Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 12 - Evidence
OTTAWA, Thursday, May 4, 2000
The Standing Senate Committee on Banking Trade and Commerce meets today at 11 o'clock to study Bill S-19, an Act to amend the Canada Business Corporations Act and the Canada Cooperatives Act and to amend other acts in consequence.
Senator E. Leo Kolber (Chairman) in the Chair.
[Translation]
The Chairman: We are studying Bill S-19. This morning, we will be hearing the Association de protection des épargnants et investisseurs du Québec, Mr. Yves Michaud, Founding Chair, Mr. Paul Lussier, President, and Mr. Réjean Belzile, Professor, Faculty of Accounting Science, Université du Québec à Montréal.
[English]
We would ask you to make a 10-minute opening statement, after which senators may wish to ask questions.
[Translation]
Mr. Yves Michaud, Founding Chair, Association de protection des épargnants et investisseurs du Québec: Mr. Chairman, this is our second appearance before the Standing Senate Committee on Banking, Trade and Commerce. We came here about 18 months ago to present 20 recommendations that we submitted to the Department of Industry regarding the Canada Business Corporations Act.
The Association des épargnants et investisseurs du Québec is the only volunteer organization in Canada exclusively dedicated to protecting, defending, demonstrating and promoting the rights of shareholders as can be seen by the scores of proposals we have made for the past five years to all the banks in Canada, including the largest ones, and some large companies like BCE.
Our action during the past five years has led to major and substantial progress in corporate democracy and in the participation of shareholders in business decisions. We obtained the adoption of a procedural code, a distinct vote for each administrator on the proxy form, the disclosure of accounting auditors' fees, the possession of a reasonable minimum of shares by administrators, access to information for shareholders, etc.
We have 1,400 members, most of whom are in Quebec; memberships have been registered from various parts of the Canadian federation and some American shareholders who hold Canadian shares.
We will show exemplary brevity and conciseness in our presentation and in its summary.
We are chiefly concerned with four subjects. The first is the respect of section 137.5(b) of the Canada Business Corporations Act, as we believe this article is contrary to the Canadian and Quebec Charters of Rights and Freedoms and which has not been amended, even though when we mentioned this section, the chair of this committee at the time, 18 months ago, the Honourable Senator Kirby, said that he was surprised to see such a provision included in the Canada Business Corporations Act.
The Canada Business Corporations Act as a whole seems to us to reduce the rights of shareholders contrary to what the Honourable Minister Manley maintains in his message where he states that this will extend and strengthen shareholder rights.
Why does it reduce rights? First, by maintaining section 137, which is not only maintained, but enhanced by adding the burden of proof on shareholders, on shareholders who want to make proposals, by asking them to ensure that their proposals are not contrary to the Act, namely a personal claim, a remedy for a grievance, or intending to serve general objectives of an economic, political, racial, religious, social or similar nature. As if public life as a whole were not in fact political, social, economic, religious or the like.
We will come back to this issue, because it is one of our recommendations. We denounce the first section as a stupid, indecent section in the Canada Business Corporations Act.
Our second concern is the way that compensation is shared among accounting auditors and among members of the board of directors.
Mr. Réjean Belzile, who holds a Ph.D. Doctor in accounting, member of the board of our association, will elaborate further on this provision in the Canada Business Corporations Act that has appeared haphazardly, like a wart, following some behind-the-scenes lobbying directed to the Honourable Minister Manley with the intention of having this new provision included, which is, incidentally, contrary to civil law and which might lead to a new constitutional battle between the federal State and its province because this issue is one of provincial and not federal jurisdiction. We have had enough constitutional quarrels. We think that the federal government should not add yet another one about the sharing of compensation.
The third irritant, if you will, is regulatory abuse. Apparently, the legislator is resorting to the following tactic: when a piece of legislation has been seriously challenged or too many concerns about it have been raised, he believes the answer is to bring in reams of regulations.
One member of the Senate, Senator Tkachuk to be precise, saw through this ruse. He observed that the government was moving too quickly to bring in regulations. I have long been concerned that Parliament is slowly being abandoned where this matter is concerned.
Unlike the Canada Business Corporations Act passed in 1975, Bill S-19 makes no provision for passage by Parliament, by the House of Commons, by the duly elected representatives of the people. In our view, this is contrary to the fundamental rules of democracy.
My third point is entitled "Silencing the small shareholders". For the first time in the history of Canadian business corporations, the legislator is drawing a distinction between small and large shareholders by limiting to one per cent the total number of voting shares in circulation, that is the total number of voting shares equivalent to $2,000, as calculated at their fair market value.
What will the next revision of the Act bring? Will a shareholder need to hold shares valued at $5,000, $10,000, $50,000 or even $100,000 in order to submit a proposal to businesses, banks or corporations?
The die is cast, and the plutocrats are having a field day. Democracy is slowing giving way to plutocracy, to a government of the wealthy. Where once the legislation set an example, now this is less so. Before this legislation was brought in, all shareholders were deemed equal under the law, regardless of the value of their share portfolio.
