under the strategic plan, we have already changed the trajectory. The structural changes are made, they’re not all in place, but most of them are in place by now. We’ve made the cost savings that were important in our annual cost savings and we’ll target more. Those are significant changes that we’ve made.
McNeil pointed out that Sealaska and other Native corporations around the state dedicate millions each year for what are termed “mission” items that benefit shareholders directly, like continuing scholarships even during hard financial years like 2013. In 2013, those mission costs were between $7 million and $8 million, Sealaska CFO Doug Morris said. Most years they are around $5 million for Sealaska. The extra amount this year are funds dedicated for the Sealaska Heritage Institute.
• Contact reporter Matt Woolbright at 523-2243 or at email@example.com.
Follow him on Twitter at https://twitter.com/reportermatt.