Bill C-2 (39th Parliament, 1st Session) Committee on May 29th, 2006

[The Chair, Conservative, David Tilson]

Thank you very much.

[Elaine Flis]

The Public Affairs Association of Canada is a national not-for-profit organization founded in 1984. PAAC's growing membership represents a cross-section of the many disciplines involved in public affairs, including policy development, government relations, communications, opinion research, and public relations. I want to say first and foremost that the Public Affairs Association of Canada supports the spirit of the Federal Accountability Act because it's all about transparency and accountability, which are cornerstones of ethical behaviour.

Our association recently developed a statement of ethical principles for our members, because we stand in favour of ethical conduct in all facets of our work. So yes, we support the spirit of the legislation, yet we would like to offer constructive suggestions concerning the letter of it.

Lobbying--or government relations, as we prefer to call it--is not the unsavoury activity that many in the news media have made it out to be, any more than politicians are as villainous as the press often imply. Government relations specialists are not just hired consultants, and they don't just work for large wealthy corporations. GR people are vital for not-for-profit organizations as well, and to help volunteer advocates in grassroots organizations present their cases to government.

It is important to bear in mind that government can be complex to the point of confusion to those not experienced in its workings. That is why it takes a seasoned professional to present a case to government in the course of public policy development.

Most people accept that those who present a legal case before a court need the services of a lawyer. They should not try to do it themselves. Similarly, making a case before government for non-profits and grassroots organizations, as much as for big companies, also requires professional expertise. This expertise should be facilitated for such organizations, not denied them.

Certainly our ethical elected officials want to, and should, listen to both sides of an argument prior to crafting public policy. That is why we're here today. And since public officials cannot be experts in all fields, listening to professionally prepared presentations on all sides is vitally important if public policy is to truly reflect public interests.

With these things in mind, I must draw the committee's attention to a few areas of concern we have with the legislation in its present form. Some of its provisions, intended to enhance transparency, in fact create unintended problems.

Consider the additional filing requirements for people lobbying government. They would have to file on a monthly basis the names of senior public officials with whom they met, the date of the communication or meeting, and many other particulars. By taking transparency to this extreme, the legislation will impose a competitive disadvantage on some organizations due to the high cost of hiring administrative people to deal with this. Worse still, it might encourage some people to try to circumvent an onerous process and thus create an atmosphere of disrespect for the law.

If the Commissioner of Lobbying is to contact present or former senior public office-holders to verify the information provided, and then post these responses on its public Internet-based registry, the result is a similar set of unintended problems. The reason is that it makes the process cumbersome for staff who would have to follow the same process as lobbyists just in case they're asked for information, even though technically they don't have to file information as lobbyists do.

Again, this creates an unintended and onerous burden of administration and time. This may be burdensome to the large and wealthy corporations often associated in the public mind with lobbying, but to grassroots advocacy it will be destructive and debilitating. Grassroots advocacy, by its nature, is the communication between individuals and their elected officials. In particular, volunteer advocates for not-for-profit organizations, such as ones focused on medical research, could be driven away from this socially useful work, fearing that these sweeping regulations will make lawbreakers of them.

The new filing requirements represent the first of two main pitfalls we see in the legislation. The second concern is well-intentioned but potentially harmful restrictions on who may work in government relations. As it stands, the legislation says that no individual shall work in GR during a period of five years after the day on which that person ceases to hold a senior public office.

To newspaper readers eager to believe that recent government office-holders would wield some kind of unfair advantage, this sounds good. To people familiar with the making of good public policy, alarm bells should ring.

The reason for this is that to work effectively in GR requires familiarity with the public policy process. Again, the valid comparison is with the work of lawyers: not just anyone is qualified to argue a case before a court. To forbid those who recently graduated from public service from using their fresh skills in GR for five years is akin to preventing new law school graduates from practising law for five years.

At one level, it can only ensure that fresh skills become stale before they can be put to use. Yet there is a more important argument against this provision. Government relations work is a career that many good people work toward. By telling dedicated and skilled people that government service will disqualify them from that work for five years, the prime accomplishment will be to steer them away from government service, which cannot be good for government itself or the public interest in general.

