Debates of March 27th, 2001

Financial Consumer Agency Of Canada Act

[Some hon. members]

Nay.

[The Acting Speaker (Ms. Bakopanos)]

In my opinion the yeas have it.

And more than five members having risen:

[The Acting Speaker (Ms. Bakopanos)]

The recorded division on Motion No. 14 stands deferred. I will now put Group No. 3 to the House.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

moved:

Motion No. 3

That Bill C-8 be amended by adding after line 20 on page 28 the following new clause:

“54.1 Subsection 46(2) of the Act is replaced by the following:

(2) The shareholders of a bank shall, by resolution at the meeting of shareholders called pursuant to subsection (1), a ) approve, amend or reject any by-law made by the directors of the bank; b ) subject to section 168, elect directors to hold office for a term expiring not later than the close of the third annual meeting of shareholders following the election; c ) appoint an auditor or auditors to hold office until the close of the first annual meeting of shareholders; and d ) adopt a code of internal procedure respecting the conduct of meetings of shareholders.

Motion No. 4

That Bill C-8, in Clause 63, be amended by replacing lines 21 to 33 on page 31 with the following:

“63. Subsection 138(1) of the Act is replaced by the following:

1. (1) Notice of the time and place of a meeting of shareholders of a bank and the complete minutes of the last meeting of shareholders, whether that meeting was an annual or a special meeting, shall be sent not less than twenty- one days or more than fifty days before the meeting, a ) to each shareholder entitled to vote at the meeting; b ) to each director; and c ) to the auditor or auditors of the bank.

(1.1) A bank with equity of five billion dollars or more shall set out in the notice of a meeting the number of eligible votes, as defined under subsection 156.09(1), that may be cast at the meeting as of the record date for determining those shareholders entitled to receive the notice of meeting or, if there are to be separate votes of shareholders at the meeting, the number of eligible votes, as defined in that subsection, in respect of each separate vote to be held at the meeting.”

[Pauline Picard, Bloc, Drummond, QC]

moved:

Motion No. 5

That Bill C-8, in Clause 65, be amended by replacing line 6 on page 32 with the following:

“in whose names the shares are registered in the institution's registers and entitled to receive notice of a meeting under”

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

moved:

Motion No. 6

That Bill C-8 be amended by adding after line 33 on page 34 the following new clause:

“70.1 Section 160 of the Act is amended by striking out the word “and” at the end of paragraph (h) and by adding the following after paragraph (i): j ) a person who is a director of another financial institution; and k ) a person who has, directly or indirectly, an interest in the supply of products or services to the institution.

Motion No. 7

That Bill C-8 be amended by adding after line 20 on page 35 the following new clause:

“71.1 The Act is amended by adding the following after section 161:

161.1 (1) The position of chairman shall be separate from the position of chief executive officer and shall not be held by the same person.

(2) For greater certainty, the role of the chairman shall be to ensure that the board of directors assesses the management of the institution, while the role of the chief executive officer shall be to manage the institution's day- to-day activities.”

Madam Speaker, basically, these amendments have three purposes. The first is to give more power to shareholders of financial institutions. Earlier, we spoke about the special ownership structure of the Canadian financial sector and that is precisely the idea of the first motion. We said, for example, that for large banks 20% of the shares can be held by a single shareholder and that 80 % of voting shares would be widely distributed in the public.

The effects of such a distribution can be negative since small shareholders have very little to say, particularly during annual meetings of the large Canadian banks, and the bill is designed to strengthen the powers of those small shareholders.

We add our voice to that of the Association de protection des épargnants et des investisseurs du Québec, the APEIQ. We want to give our support to its campaign for more democracy at annual meetings of banks, as well as in the way the boards of directors of financial institutions operate.

On this point, in our first group of amendments, we say that shareholders, no matter how small, have a right to be heard and to participate in any decision made by the financial institutions. To do so, they must receive prompt and timely notice of a general meeting. They must have all the documents relevant to this meeting and they must also be allowed to be heard, not just on matters having to do with the profitability of the financial institution, but also on any other matter which directly or indirectly affects the activities of the institution per se.

I will give an example. Right now, it is not possible for shareholders at a general meeting to raise matters having to do with the social aspects of a company's activities. Nor may they raise political issues. For instance, they could not ask questions about the activities of a company in which they were a small shareholder in countries where democracy was not the rule and where fundamental rights were not respected. It is not possible at a general meeting to table resolutions along these lines or even to question the board of directors. It is time that this changed. It is now 2001 and the democratic system in use at the general meetings of major financial institutions is completely archaic.

There are also other motions, one of which was to avoid any possibility of conflict of interest.

A person cannot sit on the board of a major bank and also provide that bank with goods and services. This would make him or her both judge and party to the action when it came time to make decisions relating to the financial institution.

