Special Committee on Cooperatives Committee on July 25th, 2012

[Rose Marie Gage]

It's Rose here, actually, and I'll take this one on as I'm working on that more directly than William is. William serves as the governing head for the entity.

Yes, where we can provide value, we're looking at providing services to others who are looking at creating co-ops.

For instance, we have already invested in an infrastructure, whether it's our IT, our membership categorization, our customer database, and so on. So where it makes sense for us to be able to lever what we have and proffer our skills to others, we would like to be able to do so. That way, what we are doing is diversifying our skill sets and our revenue streams, but also supporting others, without having to go through the same learning curve or the same investment.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

It makes great sense.

Are they associated with your co-op, or are they arm's-length organizations that just come to you and on a fee-for-service basis hire your skills?

[Rose Marie Gage]

They are not owned by us. They would be entities that we might take a stake in, or perhaps they would be just generic co-ops that are looking for services. So it could be arm's length or it could be completely exclusive on a fee-for-use basis.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

Fantastic.

[Rose Marie Gage]

We are open to the opportunity.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

Great.

From our panel, is this prevalent throughout your organizations too? Is this happening on a general basis, that co-ops already existing are helping manage other co-ops or helping start-ups with other co-ops and giving them your expertise?

[Hélène Simard]

Yes, that is done on a regular basis. That is common practice for the members of the Conseil québécois de la coopération et de la mutualité and for cooperative federations. We say that an isolated cooperative is a fragile cooperative. We encourage them to participate in their regional development cooperative and the federation in their industry sector—when there is an organized sector. Good business practices are shared. Knowledge is pooled, and that is how companies develop. That's extremely important.

I would like to clarify a few things. When it comes to support programs, the board administers them with the Government of Quebec. The financing rate by cooperative members is over 70% in our cooperative federations. I am not taking into account all the major cooperative networks, which contribute to the help provided for small cooperatives, the start-up process or support.

A number of cooperatives are grouped together. Small and medium-sized companies are grouped together in new federations. They may work in energy, funeral services, the school world, cable services or telecommunications. In those company networks, support can sometimes be given to innovations, to the restructuring and development of new business sectors, but generally, members provide a major contribution. That is typical of the cooperative business model. People develop on their own and participate in their development.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

Perfect.

I think I've hit on another secret of the longevity of cooperatives and why we have great success. It's cooperatives helping cooperatives stay in business and go further in business.

Monsieur Richard, is it the same thing in your organization, helping other cooperatives succeed, within your network and outside of your network?

[Denis Richard]

A cooperative is a company. It has a board of directors that ensures the company's sustainability. Some of our results will help other cooperatives. That is not our priority, unless we're talking about cooperatives from our network. As Ms. Harel said earlier, we provide support services to our members. We are willing to help other cooperatives in collaboration with the Conseil québécois de la coopération et de la mutualité, and occasionally with other stakeholders. However, that is not our priority.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

I love the thought and I'm glad I've heard of it. It sure beats the, “Hi, I'm from the government and I'm here to help.” Instead, “I'm here from the cooperatives and I'm here to help.”

[The Chair, Conservative, Blake Richards]

I'm sorry, Mr. Preston, but I have to cut you off there.

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

[Malcolm Allen, NDP, Welland, ON]

Thank you, Mr. Chair.

I hear what Mr. Preston is saying, but I think what the cooperatives are saying is, “Hi, the government hasn't helped much yet.”

Mr. Lemieux talked about job creation and that FedDev was meant to be an investment fund for creating jobs, etc. It seems from what I've heard in the last number days from the testimony from co-ops is that you ought to be at the top of the list because of your success rate, your longevity, and the fact that you create jobs rather than off the lists, it seems. It's sometimes on the list, but sometimes there's a list that you should be on and folks don't know that's the list that you're supposed to draw from. As much as the government maybe doesn't have to be in your backyard all the time telling you what to do, it certainly ought to be there to assist you when you're looking for help.

These are all wonderful things and, clearly, Mr. Richard, you talked about restructuring. I say this because we've heard all of these wonderful stories, which they are, but not all is light. I hate to be the proponent of a dark cloud, but there doubtless are moments in time when things don't go as well as the members want.

What makes you different from a for-profit, investor oriented, shareholder company when their bad times come? What is the difference between you and them? How do you see yourselves restructuring? Do you restructure differently? Do you look at it differently?