Ladies and gentlemen, in both of these areas of concern, onerous filing requirements and the five-year prohibition after government service can be addressed without altering the legislation's prime goal of increasing accountability and transparency. The guiding principle is simply that if something is not really broken, it need not be fixed. Filing requirements should not be changed in order to alleviate public fears of secret lobbying, fears that are unfounded. Nor can anyone expect the five-year restriction on lobbying to serve the development of good public policy, when it will only discourage participation by the very people who have the most to contribute.

If there is to be a restriction on lobbying after government service, it makes sense only with regard to the files a person worked on while in government, or perhaps to the specific ministry in which she or he worked. Better still would be to preserve the current requirements in both these areas for the sake of facilitating, rather than hindering, the work of grassroots advocates and for the sake of encouraging the recruitment of good people to government service.

Thank you for listening.

[The Chair, Conservative, David Tilson]

Thank you.

Mr. Stewart-Patterson.

[David Stewart-Patterson, Executive Vice President, Canadian Council of Chief Executives]

Thank you, Mr. Chair.

I appreciate the opportunity to come and join you today. This is a very complex piece of legislation, but it's one that's very important as well.

The members of the Canadian Council of Chief Executives, for those who aren't familiar, are basically CEOs of large companies operating in Canada. As such, I think our members understand very well that good governance matters in the public sector and in the private sector alike. Good corporate governance provides a competitive advantage in attracting investors and attracting talented people and thereby drives stronger and more sustainable growth in shareholder value.

Similarly, good public governance provides a competitive advantage to the country, in attracting people in investment within a global marketplace, and also in helping governments deliver better value to citizens and taxpayers. This is why our organization has been involved, deeply engaged, on governance issues for more than three decades. We were active participants in the great national debates involving the Constitution and parliamentary reform. I think we were the only business organization to appear before a committee of this House to support the reform of the financing of political parties, when that bill was in front of the House, and we've certainly been champions of stronger rules and voluntary efforts in improving the standards and practices of corporate governance.

Let me begin, therefore, by congratulating the government for moving quickly and decisively to address what I would describe as a crisis of public confidence. The proposed act before the committee includes a wide range of important measures. I would commend, in particular, the strengthening of the powers of the Auditor General and the role of the Ethics Commissioner, as well as the creation of a parliamentary budget officer, and an independent body to review the public appointments process.

But I want to take you back to 2002, when the response to the corporate governance crisis in the United States was the Sarbanes-Oxley Act. It did reassure investors by providing tough new rules and penalties, but it was highly complex and hastily drafted and it created months of headaches for regulators and a continuing very high cost of compliance for companies.

Canada took a more thoughtful approach and came up with a system that remains fully compatible with the U.S. rules for companies like our members, which are often cross-listed, but at the same time it provided a much more flexible and responsive environment that was better suited to the needs of the smaller cap companies that make up the bulk of our financial markets.

Today, I'd like to suggest we're seeing some important parallels between issues of corporate and public governance. In both cases there are real failures and fundamental issues of lost trust that have to be addressed. But as with Sarbanes-Oxley, we would ask whether the political desire to move quickly may lead to an excess of new rules that may, in time, prove counter-productive. I'd remind you that in the corporate sector, governance rules are aimed at protecting investors. At the same time, they do impose new costs, costs that come right off the bottom line. What's more, if executives spend too much time talking with the lawyers and the accountants instead of growing a business, the end result is not to serve the interests of shareholders.

Now, no one questions the need to repair the flaws in public governance exposed by the sponsorship scandal, but as in the corporate sector, new rules, new internal controls, all will add significant new fixed costs, even as they reduce opportunities for fraud.

I'm also worried about whether these new measures, as a whole, could affect the culture of government. Could they lead to an obsession with obeying the rules and avoiding mistakes that, in turn, could become a serious break on innovation and efficiency? There is more to delivering the best possible value to citizens than simply preventing fraud.

