Evidence of meeting #3 for Special Committee on Cooperatives in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cooperatives.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Claude Carrière  Associate Deputy Minister, Agriculture and Agri-Food Canada
John Connell  Associate Assistant Deputy Minister, Strategic Policy Sector, Department of Industry
Jeremy Rudin  Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
Denyse Guy  Executive Director, Canadian Co-operative Association
Marion Wrobel  Vice-President, Policy and Operations, Canadian Bankers Association
Stephen Fitzpatrick  Vice-President, Corporate Services and Chief Financial Officer, Credit Union Central of Canada
Nicholas Gazzard  Executive Director, National Office, Co-operative Housing Federation of Canada
Frank Lowery  Senior Vice-President, Senior Counsel and Secretary, The Co-operators Group
John Taylor  President, Ontario Mutual Insurance Association
Michael Barrett  Chief Operations Officer, Gay Lea Foods Cooperative Ltd.
Bob Friesen  Farmers of North America

11:25 a.m.

Conservative

The Chair Conservative Blake Richards

As I said earlier, we can certainly discuss these matters in committee business.

What I will do now is suspend the meeting.

We have a point of order from Mr. Harris.

July 10th, 2012 / 11:25 a.m.

NDP

Dan Harris NDP Scarborough Southwest, ON

I have a serious problem with simply shuttling that discussion off to committee business. It's already stated in the agenda that discussion of committee business is going to take place in camera.

As to what the chair is going to be doing with correspondence that's coming in, I think the public, and certainly anyone who might provide correspondence to the chair thinking it's going to be distributed to the committee, has a right to know what decision the chair has made in that respect.

11:30 a.m.

Conservative

The Chair Conservative Blake Richards

Well, certainly that is something we will discuss in committee business. As far as correspondence that has been received by individual members of committee is concerned, that's not—

11:30 a.m.

NDP

Hélène LeBlanc NDP LaSalle—Émard, QC

I just want to point out, if I may, Mr. Chair, that the correspondence that is sent to the chair is sent to the chair of the committee, and as the chair of the committee it is your responsibility and your duty to share that correspondence with all members of the committee.

11:30 a.m.

Conservative

The Chair Conservative Blake Richards

Mr. Lemieux has a response on that.

11:30 a.m.

Conservative

Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON

Thank you, Mr. Chair.

I am not the chair, but my experience has been, particularly on the agriculture committee, that there can be a considerable amount of correspondence that can flow back and forth between witnesses and the chair. It can be e-mail, it can be phone calls, it can be letters. If a witness asks for a particular letter to be distributed to committee, it is generally distributed to committee if it is received in bilingual format. If they send a presentation and ask that it be distributed to committee members and it has been submitted in bilingual format, it is normally distributed to committee members.

But if the chair just receives a letter from a witness and the witness does not ask for it to be submitted to committee members, then the chair, at least in my humble opinion, is not obligated to distribute it to committee members. Quite frankly, I don't think I should see every single piece of correspondence that flows in to the chair, when the person sending the correspondence has not asked for it to be distributed to committee members.

So maybe the chair later can tell us whether the witnesses asked for it to be distributed or whether they did not ask for it to be distributed. That's an important factor. But for my part, I don't want to see all your correspondence, Chair. I'd like to see correspondence that the witnesses have asked to be distributed to committee members. That's what I would like to see.

11:30 a.m.

Conservative

The Chair Conservative Blake Richards

Thank you.

Mr. Bélanger, go ahead on the same point.

11:30 a.m.

Liberal

Mauril Bélanger Liberal Ottawa—Vanier, ON

I don't want to see the correspondence that is sent to Blake Richards—absolutely not—but I want to see the correspondence that is sent to Blake Richards, chair of this committee, especially when it's copied to the clerk. I would expect that members would receive that, yes, after translation. If Mr. Lemieux does not want to read it, that's his prerogative, but I want to read it. I will make sure this afternoon that letter is distributed to the members of this committee, because that is our right, sir. You can't take it away from us.

11:30 a.m.