[Denis Richard]

Companies are part of the same economic world; they are facing the same economic imperatives. They must have the same management capacities, regardless of the company's nature or structure.

In a crisis situation, one of the key features that sets cooperatives apart from share-capital businesses is the fact that cooperatives redistribute their surplus based on the activities of all their members. Share-capital businesses, as their name suggests, redistribute their profits based on invested capital. Those are investors, and that mostly happens in public companies.

In the case of big companies like La Coop fédérée, our competitors are public companies. They must report their results every three months. Agri-food is a fluctuating sector. In periods of crisis, those companies' executives must report to their shareholders and explain why they had poor results that month, and why they may have more such results next year. Investors then tend to leave companies. However, our members don't leave us. They are users; they are our clients. They understand the situation because they need the cooperative in the long term. They accept the fact that the cooperative cannot redistribute money during a crisis year. Since their company is necessary, it must stay put.

I am a farmer. If I had invested capital and was expecting a return, in the case of a crisis in agriculture, I would take my capital and invest it in another area of activity. However, as I am a farmer, my company must endure. So I would not withdraw my capital. I am patient because that is important for my company, whose user I am. The same goes for agriculture. Whether we are talking about a cooperative in the energy sector or another industry, owners are users. So they are patient; they accept and understand crises.

[Malcolm Allen, NDP, Welland, ON]

So it's in the sense of a longer term view. I'm reminded of the business press, which talked about Apple this morning, supposedly the glowing star of the last year, going down in the last quarter. So it seems that all of a sudden, the company is headed for the doldrums. Yet it's the wealthiest company in the world when it comes to capital assets, but somehow the last three months have sent it into a tizzy, according to the business press. I never hear that about my credit union actually. It's usually not in the business press, except when it merges. The last time I checked I got my share dividend last year, like I have for the last 47 years. I was a kid when I went there. My father made me join. He said it was a good thing for me. My father was right, rest his soul.

But, Madame Simard, you talked earlier about the Ernst & Young study. I know it's in your brief and we can look at it. I think you're right that it's a good idea for us to look at that study, but I wonder if you want to flesh that out a little more.

I hear the bell, so you're not going to get much time to flesh it out, but at least add a few more words to it.

[Hélène Simard]

That study is available in French and in English. I will send it to you. I think it is more eloquently worded than anything I could say on the topic. What's important is that it gives a solid overview of the capitalization problems and the solutions that have been adopted. I think it may provide you with considerable guidance in your work.

[The Chair, Conservative, Blake Richards]

Thank you very much.

I want to thank all our witnesses today for their information and participation. It was very valuable to us, as a committee.

We will now suspend until 1:45.

The meeting is suspended.

[The Chair, Conservative, Blake Richards]

Mr. Speaker, the meeting has now reconvened.

This afternoon we have with us two panel members. First, from Alterna Savings, we have Mr. John Lahey, the president and CEO. And from the Excellence in Manufacturing Consortium, we have Alan Diggins, the president and general manager.

I'm not sure if there was discussion about who would go first. How about I turn to you, Mr. Lahey, as you are listed first on my sheet? That seems the appropriate thing to do, so I will turn the floor over to you. You have 10 minutes to make opening remarks to the committee. Then we'll turn to Mr. Diggins.

Mr. Lahey, the floor is now yours for the next 10 minutes.

[John Lahey, President and Chief Executive Officer, Alterna Savings]

Thank you, Mr. Chair, and members of the committee, for inviting me to be part of this important study on the opportunities and challenges facing the cooperative sector here in Canada.

My name is John Lahey, and I am president and chief executive officer of Alterna Savings and Credit Union Ltd., headquartered here in Ottawa.

My objective today is to broaden your appreciation of the positive impact financial cooperatives or credit unions have on the lives of underserved or marginalized Canadians.

Alterna's history is proud and dates back more than a century. In 1908, banks were not in the business of lending money to average citizens, and in those days, there was no legitimate alternative Canadians could to turn to. The Civil Service Co-operative Credit Society, the first Canadian credit union established outside of Quebec, was founded in Ottawa in response to loan sharks who were charging people an astronomical interest rate of 200% a year, and doing business, we are told, right here on Parliament Hill.

Perhaps the where of where they did business makes for an interesting myth. But what's true is that credit union members pooled resources to support each other and in so doing were able to deliver far more affordable deposit and credit services. In 2005, the Ottawa-based Civil Service Co-operative Credit Society and the Toronto-based Metro Credit Union merged to form Alterna Savings.

