Special Committee on Cooperatives Committee on July 26th, 2012

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Okay, and then do you find in your experience—you can't speak for other cooperatives—that other cooperatives, perhaps smaller ones, follow that type of model whereby they create a reserve for future expansion projects so they have something to work with? I'm not saying it would negate the necessity of going to seek funding from financial institutions, but they're basically building a fund that allows them to expand their operations in the future. Do you find that other co-ops do that type of thing?

[Glen Tully]

As you realize, we have many small co-ops in our system. We've certainly encouraged prudent fiscal management in those cooperatives, so we suggest and recommend that. But the fact of the matter is that some are so small that they need to look at other ways of delivering. The landscape has changed, as I said before, so in our system we're seeing some amalgamations happening, which is really right-sizing the business to match what the community requirements are. So yes, if there aren't enough reserves and cash and profitability being captured, they have to look at a different model.

[The Chair, Conservative, Blake Richards]

Sorry, unfortunately your time has expired.

We'll move now to Mr. Allen. You have five minutes.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Chair.

Thanks, folks, for coming.

Mr. Tully and Mr. Huard, clearly you're of a scale that is extremely large in comparison to most co-ops many of us would be familiar with, especially in the eastern part of the country, where there aren't nearly as many folks, especially the vertical integration you talked about earlier, especially on the fuel side. I just wish some of our private sector refineries in the province of Ontario had decided to take your longer view and kept them open and expanded them, rather than winding them down and closing them.

Perhaps when you are finished with this particular piece and are successful, as I have no doubt you will be, you may want to gaze over your shoulder to us poor folks in the east and come help us with that refinery capacity and send that stuff east. It would be extremely welcome, to say the least, especially to somebody like me, who's been a co-op member and a credit union member all my entire life, basically.

Mr. Tully, earlier you talked a little bit about leadership, and I know Mr. Preston asked you a couple of questions. I want to talk more on the governance side, because I believe that's where you said you come from.

My sense is the difference between the governance model of a co-op versus a shareholder investor, which has a board of directors, is the board of directors in that group tends to be invited—sometimes they're voted, but they tend to be invited—and then shareholders are supposed to vote on it. I get those things in the mail. I usually never send them back, so proxy somebody's forming, no doubt. We actually have direct elections for those, and I'm sure your co-op's the same.

Can you talk to me just a tiny bit about the really important factor of how that leadership development program that you have instils in those directors, who are ultimately owners, and how it reinforces their sense of why they should be owners and continue to spread that message that it's a great thing to be in a co-op?

[Glen Tully]

My experience, as I said before, is I got involved with a cooperative because I went to an annual meeting. I was nominated and then elected, and before I knew what had happened I was sitting on the local board of directors. But I say that a little bit tongue in cheek, because in what we're trying to implement, if you're going to be part of the community at a local co-op level you need to engage that community. And that might be going out and asking people to serve on the local board, people you've identified as potential leaders in the community, and then, as they become involved, getting them access to those training and learning programs to develop their skills and hone their skills in understanding governance.

Governance of a cooperative is different. You're absolutely right, we're exactly the same as you. Every three years I have to go back into my district and get re-elected by the constituents of that district. My responsibility is to represent them at the FCL board table in making decisions, first and foremost, for the Federated Co-operatives, but also with the responsibility for the communication back to the community. Sometimes that's not easy, because sometimes we have to make decisions that aren't always favourable back in those home communities, but it's better for the organization and the consumer cooperative movement as a whole. You very much are a politician. So I respect your chosen career path, because I know what it's like.

Hopefully that answers your question.

[Malcolm Allen, NDP, Welland, ON]

I appreciate the comments, and I'm sure all of us who are elected officials appreciate your compliment, and we would extend that compliment back, obviously, for those who are in governance and take on the role.

You used the term “right-sizing” earlier, and in part of the governance piece you talked about making decisions. But in some of those decisions for cooperatives, in some cases—and it depends on their bylaws and their constitutions—there's actually a vote about rights. If we can use the term “right-sizing”--I'm not always sure I actually like that term--It tends to be a commercial term from big corporations, which usually means employees are getting laid off. But in nine times out of ten what it means for co-ops is they've come to a point where they have to make a decision about should they merge, should they wind up, should they go somewhere else. But they make the decision. It's more of a democratic decision-making process than it is—and I'll use the auto sector, since that's where I come from—somebody sitting in a Detroit board office saying we're closing.