Conservative

The Chair Conservative Blake Richards

Thank you.

11:30 a.m.

Conservative

Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON

Chair, Mr. Bélanger has a copy of the letter. Did the sender of the letter ask for it to be distributed to committee members?

11:30 a.m.

Liberal

Mauril Bélanger Liberal Ottawa—Vanier, ON

The sender of the letter has no objection to its being distributed, but ask the sender.

11:30 a.m.

Conservative

Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON

Through you, Chair, in the letter, did the sender ask for it to be distributed to committee members, yes or no?

11:30 a.m.

Liberal

Mauril Bélanger Liberal Ottawa—Vanier, ON

I'm going to ask a question in response.

11:30 a.m.

Conservative

Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON

No, answer the question.

11:30 a.m.

Liberal

Mauril Bélanger Liberal Ottawa—Vanier, ON

Did the chair ask the sender if it were to be distributed or not?

11:30 a.m.

Conservative

The Chair Conservative Blake Richards

Thank you. The answer is no.

We've had some back and forth. I'll allow Mr. Harris one last chance.

11:30 a.m.

NDP

Dan Harris NDP Scarborough Southwest, ON

I know there's been some back and forth, but Mr. Bélanger has asked to submit that letter to the committee and to have it distributed, which is any member's right. I believe that we should avail ourselves of that official process to get it in, rather than having Mr. Bélanger truck down somewhere to copy it and give it to us.

11:30 a.m.

Conservative

The Chair Conservative Blake Richards

I think we're getting into a lot of debate on a point here.

Mr. Marston, I'll allow that.

11:30 a.m.

NDP

Wayne Marston NDP Hamilton East—Stoney Creek, ON

Mr. Chair, I ask this on a point of order. Thank you. I appreciate that.

The critical piece of this is whether this correspondence is germane to the testimony the witnesses were bringing forward to the committee. If it is, it certainly should have been distributed to the committee. If it's not, then fine. The very point Mr. Lemieux made is that there's going to be some correspondence that the committee doesn't necessarily need to see. If this is germane, I'm really shocked that we haven't received it.

11:30 a.m.

Conservative

The Chair Conservative Blake Richards

I thank all members for their interventions on this point. I believe this is a matter we will be able to discuss further in committee business. In the last few days, I have received letters from, I believe, about three organizations or groups. I have not had a chance to fully review those and determine the appropriate response. I certainly will do so in due course.

I believe we can also discuss this further in committee business. But if groups wish to have things distributed to committee, certainly if they're in both official languages, I don't see it as being an issue. We'll discuss that further in committee business later.

I will suspend the meeting until 12:45 p.m. Thank you.

12:45 p.m.

Conservative

The Chair Conservative Blake Richards

I'll call the meeting back to order.

We have with us this afternoon, for our first panel, from the Co-operative Housing Federation of Canada, Nicholas Gazzard, and from The Co-operators Group, Frank Lowery.

We also have, joining us by video conference, from the Ontario Mutual Insurance Association, John Taylor.

There was a bit of discussion as to who was going to go first. Which one of you will go first?

Mr. Gazzard, from the Co-operative Housing Federation of Canada, we will turn the floor over to you for 10 minutes for opening remarks.

12:50 p.m.

Nicholas Gazzard Executive Director, National Office, Co-operative Housing Federation of Canada

Good afternoon, everybody, first of all, and thank you for inviting us here.

I am the executive director of the Co-operative Housing Federation of Canada, and I also serve as the vice-president of the housing group of the International Co-operative Alliance.

I'd like to talk, to begin with, about cooperative housing and the roles that cooperatives have played in housing Canadians over the past generation. Then I'd like to also make a few remarks about cooperatives generally and their role in the Canadian economy and what I think might be a reasonable and practical role for the government going forward.

You should have in your documents something called Co-operative Housing in Canada. It will have, probably in a more logical order, most of what I'm about to say and more. I'm just going to confine my remarks to a brief overview.

