Evidence of meeting #43 for Industry, Science and Technology in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was shareholders.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

  • Wayne Gray  Partner, McMillan LLP, As an Individual
  • Tim Draimin  Executive Director, Social Innovation Generation
  • Laura O'Neill  Director, Law and Policy, Shareholder Association for Research and Education
  • Judy Cotte  General Counsel and Director, Policy Development, Canadian Coalition for Good Governance

4:40 p.m.

NDP

Brian Masse Windsor West, ON

How long has that campaign been going? Is it at a point right now where you still have some partners out there that will move on this, or has it required another push, have you reached a threshold where other encouragements are necessary?

4:40 p.m.

General Counsel and Director, Policy Development, Canadian Coalition for Good Governance

Judy Cotte

I think it probably does need a push. Initially, the largest issuers, the banks, were the first to adopt it, and then the larger, more sophisticated issuers were to follow suit. But there are certainly some issuers who have communicated to us that they have no intention of adopting it. So I think this is a good opportunity for the CBCA to become a leader in that regard and make it a requirement for all CBCA companies.

November 16th, 2009 / 4:40 p.m.

NDP

Brian Masse Windsor West, ON

It's very helpful to know that.

Mr. Draimin, I'll turn my questioning to you. I actually worked in the not-for-profit sector for over ten years, and I just want to clarify one thing. It's an interesting model; I'm going to give it some serious review.

I have a private member's bill, Bill C-274, that adjusts the charitable giving act to replicate that of political party and organization, that it return to the current structure past the $1,275 donation limit to individuals in politics or parties. What's happened over Canadian public policy in the last 10 or 15 years is that as we've reduced corporate and personal income taxes, it's had an adverse impact on charitable giving because it's tied to the lower income at income tax time, so charities are going to be able to bill back less at giving time. In fact, we're talking about 8% of the Canadian economy here that's had no effective policy over that period of time, because lowering corporate tax cuts for not-for-profit agencies doesn't do anything for them.

Just to be clear, one of the things is that many agencies can carry over only certain amounts of funds. That's when you saw, at the end of the year--and it happens here, even in the offices of Parliament--if you had a budget, you'd go out and buy your fax, your computers, at the last minute, and do unnecessary upgrades that probably wouldn't have been the most important things that you would decide to do. It happens all the time, because what ends up happening is you can't get the funding for other programs.

But if you move along a model like this, how do you ensure that the core value of the agencies is maintained? Because then we would have other types of interests at stake. Often not-for-profits are formed for social issues that aren't being administered by governments--for example, community action groups that get together to create the entity that isn't being provided out there. Would there be some shareholder thresholds or voting restrictions? How would it operate in terms of making sure it stayed within the mandate of so much investment of people over so many times?

4:40 p.m.

Executive Director, Social Innovation Generation

Tim Draimin

Thank you very much for the question.

In terms of the model that I think is the most developed and most applicable to Canada, the community interest company in the U.K., they actually have a regulator just for community interest companies, and instead of having “limited company” after their name, they have “CIC” after their name. They're quite visible and they're almost like a brand, so that people understand this is a community type of corporation that operates for a community benefit.

When they apply there's a public benefit test, and if they don't pass that public benefit test, they're not approved. Then there are the guidelines on how they operate. Basically, they can't operate for individual personal benefit; they can operate for community benefit only, and there are a number of ways in which that happens. They have an annual reporting that goes on to make sure that every year that's the case. They've built in a whole set of rules around the transparency of all the information that's required by the regulator. So they've created a series of standards reviews to precisely try to do exactly what you're describing in terms of ensuring the public benefit of these organizations.

4:40 p.m.

NDP

Brian Masse Windsor West, ON

Thank you, Mr. Chair.

4:40 p.m.

Conservative

The Chair Michael Chong

Thank you.

Mr. Rota.

4:40 p.m.

Liberal

Anthony Rota Nipissing—Timiskaming, ON

Thank you, Mr. Chair.

My first question is for Mr. Gray. You were talking about insider trading and describing how it would take place. It sounded like it was basically how it would happen on a provincial...or a security system that is already in place. How does the CBCA work in conjunction with provincial securities regulators? Are there any areas of duplication between federal and provincial that need to be addressed over and above that, just to avoid confusion more than anything else?

4:45 p.m.

Partner, McMillan LLP, As an Individual

Wayne Gray

That's a very good question. This was the subject matter of a case called McCutcheon and the Ontario Securities Commission, in 1982, where the Supreme Court of Canada recognized that there was some overlap between the CBCA and provincial securities legislation.