Let me add one final concern. Public servants, however well qualified and well intentioned, do not have a monopoly on good ideas. Effective government involves a healthy exchange of ideas with people outside government. My own organization's experience is that this exchange is often initiated by government officials themselves, who want input on the state of an industry or the likely impact of a policy change that's under consideration. The new act, however, is going to impose much more intrusive record-keeping and reporting, both by anyone who talks to senior officials in government and de facto by officials themselves in order to provide a check.

I want to make it clear that I'm not arguing against the idea of making sure that the process of lobbying government for gain is transparent and above board. We really only have one major concern on that front, and that is the question of whether the level and speed of reporting that will be required could lead to the unfair release of commercially sensitive information.

The new rules, however, also would appear to affect the activities of a vast array of organizations who engage government for the purpose of influencing public policy, and doing it in ways that they believe will be good for the country as a whole. The vast majority of these organizations already maintain a high level of transparency with respect to their public advocacy, and I'm worried that the new compliance burden may prove to be especially daunting--as my colleague here has suggested--for smaller non-governmental organizations. If the compliance procedures are burdensome enough to discourage dialogue, the result could be a government that is more isolated from citizens and less likely to draw on the country's collective wisdom to drive innovative public policy solutions.

This is an important bill. It addresses an urgent need to restore public trust, and Canada's business leaders fully support its goals. At the same time, our own experience with the crisis of corporate governance suggests it is very important to think through all of the implications of complex legislation like this, as you are doing today.

I'll now turn it over to the committee for questions.

[The Chair, Conservative, David Tilson]

Thank you, sir.

Ms. Jennings.

[Marlene Jennings, Liberal, Notre-Dame-de-Grâce—Lachine, QC]

Thank you very much for your respective submissions.

Mr. Stewart-Patterson, you made two comments in reference to the Sarbanes-Oxley Act. You note the following on page 1 of your submission:

It reassured investors by providing tough new rules and penalties, but also was hastily drafted and highly complex, creating months of headaches for regulators and continuing huge compliance costs for companies.

You further noted on page 2:

But as with Sarbanes-Oxley, we would ask whether the political desire to move quickly may lead to an excess of new rules that may in time prove counter-productive.

We've heard from Ms. Flis and from other witnesses who have preceded you about some of the restrictions resulting from the changes to the rules affecting the volunteer sector that receives government contributions. These changes are beginning to impede their work and to reduce the level of services volunteer agencies can provide.

Experience has shown that over the past 15 years, for example, it has taken Parliament 200 days on average to adopt a bill with this number of provisions and with such sweeping implications for other acts. The aim of the government is to guide this bill through all stages in the House, if not in the Senate, in under 40 days.

Given the bill's complexity, do you feel that we are giving ourselves enough time to ensure that any changes adopted will not ultimately prove counter-productive?

[David Stewart-Patterson]

I would say that precisely because the issues are complex, it's important to take the time to get it right. I don't dispute the urgency of addressing the concerns the public has, but again I draw on our experience with the issue of corporate governance. The fact is that legislators in the United States, in the spring of 2002, were under a great deal of public pressure to act quickly, so when they went back to their constituencies in the summertime and talked to their constituents they would have an answer when asked what they were doing about Enron. However, the result of that was an act that was badly drafted in many ways. It was imprecise and in some places even self-contradictory. There were simple concepts, simple ideas, that weren't fleshed out or thought through.

One example that comes to mind is the requirement that audit committees include at least one financial expert. Financial expertise on the audit committee sounded like a good idea, but nobody had thought what it was going to take to define that. If I recall correctly, the Securities and Exchange Commission had to work with a committee of some of the brightest minds from 25 of the biggest law firms in the United States, and they spent six months grappling with that one question--how to define that. There were issues such as these: How much expertise is enough? Is it different for companies of different sizes or in different businesses? Does somebody who accepts a designation as a financial expert get exposed to greater legal liability? There were all sorts of things that hadn't been thought through in the drafting of the act.