Almost all of the housing cooperatives in Canada have been created on a non-profit, affordable rental model. They began in the early 1970s under three government programs as a response to increasing concern that the model for housing Canadians affordably using public funds, while well-intentioned to begin with, was not serving the purpose it was intended to serve. It was creating, instead of communities, ghettos and no-go areas, and the government felt—with some persuasion from our sector and others—that it was time to look at a different model.

Cooperatives were initially used to create affordable, mixed-income communities—fairly small, not the monolithic, 100% targeted communities that are typical of public housing projects and unfortunately typical of public housing blight.

Over the years there were three major federal programs. The first one was delivered in 1973. The last one was cancelled in 1992. They delivered more than 60,000 units of cooperative housing under those three programs.

In addition, there was a significant program in Ontario that ran for 10 years, lasting from 1986 to 1995, and there have been smaller but effective programs in Quebec and British Columbia. These are unilateral programs, which have altogether delivered approximately 100,000 units of cooperative housing in this country.

By and large it has been very successful. Cooperatives are businesses, and in some cases these cooperative businesses have struggled, but by and large they've been very successful at doing two things: first, being sustainable businesses; second, housing Canadians affordably and building a sense of community, not merely within the co-ops themselves but in the communities in which those co-ops are situated. Typically, members of co-ops are not merely engaged civically in their own co-ops but are also engaged in the broader community; you'll find that many people coming from cooperative housing backgrounds have run for civic office, have held civic office, and have played very important roles of different kinds in our communities.

Unfortunately, cooperative housing right now is not well advantaged by the way governments spend money on housing. The federal government is out of the housing business. I am not back here today suggesting that it get directly back into the retailing of housing programs, but I do urge the government to continue to fund affordable housing development and to make sure that funding is sustainable and can be depended on by the provinces and territories. It is up to me and like-minded people to persuade the provinces and territories to spend some of that money on cooperative housing development, because our own members are anxious to see more.

That's essentially the model of co-op housing that has developed in this country, rather in contrast to some of the European models, which have favoured what we call the “equity” model of co-ops. I'm going to talk briefly about that. You have a one-pager that I prepared.

There is very little equity co-op housing in Canada. The job that an equity co-op model might do has been mostly done by condominiums. But there is now an increasing desire by a couple of provinces to look at equity co-ops as a way of delivering affordable home ownership programs. As probably no provinces are open to using federal transfers to develop affordable home ownership programs, they want to do that and are looking at the equity co-op model described in this piece—and I won't go into any detail with you—as a way of doing it.

We think it's a logical way to do it, because what we're looking at here is first-time home owners with no experience of home ownership. This is a way for them to work together to make sure they understand and learn the risks and responsibilities of home ownership. We are going to be working with a couple of the provinces to see how that is adaptable.

In the United Kingdom right now they are looking at what is called a “shared equity” model. House prices remain very high in large population centres in the U.K., as is the case in Vancouver, Toronto, Montreal, and Calgary, and I could keep going down the list.

The shared equity model is a way for people who can't raise enough capital through mortgages to become outright owners right away to access home ownership. Shared equity typically involves a partial ownership model, and then essentially renting the rest of your housing from a housing association with the option to increase your equity stake up to 100%.

We think that potentially has possibilities here as well, perhaps with the adaptation of what's called a multi-stakeholder co-op. It's not merely the members, in this case of a housing co-op, who are entitled to run for governance positions; it's perhaps people from the community with different kinds of skills to bring along, but always in a minority position so the actual members of the co-op who are receiving the benefits of membership are still in control.

That's what I want to say about housing cooperatives. I will say it's been a great success story. It's been a community builder. We would love to see more. We would love to see this committee recommend that there be more.

I want to turn briefly to a couple of the objectives of the committee itself. One of those is to identify the strategic role of cooperatives in our economy. You've probably heard this already today. I know CCA has been here. The fundamental difference is that we're talking about people-centred cooperations—people-centred rather than profit-centred.