Alterna Savings, which today holds over $2.3 billion in assets and employs some 450 people, provides financial services to members through 22 branches located in greater Toronto, the national capital region, Kingston, North Bay, and Pembroke. Our Quebec clients are served, through two branches in Gatineau, by our wholly owned subsidiary, Alterna Bank.

Like most cooperatives, we're also consistently strong supporters of the communities we serve. In 2011, we invested 4.24% of pre-tax earnings in community economic development, more than double our minimum targeted commitment of 2%.

I know that the committee has heard and will continue to hear from presenters the merits of cooperatives and how government can use legislation, regulation, and subsidies to help Canada's cooperatives maintain their enviable record of success. I'd love to spend an hour supporting each and every one of these suggestions, but given the time limitation, I've chosen to focus my remarks on sharing with you two concrete examples of how cooperatives positively impact the lives of underserved and marginalized Canadians.

Cooperatives, through a proven business model, are known the world over as an effective means of positively enhancing local economic development. Credit unions, in fact, were formed for precisely this purpose. It was to provide access to the financial services local citizens and entrepreneurs needed to build strong lives and enviable communities. Over Alterna's 100-plus years, the challenges of access have continually changed, but remarkably, there have always been people in our communities who have struggled to gain access to our financial system. Credit unions have always been about access—people helping people—and Alterna Savings is no exception.

A case in point is our long-standing status as a pioneer in microfinance. The objective of our microfinance program is to promote entrepreneurship, foster job creation, and aid in the economic growth of our communities. To do this we partner with leading community organizations to provide much needed financing to entrepreneurs who simply do not qualify at their local banks. Our experience is that this lack of access is particularly acute for new Canadians, high-risk Canadians, and marginalized individuals.

We wanted to measure how well our microfinance work was doing, so we engaged Carleton's Centre for Community Innovation to do an evaluation. Going into that work, we already knew one thing for sure: our financial cooperative makes no money on microfinance. At best, we break even. That's, of course, why the banks don't do it.

What we wanted to know, however, and what Carleton's study confirmed, was that the program delivers the kind of quantifiable social benefit that makes the effort worthwhile. Microfinance helps individuals contribute more meaningfully to their communities through higher quality of life, reduced reliance on government assistance, increased job creation, and business expansion.

I have brought copies of the Carleton study for you to look at later. It documents why this program is so important to Alterna's community economic development efforts.

However, the impact of our program is best appreciated by telling you a story. One of the amazing facts the Carleton study unearthed is that 95% of the businesses financed by the Alterna microfinance program over the past decade are still operating. One of those entrepreneurs was a single mother, working two jobs to support four children, who was struggling to provide even the basic necessities for her family. With the assistance of a $5,000 Alterna microloan to get a health-care service business started, we're happy to report that the business now employs close to 40 local citizens, generates over $1 million in annual revenue, and is a strong contributor to our economy.

Those businesses are real. They pay taxes, they buy goods and services, and they employ people in meaningful jobs. Our communities are better off every day because of this program.

The second example I wanted to share with you today comes to us as a result of our banking work in the broader cooperative sector. In this example Alterna is a proud participant in an effort that demonstrates the power created when cooperatives cooperate.

The Co-operative Housing Federation of Toronto, or CHFT, partners with 31 local Toronto housing cooperatives. A few years ago its executive director set out to make a difference. He and several colleagues had a dream that young people growing up in these housing cooperatives should have a chance to attend university and develop successful careers.

Through sponsorships from individuals and cooperatives such as Alterna Savings, as well as groundbreaking local academic partnerships with every university and community college in the Toronto area, CHFT has now been able to provide almost 200 young people financial scholarships to pursue post-secondary education. Many of these young people come from low-income and/or immigrant families. In fact, in many cases they are the first in their family to attend college or university. These opportunities for continuing education are opening important new doors for their future.

By the end of 2013, CHFT expects to have awarded more than $1 million in post-secondary financial scholarships to deserving young people who have not only achieved academically, but have been actively involved in the development of their cooperative housing communities. These awards are concrete examples of how a combined cooperative effort can have a real impact on the lives of those living in our local communities.

Alterna Savings, through its financial services business efforts, also supports other cooperatives through strategic financing as well as the supply of cost-effective products and services. As an example, we're proud to support organizations like Toronto's Centre for Social Innovation. CSI, as it's known—not the TV show—is an organization that provides shared workplaces, safe opportunities for socially minded business people to network, as well as shared business services.