[The Chair, Conservative, Blake Richards]

Mr. Allen, I'm sorry, time has expired. I don't know if you have a question—

[Malcolm Allen, NDP, Welland, ON]

The question was basically is there a sense of it's more a democratic decision-making body by the actual membership rather than just simply having somebody sitting in a board office and saying they're closing that one?

[The Chair, Conservative, Blake Richards]

I'll ask for a brief response, if you can.

[Glen Tully]

I think when organizations look at amalgamation, merger, or even a buy-out, it's always to keep the service in the community only in a different structure. So that's why we can say we're still in 500 communities.

[The Chair, Conservative, Blake Richards]

Thank you. I appreciate you keeping that very brief.

Mrs. Gallant, the floor is yours now for the next five minutes.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman, and through you to our witnesses today.

First of all, I'd like to mention that I concur with Mr. Allen in wishing some of the extra fuel that you'll be refining comes east. I'm really happy to hear that he's in support of a pipeline from west to east. We've really made some progress here today.

What's also interesting is that in addition to your expanding availability and supply, you're very conscientious about the remediation. Reference was made to the project with the University of Saskatchewan. You'd mentioned various government programs that they'll be accessing in order to help fund. What about the private sector? Does the private sector, in addition to the co-op, play any role in this very interesting, productive, and applicable science that is going on?

[Vic Huard]

Yes, very much so. Through our partnership with the University of Saskatchewan and even just internally with our environment and technical services group, we have a relatively small in-house group of experts in our environmental and technical side. One of the main roles they play is to coordinate relationships with private sector consultancies on the projects we do. Whether it's direct remediation--let's say an oil tanker happens to spill and we need to do a cleanup directly--or proactive pieces around how we're going to bio-remediate sites or how we're going to reduce our environmental footprint in our logistics chain, we work extensively with private sector consultants in that regard. There's a tremendous amount of expertise out there. Our primary role, in some respects, is to coordinate that knowledge and then apply it to the businesses that we undertake.

An example of that would be our refinery. Part of our refinery expansion is the waste water improvement project. To the best of my knowledge, we're going to become the first zero-water-effluent refinery in North America. In other words, we're going to take all the water—as you can appreciate, refineries use a lot of water in their processes—and it's going to be recaptured, recycled, and reprocessed. There is going to be zero effluent water going into the municipal sewer system as a result of this.

That technology is very much a private sector technology that would apply to the refinery complex.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

This technology that is in cooperation with the University of Saskatchewan, will it be eligible for patenting and use by other private sector companies as well?

[Vic Huard]

We always look at those opportunities, for sure.

I want to stress here that the SR&ED program is very important to us in this regard.

Mr. Bélanger mentioned a return on investment of the fund in the Arctic. I think the SR&ED is another example of great return on investment, providing those kinds of tax credits to us, to allow us to do the kind of research we do in collaboration with the private sector as well as the university. There are some technologies coming out of this. We are a business, and we will be looking at whether or not.... Whether the patent resides with the University of Saskatchewan or with one of our private sector partners or ourselves would remain to be determined.

On some of the projects we're working on now, particularly around bio-remediation, we're certainly having those discussions. Those are years out. We're just in the experimental phase, but it's certainly something we discuss.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

We'll be very interested in hearing, perhaps in the industry committee, how your system using phosphorus is able to stop the metal from staying in the soil and being absorbed by different animal species.

My next question is for Mr. Morrison. What are the types of financial services that are provided to our Arctic communities?

[Andy Morrison]

The types of financial services in the Arctic are very limited. If you consider the Northwest Territories and Nunavut, there are 58 communities, and nine of those communities have financial institutions—all chartered banks.

Many people in the Arctic have virtually no experience with or exposure to financial institutions. Many people do not have bank accounts, and as a result are not able to access the economy the way people in southern Canada can.