For example, someone cannot be a member of the board of a bank and a shareholder in a company of external auditors, for instance, hired by the bank to audit its financial statements.

What we are proposing then is to ensure that there are new provisions which would, for example, call for questions to be asked and for it not to be acceptable for a board member to be directly or indirectly involved in providing the institution with products and services. Nor would it be allowed for a board member of one financial institution to also sit on the board of another. This could lead to problems.

That is the gist of what we are proposing. It is also the position of the Association de protection des épargnants et des investisseurs du Québec, APEIQ, which we totally endorse.

It is our hope that, in the spirit of greater democratization and transparency of the activities of the financial institutions, the government will support such proposals, along with the members of the other opposition parties. They cannot help but improve things from the point of view of equity, small shareholder participation, democratization and, above all, transparency of the activities of these major financial institutions.

[Roy Cullen, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, Motions Nos. 3, 4, 5, 6 and 7 brought forward by the Bloc relate to the provisions of the Bank Act on crown corporation governance.

As hon. members know, the Senate is presently considering a separate bill, Bill S-11, to amend the provisions of the Canada Business Corporations Act relating to corporation governance.

The government is closely monitoring progress of Bill S-11 with a view to assessing the opportunity to apply the various initiatives included in that legislation to financial institutions.

After parliament has completed consideration of Bill S-11, the government will consult interested parties on the changes.

The consultation process will allow parties who did not take part in the amendment of the Canada Business Corporations Act to express their views on the appropriateness of making similar amendments to corporation governance provisions that apply to financial institutions.

Since the general examination of provisions of financial institution legislation concerning corporation governance will focus on the issues raised in the motions, we think there is no need to amend the bill at the moment.

[Pauline Picard, Bloc, Drummond, QC]

Mr. Speaker, it gives me great pleasure to speak to the motions brought forward by the Bloc Quebecois and supported by my colleague for Saint-Hyacinthe—Bagot, who worked very hard on this issue. He submitted a brief on the subject, listened to hundreds of witnesses and also took to heart most of the recommendations made by witness groups.

The problem with this bill, and it was mentioned earlier, has to do with banks with assets totalling under $5 billion.

We are also concerned with the recommendations made by the Association de protection des épargnants et investisseurs du Québec. It submitted a brief at the committee hearings on Bill C-38, which is now called Bill C-8.

The Association de protection des épargnants et investisseurs du Québec then said:

Bank ownership is widely spread in Canada and it is so intended in order to limit a big shareholder's capacity to control one or more financial institutions while these are considered to be public services. Unfortunately, this widespread shareholding has had a perverse effect—

I repeat, “a perverse effect”,

—by leaving way too much influence in the hands of the directors of major banks. This perverse effect could well be eliminated through some legislative changes to the Banking Act.

The Bloc Quebecois supports the recommendations made by the Association de la protection des épargnants et investisseurs du Québec, and that is why we brought forward the motions read earlier. We have moved many more in support of the association, but they were rejected.

The association has made numerous representations to the federal government, to the McKay Commission in 1997, to the Standing Senate Committee on Banking in 1998 and to the House Standing Committee on Finance in November 1998. Despite these many meetings, Bill C-38 and Bill C-8 did not take any of the association's recommendations into account.

For the most part, these recommendations refer to the recommendations made by the association. I would like to quote some of these recommendations if I have enough time, but I know that time flies.

First there is the restriction on the number of boards a director is allowed to sit on at any one time. Our proposal dealt with the restriction on the number of boards a director would be allowed to sit on at any one time. What exists now is the old boys' club rule where “You appoint me, I appoint you, and we appoint each other”.

Committees Of The House

[Jim Pankiw, Canadian Alliance, Saskatoon—Humboldt, SK]

Mr. Speaker, I rise on a point of order. I apologize for interrupting the member's speech but it is a procedural matter. I believe you would find unanimous consent to adopt Motion No. 3 on the order paper without debate.

[The Deputy Speaker]

Does the hon. member for Saskatoon—Humboldt have unanimous consent to propose the motion?

[Some hon. members]

Agreed.

[The Deputy Speaker]

The House has heard the terms of the motion. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

(Motion agreed to)

The House resumed consideration of Bill C-8, an act to establish the Financial Consumer Agency of Canada and to amend certain Acts in relation to financial institutions, as reported (with amendments) from the committee, and of the motions in Group No. 3.

Financial Consumer Agency Of Canada Act

[Pauline Picard, Bloc, Drummond, QC]

Mr. Speaker, there is something I did not really understand with the adoption of Motion 3. It would appear that you allowed something, but on this side we did not hear what you said.

[The Deputy Speaker]

The hon. member for Saskatoon—Humboldt requested the unanimous consent of the House on some report and it was given. We are therefore resuming debate.

[Pauline Picard, Bloc, Drummond, QC]

As I said, our proposal dealt with limiting the number of boards on which a director can sit at the same time.