These provisions are exemplary and respectful of democracy. If the legislation is passed without amendment, we will be harkening back to Jean de La Fontaine who said:
There's one law for the rich, and another for the poor.
Consider this example. If the Association wanted to continue working with and helping some one hundred banks or corporations governed by the act, it would need to invest $200,000, hold $2,000 worth of shares in order to continue promoting corporate democracy.
It is my hope that as it sets out to revise the act, the Senate of Canada will have the opportunity to demonstrate its importance and usefulness in the running of the country's business. Many of the act's provisions are unsound and ill-advised and only serve to limit the rights of shareholders. The Senate can and must make the legislator see reason and rally behind the wishes of the people. In the process, it will reveal its true purpose, which draws its source from Roman law: senatus populus que, the Senate and the people.
I am the founding chair of the Association. All I did was launch the organization. However, we do have an active President, Mr. Paul Lussier.
Mr. Paul Lussier, President, Association de protection des épargnants et investisseurs du Québec: When we last appeared before the Senate committee, we tabled a brief along with a series of twenty or so proposals.
I would like to recall these proposals, all of which are aimed at promoting corporate democracy. Briefly, we proposed the following:
Validating the principle of the separation of roles by seeing to it that the chairman of the board does not also hold the position of CEO;
Facilitating the appointment of a board member by the real owners of the corporation, namely the shareholders;
Making service suppliers ineligible for board membership;
Requiring corporations to disclose all business ties between the corporation and its directors;
Limiting the terms of board members to a maximum of ten years;
Making an actual list of shareholders available to the corporation as well as to other shareholders;
Extending to unregistered shareholders the right to submit proposals for debate. Virtually all shares today are held on deposit by brokers, whereas the act stipulates that only registered shareholders can submit proposals for debate;
Removing all grounds for limiting the submission of proposals by shareholders;
Assigning to the Ontario or Quebec securities commission the task of ruling on the eligibility of shareholder proposals. At present, the corporations themselves decide whether or not to consider shareholder proposals;
Prohibiting the practice of identifying in advance authorized representatives who will vote the proxies. It is a known fact that very few shareholders attend shareholder meetings;
Providing for a separate vote for each director, rather than for a block vote;
Adopting a code of procedure for shareholders meetings;
Submitting the management compensation policy to shareholders;
Reviewing the financial statements which at present, are merely submitted at shareholder meetings;
Allowing directors and shareholders to resort to cumulative voting to signify either their satisfaction or dissatisfaction with certain directors;
Promoting communication with shareholders;
Allowing shareholders other than those who are members of corporate management to solicit proxies;
Requiring corporations to forward the minutes of the annual shareholders' meeting to all shareholders; and
Prohibiting contributions to political parties.
Basically, the Association would like to see the situation rectified to permit shareholders, who are the true owners of corporations, to elect the directors, instead of having them limited to electing the handful of directors picked by corporate management.
Moreover, the inspecting auditors appointed by the shareholders should do their job and report back to shareholders on the work performed.
Mr. Réjean Belzile, Professor, Faculty of Accounting Science, Université du Québec à Montréal: I would simply like to emphasize a few of the important points made in our brief concerning the addition of sections 237.1 to 237.9 on the subject of apportioning award of damages.
This represents a profound change in our professional liability system and we were surprised to see this new provision in the recent versions of the legislation, given that when consultations were held in 1994, no mention was made of changing the professional liability system.
Moreover, none of the working papers drawn up following the 1994 consultations addressed this matter, which indeed appears to be a last-minute addition.
We have questions about the consultations that took place. Why were so many people consulted, and no mention made of the proposed legislation? Judging from what we have seen, only a very select group was consulted about this inclusion.
The principle of proportionate liability, borrowed from the United States and adopted in 1995, was not the focus of any consensus in the U.S. at the time. However, one must remember that the context was somewhat different. The aim was to limit frivolous claims. Auditors were also given extended powers, which is not the case in this bill.
I would also point out that in England, which has a legal system more similar to ours that the U.S. one, some consideration was given to adopting a system of proportionate liability, but the idea was eventually rejected.
Summing up, it has yet to be proven that such major changes to the professional liability system are warranted. I would like to conclude this presentation the same way that Mr. Michaud began it. An Industry Canada press release notes that the new bill extends the rights of shareholders. This begs the question: In what way does this profound change alter the rights of shareholders for the better?
Senator Meighen: Did I understand you to say that you are proposing to do away with proxies and that shareholders would actually have to vote in person?
Mr. Michaud: No. We are proposing that names no longer actually appear on the proxy forms, in other words, that we no longer have cases where the board of directors recommends so or so as chairman, or barring that, leaves a black space. Normally in a democracy, when a vote is taken, the voters do not receive a ballot stating that the federal government hopes to see Jean Chrétien or someone else elected. We would like to see the names of directors stricken from the proxy forms so that shareholders are free to choose to whom they wish to give their proxy should they not be able to attend the shareholders meeting. It should not be suggested that the proxy be assigned to the chairman, to the CEO or to a board member who might vote as a block against shareholder proposals.