I'm not here to call profit a dirty word; by no means am I doing that. If the focus is on the people who either supply or use the services, you're going to have an enormously adaptable model that helps to create jobs and sustainable growth, but in the concept of values. I think there's no better time than now for us to be looking at a corporate model that offers a values-driven alternative to some of the practices of the free market over recent years.

The subject of banks came up just before I began my remarks. I won't say that Canadian banks have been terribly bad. They haven't been terribly bad compared with the European ones. It's interesting to observe what's happened very recently in Britain with the interest-rate-fixing scandal at Barclays Bank. What's happening there is a flight of bank deposits into cooperative banking institutions.

I think more and more you're going to see people looking, not to displace the traditional free enterprise capitalist model—I think rumours of its death are being greatly exaggerated—but to finding alternative models that do focus on people and the things that matter, as I said, like jobs and like growth.

I don't expect the government to guarantee co-ops. I don't expect the government to guarantee co-op jobs. I do think there should be a level playing field for cooperatives in the Canadian economy.

That brings me to a remark I heard from Professor Watson, who was supposed to be here today but unfortunately is not. I would like to have met him. Essentially what he said was that cooperatives work and they don't need any additional or favourable support from government.

I remember Mr. Bélanger agreed with that, and I agree with Mr. Bélanger. They don't. But before we start getting into that, I think we need to determine exactly what a level playing field means.

If anybody is under the impression that there are significant breaks through the Canadian tax system and direct grant systems to private enterprises of all kinds, then we need to rethink it. I have a partial list of what is offered by way of breaks to tourism, to the auto industry—remember the bailouts—and to the oil and gas sectors.

Generally speaking, you can find—through the tax expenditure report of the Government of Canada, which the finance department released this year on January 9—the amount of money put out by way of so-called tax expenditures, essentially tax breaks that assist different parts of the economy according to what are considered to be the economic strategic interests of the country.

I'm not going to comment on whether those are real strategic interests. That's for others to decide. What I am saying, though, is that co-ops deserve a fair place at the table. If business is going to be assisted, then there's no reason that co-ops shouldn't be assisted as well. In particular I'd like to see some of the benefits provided by way of resources from Industry Canada also made available to cooperatives.

I would say this is an extremely good time for the Government of Canada to consider the creation of a centre for excellence in cooperative enterprise. It would be a remarkable and fitting legacy for the International Year of Cooperatives, 2012.

Thank you.

12:55 p.m.

Conservative

The Chair Conservative Blake Richards

Thank you very much, Mr. Gazzard.

I believe next we have The Co-operators Group.

Mr. Lowery, you have 10 minutes. The floor is yours.

12:55 p.m.

Frank Lowery Senior Vice-President, Senior Counsel and Secretary, The Co-operators Group

Thank you very much.

Good afternoon, Mr. Chairman and members of the House of Commons Special Committee on Cooperatives, and thank you for this opportunity.

My name is Frank Lowery. I am senior vice-president, general counsel, and secretary of The Co-operators Group Limited.

One in three Canadians is a member of a cooperative or a credit union, and over 10,000 Canadian cooperatives and credit unions employ in excess of 150,000 people and have combined assets of approximately $167 billion.

The Co-operators Group is one of these cooperative organizations.

We are owned by 45 cooperatives, credit union centrals, federations of caisses populaires, representative farm organizations, and like-minded organizations, with a combined underlying membership of 4.5 million Canadians. As one of Canada's most prominent financial services organizations, we are proud to provide insurance and financial services to more than two million Canadians. We strive to be the insurer of choice for Canadian cooperatives and credit unions, but we serve all Canadians

Just as many cooperatives spring from unfulfilled social and economic needs, The Co-operators was formed by a group of farmers who sought insurance protection that the private capital market would not provide. Despite our humble beginnings, we are an excellent example of how the cooperative model is a thriving form of enterprise.

Inherent in our cooperative values is a commitment to the communities in which we operate through employment, philanthropy, community economic development, and cooperative development. For example, our co-op development fund provides grants to small, emerging co-ops throughout the country. We also support the cooperative development infrastructure in Canada. Last year alone we provided more than $650,000 in fees and dues to various co-op associations across Canada. Our charitable foundation and associated non-profit provides support for sustainable and community-based development. We provide pro bono and in-kind services for cooperative development both in Canada and abroad.