As I look at what is before this House, it's an important act and addresses a real issue that is urgent, but it addresses an awful lot of issues. As we've been saying, and as some of the other witnesses you've already heard have suggested, I'm not sure that all of the potential consequences have been thought through. The result may be unintended consequences that might not serve the best interests of the country.

[Marlene Jennings, Liberal, Notre-Dame-de-Grâce—Lachine, QC]

Ultimately what you're saying is that you think this committee should take the time to go through this piece of proposed legislation thoroughly and give enough time to the witnesses to be able to thoroughly explore those aspects of the bill that concern the sector they're representing in order to ensure that there are no unintended consequences and that the bill really does achieve what it's setting out to do, which is to restore public confidence in both the government apparatus and the private sector, whether it be for profit or not for profit.

If you were being told that the government wants this bill reported out of committee probably within the next seven to eight working days, what would be your reaction?

[David Stewart-Patterson]

I think I've made our feelings clear. Because this is important, it's important to get it right. Given the complexity of the issues that are being addressed and some of the mechanisms that have been put on table but not fleshed out, I would certainly encourage this committee to take as much time as it felt productive to deal with any of the question marks or uncertainties that may be raised.

[Marlene Jennings, Liberal, Notre-Dame-de-Grâce—Lachine, QC]

If you had a chance to go through this bill, at least for your sector, I would encourage you to point out specific areas that you believe need to be fleshed out, or you may have amendments you wish to propose. Please feel free to forward them to the chair via the clerk, so that we can look at them in depth.

[David Stewart-Patterson]

If I may, Mr. Chair, the concern isn't so much about what's said, but about a lack of certainty concerning what's there and what it means.

The issue of reporting requirements has been raised. Again, I don't look at that primarily from the viewpoint of transactional work, because we don't do that; we deal strictly in the public policy sphere. But it's not clear.

My apologies, Mr. Chair, if I'm extending into someone else's time.

But for instance, what are the boundaries on that? It's obviously clear that if one individual goes to a senior government official to talk about a policy issue, this is a reportable meeting. If it involves a group of people under the umbrella of a single organization, does that require one report or a report by each individual in the organization who takes part in the meeting? If more than one government official takes part, does it require a separate report for each official, or is a single one enough?

What happens if you extend that to consultations by government itself? Recently I took part in a pre-budget consultation involving the Minister of Finance. It was at the minister's invitation and involved 17 organizations, if I recall the number correctly. Would each of us be required, in a consultation initiated by government, to file a report?

More broadly, there might be a policy conference involving hundreds of people at which senior officials or ministers speak because policy is being discussed and different points of view presented. It is an arranged event but might not be public. Does that make it reportable for every individual in the room affected by the provisions of the bill? It's not clear.

[The Chair, Conservative, David Tilson]

Thank you.

Mr. Sauvageau.

[Benoît Sauvageau, Bloc, Repentigny, QC]

Good day to you, Ms. Flis, Mr. Stewart-Patterson and to all of your associates.

When you or other witnesses tell us that Bill C-2 isn't perfect, the Conservatives seem to be rather insulted, because they were convinced that this bill was a perfect as the ten commandments. When you say that we need to take time to ensure that we have a sound piece of legislation, we agree entirely with you. However, both the NDP and the Conservatives accuse us of employing stalling tactics.

Ms. Jennings was commenting on the fact that between 1988 and 2000, a total of 14 bills introduced contained over 300 clauses. The average time required to examine these bills was 200 days. Today, we're being asked to deal with this bill in about 40 days. What's worse, there is no possibility of even reviewing the act. We have proposed an amendment which we hope will be approved. The government is so confident of having produced a perfect bill that it did not even include a provision requiring a review in five or seven years' time. I think that's a dangerous direction to take. I hope that our Conservative colleagues will, at the very least, be willing to hear our views on requiring a review every five years.