The two coexist. I think there is really no other answer: they coexist. Obviously, securities law can cover any type of reporting issue, whereas the CBCA will only cover corporations that are formed under the CBCA. There are some differences, for example, between the criminal element in terms of the options trading. Insiders having options over shares and things like this are a little different under the CBCA from what they are provincially.

But what I'm really talking about, and where I think the most important aspect of this is, is with respect to civil actions against insiders. This is something that's not, in my view, very prevalent in Canadian law. There is not a lot of civil litigation against insiders, and I think there ought to be, because it's clear there is insider trading going on. You can tell that by the fact that there is often a spike in prices before there is favourable news, or the reverse. So somebody is trading. There could be class actions, for example. Treble damages could be awarded. There are ways the civil law could be used.

The CBCA is largely self-enforcing. The genius of this act is that largely the enforcement of the act has been privatized to give private parties the incentive to pursue their remedies. And this is one area where I think that's failed. There has been no case since 1994 that I could find on insider trading liability. There has never been a case under the CBCA with respect to criminal liability, and very few cases at all under the civil liability regime, and none since the 2001 amendments.

4:45 p.m.

Liberal

Anthony Rota Nipissing—Timiskaming, ON

Is that because there are portions missing in this act? Or is it because we as Canadians just don't have that litigious background?

I think the question is this. Is there something in the CBCA that could be added to make it more--

4:45 p.m.

Partner, McMillan LLP, As an Individual

Wayne Gray

What I'm saying is that I do think this is an area that could be studied. You could align the interests of litigants to try to recover illegal insider trading profits by insiders who are essentially getting more than their fair share at the expense of all other investors. It's not a neutral playing field.

I think you could create some incentives for people to go out and get those people and recover damages. I think corporations, because of the adverse publicity, would be much more careful about monitoring it internally. I'm not saying this is a law that ought to be adopted tomorrow; I'm just suggesting it should be considered.

The current problem with the CBCA is the requirement for privity.

4:45 p.m.

Liberal

Anthony Rota Nipissing—Timiskaming, ON

On the term “incentives”, what would be an example of an incentive?

4:45 p.m.

Partner, McMillan LLP, As an Individual

Wayne Gray

An example of an incentive would be if you knew that an insider disposed of shares just before some negative information was released about the corporation and the share price therefore went down, there would be a way of calculating the difference. And it's right in the act already. It's a trading price--20 trading days after the trade--so you can benchmark the difference between what that insider traded for and what that market provides. You could provide for treble damages and you could provide for class action relief so that all of the proceeds or the profit, times three, goes to all of the class people who were traded opposite that insider. This is something they have in the U.S. It's mostly created by courts in the U.S., but it doesn't exist in Canada.

4:45 p.m.

Liberal

Anthony Rota Nipissing—Timiskaming, ON

Thank you.

My next question is for Ms. O'Neill. You mentioned the necessity of having face-to-face meetings and how important they are. I come from northern Ontario, and I know what it's like to have foreign-owned companies come in and basically do what they have to do and then leave.

In 2001 the act reduced the residency requirements for the board of directors and eliminated the residency for the board. Have you seen anything detrimental or have you seen any major changes because of that?

4:50 p.m.

Director, Law and Policy, Shareholder Association for Research and Education

Laura O'Neill

Residency is an interesting issue. It hasn't been a particularly hot topic for the investors we deal with. However, I would say this. At SHARE we certainly consider the impact of reduced residency, which definitely has its benefits. We sent a lot of companies--just before the CBCA amendments were done--up to the Yukon, where there were very low requirements, and suddenly there were all these Yukon-incorporating companies.

When the residency requirements are higher, it's certainly true that companies have to widen their pool of candidates and consider people they didn't go to school with, perhaps, and there is an impetus on people who are promising and who think they could do a good job of that. They know a bunch of Americans aren't going to come in and beat them out, so why not get educated and try to become someone who can serve in that capacity? So the upside of flexibility is matched by the downside of “we won't grow our own”. It's really a tough call, and people's decisions tend to rely on the experience they've had with it.

4:50 p.m.

Liberal

Anthony Rota Nipissing—Timiskaming, ON

Mr. Draimin, I would like a little clarification on the new hybrid model in the CICs. Usually when you're investing in something you're looking for a profit to come back. Where do they see that profit coming back, or do they in fact see a profit or gain of some sort? Is it strictly a donation that goes into these corporations?