Part of the work we're doing is the development of a financial literacy program to try to raise the level of financial understanding for ordinary people across the Arctic.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

In my riding, one of the remote communities lost its last chartered bank and a credit union came in and provided a kiosk in a grocery store. Are those types of options available to the residents of the far north?

[Andy Morrison]

Credit unions are essentially provincially regulated entities. There is no active legislation in the Northwest Territories or Nunavut for credit unions.

There is the possibility of developing agency-type services, for example, in a cooperative or some other kind of business. We have been looking for many years at how, as a cooperative system, we could support the development of a financial network, a credit union network, to provide community-based financial services. Legislation and capital are some of the challenges we've not been able to overcome in the short term.

[The Chair, Conservative, Blake Richards]

Thank you.

We're now moving to Mr. Butt. You have the floor for the next five minutes.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

Thank you very much, Mr. Chair.

Coming from a business background, I'm always curious to know what businesses, co-ops in this particular case, you consider to be the competition, or whether you really have competition.

Mr. Morrison, I think you essentially said that the reason you're there is because it was the grassroots community, the public, who said they needed this type of cooperative arrangement in their communities. Perhaps that was out of necessity, or perhaps there was not adequate private sector competition that could provide those services.

Let me ask both of your organizations, do you have competitors? If so, what would you say is the main advantage for your clients, your members, who have chosen to be part of your cooperative rather than going down the street and buying what they need from the competition?

I don't know which organization wants to start, but I'd be curious to know. Certainly not knowing the far north very well, and not really knowing the sector as strongly as I should, probably one of the reasons I volunteered to serve on this committee is that I wanted to learn more about what the cooperative sector is doing across the country.

Mr. Morrison, do you want to start?

[Andy Morrison]

Thank you.

We absolutely have competition in most of the communities where cooperatives are located across the Arctic. The old Hudson's Bay Company essentially began in the Arctic with trading posts. Part of their operations were spun off to an organization called the North West Company. The North West Company operates retail stores across the Arctic, across the northern part of the provinces, in Alaska, the South Pacific, and the Caribbean. They are the competitors of the local cooperatives in probably 85% or 90% of the communities where local co-ops are located. We compete head-to-head with them on a daily basis.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

Interesting.

[Glen Tully]

Definitely.

From our aspect, we have all kinds of competition. Every organization out there is usually competing in one of our business lines. I'll use an example--and again, it's a changing landscape. I'll speak to Red River Co-op, in Winnipeg, Manitoba. They're a fuel cooperative. Their competition used to be Imperial Oil, Petro-Canada, and Shell. Today their competition is Canadian Tire, Superstore. The competition changes as businesses mature. That's an example of business competition.

Even more of a challenge, I think, is our competition from every organization, whether it's Potash Corporation trying to get our IT people to move over and be IT people for them.... I mean, there's a human capital shortage of expertise out there in many of the businesses we operate in. We have IT technology. We have human resources. We have marketing people. All those organizations that have those types of divisions are our competition. They try to take our best people, and of course we try to retain their best people.

If I've learned anything in business, it's that if you're a good manager, you're a good manager whether you're selling shoes or you're selling fuel. It's about developing that expertise. It's about attraction, retention, and employment of people.

I'll let Vic speak a little bit.

[Vic Huard]

I think the representative from Vancity said something that I thought was very compelling. I don't mean to.... I lost my rose-coloured glasses about a decade ago, and I never found them afterwards. But I do believe that a cooperative being a mission-driven organization matters. On the HR competition side, for example, we do find people who are more compelled to join us because of that. I also think that individuals participate in a co-op as customers for that reason, as well.

I will mention—and your colleague can attest to this, seeing as how his wife buys fuel at the Medicine Hat and Calgary co-ops—that a not insignificant infusion of cash back on equity repayments doesn't hurt. That's a fundamental part of our model. It's the backbone of what we call our “lifetime membership benefits program”. It's extremely important, as is the democratic participation for certain individuals, as they mature in the cooperative.

I dare say that individual members of the cooperative, when they first join, aren't motivated by the fact that they can come to a meeting.