I'd like to follow up on Ms. Jennings' earlier comments. You mentioned the Sarbanes-Oxley Act adopted in the United States in 2002. Other countries have enacted accountability legislation. Suppose we were to do a survey today that put the level of trust of the Canadian public at “x”. To determine whether or not the act has achieved its stated aims, that is whether it has restored the public's trust, we would need to do another survey two or three years down the road.

Has the U.S. legislation achieved its stated objectives? Do Americans now claim to be satisfied and to trust Mr. Bush and his government?

[David Stewart-Patterson]

I think what that illustrates is how difficult it is to regain public trust once it's lost. Certainly that's our experience in the corporate sector, where the fact is that there were real abuses. Those abuses had to be addressed both by legislative and regulatory action, which took place, but also by a much stronger focus on governance issues in the media and a much stronger focus amongst institutional investors at the board of directors level and at the management level.

We've had four years of experience now in dealing with that. I don't think anybody would argue with the fact that significant progress has been made; the laws are stronger and are being enforced more rigorously. Governance practices themselves at a company-by-company level have continued to improve, with a process of continuous improvement going on. If you look at annual reports like the ranking of governance practices in The Globe and Mail, you see companies working year after year to improve themselves in terms of the practices of good governance.

But I think it is fair to say there is still a lot of mistrust of business leadership and that this is very much a work in progress. Certainly, nobody I know in the business community is saying the job is done in terms of corporate governance. I think the crisis of public governance is more recent, and therefore, whatever bill is passed by this Parliament, there's still going to be a lot of work to be done, and it will take a long time to rebuild public trust.

[The Chair, Conservative, David Tilson]

Excuse me. I just wanted to make it clear to the Public Affairs Association of Canada that we're not leaving you out, so if you have any comments to make, feel free to jump in.

[Chris Benedetti, Past President, Public Affairs Association of Canada]

Thank you very much for the opportunity.

Pertaining to the question, and not to repeat much of what has been said, I think it's important to make two points. One has to do with the administrative complexity and the time required to actually assess the bill. As a practitioner in the field, I can tell you that most of the people who are government relations practitioners are actually small independent businesses. Many of us are actually sole practitioners in the field.

As it currently stands, the amount of time it takes on the administrative side to abide by the rules presently in place is certainly justifiable. In our view the rules are detailed enough to ensure that in the work we do, the reporting required and the transparency needed are already done in the reporting we do at present.

As it stands, from our vantage point, even the resources contained within the office of the lobbyist registrar are such that there is a significant backlog of registrations currently being processed. So if you can imagine, by the time somebody takes a look at what we now have to disclose or provide, we're often required to submit the next iteration of whatever the reporting requirement is.

On the second point in terms of accessibility to government, our view is this. We're quite happy to hear that the government is considering looking at how decisions are made in government and looking at ways to make those more accountable, but our fear is that the bill in its present form looks primarily at access points to government. We certainly believe or are aware of some of the accountability legislation in other jurisdictions, where quite often what is looked at is how you can make government more accessible to people and thus make it more transparent, so that those decisions that government makes can be more just and more in the public interest.

Our fear is that this legislation looks too heavily at the access points themselves. Our view is that it is fundamentally the incorrect place to be looking in terms of what makes government transparent and accountable.

[The Chair, Conservative, David Tilson]

Madame Lavallée, you'll have to wait until the next round.

Mr. Martin.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you, Mr. Chair, and thank you, witnesses.

If I could begin, please, with the comparison of the Federal Accountability Act and the Sarbanes-Oxley Act, it makes for an interesting juxtaposition. I'm glad you drew that parallel for us. I certainly do agree with your point that for both public and private institutions there's a crisis of confidence amongst the general public. Where we part somewhat is that Sarbanes-Oxley was introduced as a swift dramatic reaction. It was symbolic as much as practical, I think. Something had to be done. The reaction to the corporate world here, the corporate community in Canada, is that we would prefer voluntary compliance to ethical guidelines rather than the rigidity of Sarbanes-Oxley. That's the message we had from your boss and others.