We are also very proud this year that our CEO, Kathy Bardswick, is Canada's representative on the International Co-operative Alliance.

Let me talk about the role of cooperatives in Canada.

As cooperators, we know that cooperatives contribute to Canada's social fabric and the survival of communities because they are formed to meet common needs and are democratically run. The cooperative model is a form of business enterprise that is most adapted to accomplishing social and public policy objectives. That uniqueness of form has been most particularly recognized during the economic crisis of the last four years when public share and private capital corporations have been bailed out at public expense, while cooperatives generally have not. Public confidence in the financial sector and all of its related activities has been shaken, but as cooperatives, we have confidence in the ethical value base of cooperative enterprises that has never been stronger. Cooperatives, like all business enterprises, require a regulatory environment that is efficient and that does not deter investment or productivity, but they also need an environment that takes into account the uniqueness of the cooperative form.

I'm speaking specifically about the Canada Cooperatives Act. Today I would like to focus most of my remarks on the uniqueness of the cooperative form and the need for legislation that recognizes it. For cooperatives to better succeed—for there to be more and better cooperators in the future—the enabling cooperative statute needs to be modified. Without these changes, the many varieties of cooperatives in all sectors of the economy that will significantly contribute to Canada's future by providing good jobs and stability will be held back. The Canada Cooperatives Act must more appropriately recognize the unique nature of the cooperative form of enterprise.

Modernization of the Canada Cooperatives Act in 1998 drew upon the Canada Business Corporations Act for guidance. The CBCA is a statute governing share capital-based business organizations rather than membership-based or values-based organizations such as cooperatives, fraternal benefits societies, or mutuals.

As might be expected, provisions that make sense for publicly traded capital corporations do not necessarily make sense for member-based cooperative organizations.

In this vein, there are really three issues that I want to bring to your attention with respect to the Canada Cooperatives Act. The first is carrying on business on a cooperative basis. Subsection 18(2) of the act allows an interested person to make an application to the court if the person believes the cooperative is not organized, operated, or carrying on business on a cooperative basis. “Cooperative basis” is defined in section 7 of the act and is basically consistent with the statement on cooperative identity maintained by the ICA, which guides all cooperative organizations.

Section 329 of the act gives a court in the area in which the cooperative has its registered office the ability to have a very wide investigation and gives it a wide range of remedies. Paragraph 313(1)(a) of the act then gives a court the power to order the liquidation and dissolution of the cooperative if the court is of the view that the cooperative no longer carries on business on a cooperative basis.

Think carefully about what that means. It means that a person, including a person who might not like cooperatives or who might have any number of motives to wind up a cooperative, has the ability to access a remedy to dissolve the co-op without going to the membership and without really accessing the democratic process within the cooperative, which is the whole essence of a cooperative. When that person applies, they apply to a judge, who normally would have had little exposure to co-ops or to cooperative law and who will likely, in rendering a decision and making a judgment, bring to bear public share company principles and precedents.

Without going into any more detail on this specific issue, this is a very draconian remedy, and though to the best of my knowledge it has not yet been utilized by anyone, it is a disincentive to many large organizations not yet under the Canada Cooperatives Act to use this act. So the bigger you become, the less likely you would want to use the Canada Cooperatives Act.

To correct this, it is our respectful view that the determination as to whether or not a cooperative continues to operate on a cooperative basis should be made by a panel of experts appointed by the CCA and CCCM, rather than a court, which normally applies public share capital company law. In addition, the test should be modified such that a cooperative needs to “substantively” operate on a cooperative basis. Sanctions, if it doesn't meet this test, should begin with giving the cooperative a period of time, something like six months, to rectify its failings with respect to this test.