We were saying that, right now, what exists is the old boys' club rule where “I appoint you, you appoint me and we appoint one another”, which makes boards of directors increasingly less efficient and less representative of shareholders. We believe that the number of boards of directors on which a person is allowed to sit should be very limited, because one needs time and a minimum of dedication to do a good job. The bill completely ignores those recommendations.

Second, there is the elimination of potential conflicts of interests between board members and those who provide goods and services to the institution. Our proposal dealt with the elimination of potential conflicts of interests between board members and service providers.

Bill C-8 contains no provision to that effect, except the general provision on very general conflicts of interests. As we know, in the United States and even in Canada, there has been some success in getting shareholders meetings to pass, often against the will and recommendations of bank managers and other corporate directors, resolutions making it a requirement to disclose at least the fees paid to external auditors for audit services, on the one hand, and general consulting services, on the other hand.

For example, a consultant who is paid $1 million to audit records, while at the same time being paid $10 million for various consulting services could presumably have some difficulty presenting a critical internal audit report. Everyone understands that.

Third, there is the requirement to submit financial statements for review and discussion during the annual shareholders' meeting. That proposal seeks to clarify the legislation so that the agenda of the yearly shareholders' meetings include the item “consideration of financial statements and auditor's report”.

In that regard, according to the Canadian Oxford Dictionary , the word consideration means more than just tabling, but the act of considering and careful thought means not just tabling, but giving careful thought.

Since the financial statements are the main report of the agents on their management of the corporation, consideration and discussion of that document is a basic right of the principal shareholders, even those of banks.

There is also the presentation of the officers' remuneration policy to the shareholders' approval. With respect to banks, which are essentially public service companies operating in a very protected environment compared to other companies in the private sector, we find the remunerationpaid to officers literally outrageous.

Of course we know the process through which they receive very positive recommendations about remuneration systems providing they are paid this or that amount. Nevertheless, the end result is that the officers of these institutions are not necessarily paid a basic salary, but aggregate remuneration with a very generous option plan, and that is unacceptable.

As for the adoption of a code of procedure respecting the conduct of shareholders' meetings, the purpose of this proposal is to facilitate active and effective shareholder participation in meetings and to protect them from the arbitrary decisions of presiding officers who are anxious to cut short shareholders' remarks. Our suggestion is that each corporation prepare a code of procedure respecting the conduct of these meetings and that this procedure be adopted at an annual meeting of shareholders within a reasonable timeframe.

Some banks, and more particularly the Laurentian Bank, have voluntarily adopted such a code, but it is not a requirement of the bill.

Corporations should also be required to prepare a comprehensive report on all shareholders' meetings and send it to all shareholders. Our recommendation is that corporations be required to do so. Some of them already do, but there is no requirement to that effect in the bill.

Another suggestion is to reduce the barriers that prevent shareholders from making proposals before and during shareholders' meetings. This suggestion is being made generally rather than by the board or the management of banks exclusively. At this time, a shareholder must hold 5% of the shares of a financial institution or public corporation or have control to be entitled to present candidates as directors on the board.

Do members know how much 5% of the Royal Bank shares represents? It represents $900 million. I do not think any members has that much money or has the proposed control of a bank to be able to present candidates. I do not know too many people with that kind of money.

[An hon. member]

Paul Martin.

[Pauline Picard, Bloc, Drummond, QC]

Of course. Access should be given to all bona fide shareholders: most shares are held in trust by brokers, and these intermediaries are the registered shareholders. Only these intermediaries hold the list of actual shareholders, so the corporation does not know who these shareholders are and cannot communicate directly with non registered shareholders. This would ease communication between the corporation and its shareholders.

The position of chairman should be separate from the position of chief executive officer. We are also proposing a reduction of barriers to the shareholders' right to submit proposals for and during shareholders' meetings. Thus, we recommend a reduction of barriers to the shareholders' right to submit proposals.

At this time, the act and the bill provide that the bank's management may refuse a shareholder's proposal that is primarily for the purpose of promoting general economic, political, racial, religious, social or similar causes. It may essentially refuse almost anything and it is only public pressure, so to speak, that forces banks to accept shareholders' proposals.

Our proposal also deals with branch closures. We are told that banks will now be able to proceed with branch closures. We would like this to be very transparent. People, especially those living in rural and isolated areas where there are less services will be given a six month notice. How lucky; a six month notice to warn them that their bank will be closed. And who cares about where they will get the same services.

There is nothing in the bill on this. There is only the minister who is convinced that his bill will help ordinary people, small investors and small savers. I hope these flaws will be corrected in the bill before it is passed.

[The Deputy Speaker]

Is the House ready for the question?

[Some hon. members]

Question.

[The Deputy Speaker]

The question is on Motion No. 3. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

[Some hon. members]

No.

[The Deputy Speaker]

All those in favour of the motion will please say yea.