I can tell you, I used to work for an international union and we had $40 billion in our relatively small union pension fund that we managed on both sides of the border. And white collar crime became a blue collar issue very much amongst the beneficiaries of our pension plan. So I disagree with you partly in the tone and the content when you make the case that perhaps we're doing here what the Americans did with Sarbanes-Oxley and that they were going over the top. That's the message we got from the Liberals. The immediate reaction to this bill was that it really wasn't that bad; we don't have to go so hard on this; we don't want to imply that we were a bunch of crooks. Well, that's the tone I'm getting from your reaction. Maybe you're underestimating how horrified Canadians were at both the Liberal scandals and the corporate community's malfeasance.

The rules we've put in place here don't come close to Sarbanes-Oxley. I was reading that Kenneth Lay would have walked away free had he been charged here in Canada under our rules, whereas he's going to be led away in handcuffs in the United States.

You raised the issue of independence of auditors. Why is it that in Canada the auditor of a major corporation can also be selling tax advice and other financial services to the same company? To me, if I were a pension trustee, I would say, don't invest in that company because there is a clear conflict of interest. But you're willing to allow that to.... I'm not questioning your right to criticize the Federal Accountability Act as being too stringent, but I certainly take it with a grain of salt, because your own institutions haven't gone very far to satisfy Canadians fears.

[David Stewart-Patterson]

If I may, you raised a number of issues. I want to make it clear that I'm not suggesting that the Federal Accountability Act be watered down. I'm suggesting we make sure it's effective. I'm saying take the time to get it right.

Similarly, I don't want to overemphasize the direct comparisons between Sarbanes-Oxley on the corporate side, because it was a U.S. law, and what is going on in terms of public accountability here. But that said, if we look at the Canada-U.S. comparisons, Canadian legislators and regulators looked at what Sarbanes-Oxley had done; they looked at the implications and the fact that the law that was drafted in the United States was unduly burdensome on smaller companies; and they said, well, we've got an awful lot of smaller companies in Canada, so we'd better make sure that our rules reflect the realities of our marketplace and not just automatically copy what they're doing in the United States.

The second point I'd make is that on both the legislative level and the voluntary level, Canadians have gone further than the Americans in some respects. I refer to practices like the splitting of the positions of chair and chief executive, which was not addressed by Sarbanes-Oxley and which wasn't even on the agenda. The Americans consider splitting those positions to dilute leadership. They consider it bad practice. Canadians have said no, we think that's important, and at company after company that has been happening.

So the overall point I'm trying to make here is that Canada has unique circumstances. We're not Americans; we do things our own way. And certainly that's the position our organization advocated on the corporate governance side. All I'm suggesting here is not on the substance of the bill, but let's make sure we've thought it through and done it right, and that it meets the needs of Canadians, and that it deals with the very real concerns Canadians have.

[Pat Martin, NDP, Winnipeg Centre, MB]

Also keep in mind that we have a very narrow window of opportunity to do this at all.

[The Chair, Conservative, David Tilson]

Excuse me, Mr. Martin. Mr. Benedetti has some comments.

[Chris Benedetti]

Thank you very much.

I have just one point, actually.

Certainly we agree with the notion of voluntary guidelines. Last year the Public Affairs Association adopted a statement of ethical principles that applies to all our members from coast to coast to coast. We're quite pleased that the uptake of those ethical principles has been quite good in our industry, and we've been working very well with other provincial governments to bring up to date other lobbyist registry systems to ensure a good amount of cooperation and synergy between government interest in lobbyist registries and accountability and what the industry is doing on a self-imposed basis.

We certainly believe that by working together, we can meet the interests of all parties involved.

[Pat Martin, NDP, Winnipeg Centre, MB]

What are the consequences of violating those voluntary terms and conditions?

[Chris Benedetti]

The statement, as it now stands, is certainly a living document. Our end objective is to look at some form of accreditation that would have real penalties associated with it. As it stands right now, non-compliance with the statement means expulsion from the industry association. Beyond that, we have no other mechanism to actually force compliance.

[Pat Martin, NDP, Winnipeg Centre, MB]

Then you wouldn't mind if we legislated more realistic penalties.