The future promises to be challenging for financial institutions, particularly small financial cooperatives. Alterna Savings, formed by the merger of two smaller credit unions in 2005, is a prime example of the consolidation trend in Canadian credit unions over the last two decades. The practical reality is that financial cooperatives, in Ontario at least, and to a lesser extent across Canada, will need to consolidate an increase in sophistication if they are to survive in the emerging financial services marketplace.

Alterna Savings was pleased when the federal government announced a proposed regulatory framework for federally incorporated credit unions. We see that as a positive and progressive development for cooperative financial banking in Canada.

Canadians are spoiled when it comes to banking. They're used to national institutions they can access any time, anywhere. Today credit unions fill most of those needs very effectively, but as technology shrinks our world and consumer expectations continue to evolve, some credit unions will want, and perhaps even need, to move outside their provincial boundaries and expand extra-provincially.

This new legislation will allow that to happen. It will provide credit unions a strong option for enhancing service to members, and as a result, support the long-term growth of cooperative financial institutions in Canada. We're excited about the prospects for a reinvigorated financial services industry that includes a strong and growing credit union alternative for our members and all Canadians.

One last point I wish to touch on before closing is the increasing regulatory burden being placed on financial institutions, particularly small organizations.

Alterna Savings acknowledges and agrees that a strong regulatory framework is critical to protecting the safety and security of Canadians; however, collectively we are concerned that increased regulations may be swamping small financial cooperatives unnecessarily. Regulations are in most cases being applied consistently, regardless of an institution's size or complexity. The result is a much higher relative compliance cost for credit unions.

The government's Red Tape Reduction Commission emphasized in its final report that a one-size-fits-all approach to regulation tends to disproportionately burden small business. Credit unions are small businesses. Most cooperatives are, in fact, small businesses.

We agree with this conclusion and urge the government to follow through on its commitment to require regulators to examine current and future regulation through a small-business lens. This modified perspective is needed if we are to ensure that new and existing rules do not unnecessarily affect credit unions adversely. Credit unions provide strong competition to the big banks in local communities across Canada. We're not looking for special rules; we're simply looking for the small-business lens that was promised in the Red Tape Reduction Commission.

In fact, in many communities across Canada, credit unions are the only provider of financial services.

Banks are already heavily advantaged in terms of size and scale. Let's not provide an additional unintended advantage for the larger banks by making regulatory compliance unnecessarily difficult for the financial industy's small businesses.

Mr. Chair, that concludes my remarks.

On behalf of Alterna Savings and Credit Union, I wish to commend the government for undertaking this important study.

Across Canada this year, cooperatives, including credit unions, are celebrating the 2012 International Year of Cooperatives. Cooperatives have played, and continue to play, a vital role in building our country. We hope that the insights provided in your final report will serve to further promote and support the contribution of cooperatives to our communities.

I thank you very much for the opportunity to present to you today, and I'd be pleased to respond later to any questions you may have.

[The Chair, Conservative, Blake Richards]

Great. Thank you, Mr. Lahey.

I did allow you an extra minute there. With just the two of you, I think that was certainly okay.

I'll extend the same courtesy to you, Mr. Diggins, if you require an extra minute or so. One witness was moved to an earlier panel, so I will allow a little leeway for you. You now have approximately 10 minutes to make your opening remarks as well.

[Alan Diggins, President and General Manager, Excellence in Manufacturing Consortium]

Thank you very much.

Good afternoon.

We're not a cooperative. The Excellence in Manufacturing Consortium is a membership organization and the consortium is a registered, federally chartered, not-for-profit organization. We're not a cooperative, so I'm still trying to figure out how we got invited here to respond to this, but I'll tell you our little story.

Certainly our business is cooperative in nature. We have endorsed the formation of a true cooperative, a purchasing cooperative, the first one in Canada, but I'll just give a little bit of history to maybe understand who we are.

While I was working with a college system up in Owen Sound, Ontario, which is two-and-a-half hours north of Toronto, we had a lot of opportunity to have the manufacturers working together in that community. One of the reasons we focused on manufacturing was that manufacturing has got the biggest advantage to create wealth in any community—in any small community, in a province, or in the country. So I focused on that activity, working with the manufacturers, and got to know them all very well.