The second issue really relates to the broader act itself. Because it was drafted based on a statute designed for stock companies and not membership-based entities, it has sections within it that might make sense for a publicly traded share capital company that are not truly democratic, given that differential votes are attached to different classes of shares or that minority shareholders have no rights, but it does not necessarily make sense for a democratically controlled cooperative enterprise.

There is a large body of law around the so-called oppression remedy that exists in public corporations to protect minority shareholders, but no such body of law exists for cooperatives. One really wonders why or how such a provision made it into a cooperative act, but it did. We think this needs to be reviewed and, if doing so is considered appropriate, removed.

The dissent right, as it is known in public company law, is also a concept that makes great sense in public share capital corporations that have minority shareholders who have no real influence, but in cooperatives it is an article of faith that votes are tied to membership and not to capital. First-tier co-ops, by definition, must have one member to one vote.

Finally, in corporations that are really capital vehicles, where the owners of capital have a disproportionate share and where occasionally one owner wants to take out another owner, the compulsory acquisition rules also make sense—the majority of a minority, and so on—but in cooperatives this does not necessarily make sense.

Cooperative entities are inherently, and by definition, democratic institutions.

In a democracy, while people have a right to disagree, the majority ultimately decides, and the minority needs to follow the common decision. I heard that earlier this morning: it's one person, one vote. We do not, for example, have the right to dissent with respect to how our taxes are spent, or with respect to other public policy decisions that are made on our behalf by people who are popularly elected. Cooperatives are autonomous groups of people who are brought together for a common purpose and who participate with respect to that common purpose in a democratic way—just as it is in our own democracy.

In a truly democratic organization or society, once the majority has chosen the path that is to be followed, all of the members of that cooperative or society follow. They may disagree with it, but inherent in democratic theory is the right of the popularly elected to set public policy. If in time they don't do this, they will likely be defeated and someone else will be elected. But that is the sanction, not an oppression or dissent right.

The last part is actually not in the act but is a suggestion we would make. This concept should be considered and, once properly drafted, should be included.

In the last year or so there has been a lot of discussion regarding demutualization measures for property and casualty insurance companies in Canada. There are currently no rules governing the demutualization of property and casualty insurance companies in Canada, but it is the expressed intention of the government to issue such regulations for public consultation some time this summer.

About 10 years ago there was a wave of demutualizations that occurred in the life insurance sector. The government of the day developed regulations to govern those demutualizations. We all know how that worked out.

When a company demutualizes, what really happens—and this is my view, since I have been around and have worked for mutual companies—is that the company is converted into a stock company with shares that ultimately find their way onto public markets. There are winners and losers, and those who have tended to win are a small minority of policyholders, board members, senior managers, brokers, and professional consultants who receive windfall benefits. This was less so in the life sector due to the comparatively larger group of participating policyholders but will be much more evident in the P and C sector if the government adopts rules similar to those for life company demutualization.

The mutual, the cooperative, and the fraternal benefit forms of business do not really benefit from this. In addition, all of the ordinary Canadians who have contributed over time to the wealth and surplus of these companies do not benefit. Only those who are current or relatively recent participating policyholders benefit, even if they didn't really create the vast majority of the wealth and surplus.

The windfalls generated by this type of activity ensure that mutuals, cooperatives, and fraternal benefit organizations as a group will never get to a size that can compete with the private sector capital companies. Though many generations contributed to create the surplus and to support the democratic form of enterprise, there are always a few who are happy to take it and get rid of the democratic form.

This should actually provide an advantage for other member-based organizations in a world where consolidations appear to be essential to retain competitiveness, but in fact quite the opposite is true.

For a company like The Co-operators, if we wanted to keep a mutual in the mutual sector, under regulations similar to those for life company demutualization, we would basically have to have it demutualized, take away all of the benefits of membership, and effectively purchase it as an asset. That means that those with access to large amounts of capital are the ones who our system permits—

1:05 p.m.

Conservative

The Chair Conservative Blake Richards

I'm sorry to interrupt, Mr. Lowery, but your time has actually expired. I will give you about 15 seconds if you want to just summarize any last comments you want to make.