About that time, in the mid-1980s, we had a plant close, a 500-person facility, and that was devastating for a community of 19,000 people. So we got together with all the plant managers and said, okay, what can we do here to offset this? Now we're not going to have another 500-person facility located in rural Ontario—that was true then and it's certainly true today—so we asked if we could work together and continue to help each other out and share each other's resources. We did the math, and we said if we did this for three years, and each one of us grew by 5% over three years, we'd replace that 500-person facility. That was eighteen manufacturers, three of them fairly large in size.

That, then, led into a lot of really interesting activity. We call it sharing and stealing with pride, in an informal way, but it's really about having the manufacturers share their resources, share their ideas, share their problem-solving. And we facilitate that. We get manufacturers together. We've got 55 geographically regional consortiums across Ontario and the east coast, where we pull manufacturers together on a regular basis and get them working together. When you drive down any street in an industrial area and you see buildings with hundreds of people in them, problems have been solved, and they're staying in their own buildings and staying quiet. What we do is draw them out of the buildings and get them working together and again helping each other out.

So we've grown through the years, again, to now have 55 regional consortiums across eastern Canada. We have recently launched a manufacturing portal, if you will, an online manufacturing portal, which will take us right across Canada and help manufacturers through the age of online learning.

In Alberta they call what we do in Ontario and the east coast “clustering”, and that is getting together, helping each other out. The other thing that has happened just recently is that, through the Province of Alberta and Productivity Alberta, a branch of the government out there, we have been invited to take our activity to Alberta, to create that ability for communities—small communities in particular—to draw their manufacturers out and help them work together and get better at what they're doing, be more competitive and keep jobs in Canada.

One thing we have done as a membership organization in Ontario, because Ontario has unregulated energy rules—Alberta and Ontario are the only two provinces that have unregulated opportunities—is that we formed a purchasing group, if you will, not a co-op, where we've grouped together manufacturers to buy electricity and natural gas. The power of that has been phenomenal. I've got some results here, if you want to see them, where we've got medium sized manufacturers who, by working together and by our doing the due diligence on finding a third party to manage this, are easily saving $100,000 a year just by having the power of working together in a co-op type of fashion.

From the very beginning, going back more than 15 years, we were always involved with purchasing people from the buildings in the various communities we were in, and they always wanted us to get together and try to save money buying this and that—a very complicated arrangement. We listened to this for a lot of years, then last year we didn't incorporate, but we licensed our name to a co-op, a not-for-profit cooperative. We're in the EMC Purchasing Co-operative. It's owned by the members. It just launched a year ago and it's just nicely getting going. It is the only one of its kind in Canada—for manufacturing, that is. It's the only one of it's kind in Canada, and in the United States there's only one small one that is struggling along.

There's been great uptake on this purchasing cooperative, which may be of interest to you folks. Again, by working together.... I'll give you a very simple example of the power of that group. The example is one of our members, a little manufacturer, an assembler really. We went into his building and asked, what do you spend your money on, where's your biggest cost, other than payroll and that kind of stuff? He went around and he looked at all of the little pieces and said, I don't spend a lot of money anywhere. I spend a little bit here, a little bit here, a little bit here, a little bit here. We asked, what's the biggest cheque you write each year? He said, I assemble these little things and I ship them. I spend $500,000 a year on couriers. The lights came on, and we got some of our other members together, who formed a committee and went out and got all of the couriers in Canada together, and as we sit here now, some four months later, that young fellow and his business is now saving 45%. So he's paying about $200,000 less in shipping than he was before, and that's the power of cooperatives.

I could go on for about 45 minutes on what EMC is about, but substantially it's a membership organization working together—

[The Chair, Conservative, Blake Richards]

You could go on for 45, but I can give you four, if you want.

[Voices]

Oh, oh!

[Alan Diggins]

I don't know what else I could do in four or five. I think, really, we're about creating excellence, awareness, and innovation. That's really what we're about. The excellence is created by getting people like yourselves together, helping you to share and borrow ideas and thoughts, and behave that way. That's not normal behaviour; that's a learned behaviour. So if you, sir, had a manufacturing facility and there was something in this gentleman's building that you saw and you really liked in terms of process that would save you a lot of money, in our organization it would be okay for you to go and talk to Joe and say, would you mind if I steal that idea from you? The answer would be, yes, and I'll help you do it. That's the power of working together.

That, Mr. Chair, is a very brief synopsis of what EMC is about.

[The Chair, Conservative, Blake Richards]

One thing you'll find in this room is on one side of the table they're always going to be okay if the other side steals their ideas, but not vice versa.

[Voices]

Oh, oh!