Senator Meighen: However, in order to find out who is running for the various positions, shareholders will have to peruse the annual report.
Mr. Michaud: No, the names of the board members will appear on the form. We want the names appearing at the top of the proxy form to be stricken.
Senator Meighen: Let us assume, hypothetically, that I wanted to cast my vote for the re-election of the board members. What exactly would I be required to do?
Mr. Lussier: We are proposing a separate vote for each director and a cumulative vote. Basically, each shareholder holds one vote for every director. If there are ten directors or ten director positions to fill, a shareholder would have ten director votes for each share. I could then choose to cast my ten votes for Mr. Meighen and in the case of the nine other persons, the cumulative vote would apply.
Senator Meighen: Or I could choose to vote nine of my shares.
Mr. Lussier: Yes, I could cast nine votes for Mr. Meighen and one for Ms Poulin. This kind of system would mean one separate vote for each director, rather than having shareholders vote as a block. Right now, in most cases, if there are 15 director position to be filled, shareholders are asked the following: are you for or against the proposal? A total of 15 people are nominated, not 18 or 22.
Mr. Michaud: One could add that cumulative voting differs from the traditional, classic voting by proxy system. We want to see the legislation call for cumulative voting. This system would allow shareholders to vote only for one, or at most two, persons out of the 24 proposed by the block of shareholders. Cumulative voting would allow shareholders to vote only for the person they wanted and to abstain in the remaining cases. It would therefore be possible to elect a representative of the minority shareholders, that is the small, modest shareholders, to the board of directors. Provision is made for cumulative voting in the Bank Act and in the Canada Business Corporation Act. We want cumulative voting to be made mandatory in the regulating of banks and business corporations. As for a separate vote, the seven banks now have a separate vote tied to their proxy, meaning that they list the names of all of their directors on their proxy and shareholders are free to vote for one of them, or to vote as a block.
Senator Meighen: And they cannot resort to cumulative voting?
Mr. Michaud: No provision is made for cumulative voting in the act.
Mr. Lussier: Of all the banks, only the Laurentian Bank allows cumulative voting, but it never really resorts to the practice. Once the practice does become widespread, at least then all shareholders, whether small or large, will have an opportunity to make it known that they feel a particular director did not perform well and that they prefer to vote for another. If most directors receive 90 or 95 per cent of the votes, while another receives only 45 per cent, the shareholders may well be trying to send a message to the corporation's directors.
Senator Meighen: Regarding joint and several liability, even though you feel the report has opted for the wrong solution, would you agree that a problem nevertheless exists, particularly with the auditors given that they are always targeted and have deep pockets? They may be wrongly singled out. Take, for example, cases where liability is perhaps limited to one per cent, but because they have deep pockets, they are obliged to pay. That is how the auditors explain things to us. Do you believe a problem does exist and that we have come up with the wrong solution, or are people with deep pockets fine with the principle of joint and several liability?
Mr. Belzile: We believe proof remains to be seen and there is a problem. In Canada, to my knowledge, no public accounting firm has ever failed.
Senator Meighen: They are insured.
Mr. Belzile: They are insured, of course.
Senator Meighen: They are telling us that insurance is becoming harder, if not impossible, to get.
Mr. Belzile: I think I have seen in the documents that the insurance companies told the Senate committee they were not in a position to confirm there would be a decrease in premiums even if this bill were introduced. So where is the problem? In any case, the clients are the ones paying for the insurance premiums. In the USA, public accounting firms have in fact gone bankrupt. However in Canada -- and I do not have a Ph.D. in law -- according to the research done, generally it is settled out of court and there is no evidence presented. Let us prove that there really were a problem. We have never actually seen documents to the effect that this evidence has been presented, from what we have seen. That is why we are saying yes, if there really was a problem, we would have to find a solution, but the problem has not been documented in Canada, contrary to the American situation.
Mr. Michaud: Senator Meighen, who has good knowledge of the Quebec Civil Code... I do not know if he is convinced by our arguments to the effect that this is infringing upon provincial jurisdiction. I think that Alberta has already shown its discontent and there are rumours circulating in the Quebec capital to the effect that the government of Quebec was not terribly, terribly happy with this new federal invasion in a jurisdiction that belongs to the provinces. When you launch a civil suit for damages, that falls under provincial jurisdiction, not federal.
Senator Poulin: I would like to have a supplementary question to Senator Meighen's first one. Concerning the suggestions you made about a change to the voting methodology, in your opinion what would the impact be on our small and medium-sized public corporations within the next five years?
Mr. Michaud: What seems most important to us is to legislate the obligation for the cumulative vote. There are two ways for the shareholders to get their representative onto the board of directors. The classic way is the one where the president and the chairman of the board of directors are the same person. It is always the old boys' network that draws up tight-knit ranks in a square kilometre. On Bay Street, in Toronto, you have 140 board members sitting on 1,800 boards. In other words, each board member sits on about 15 boards and controls 80 per cent of the Canadian economy. We wonder when they have the time to work. Today, if you want to present a candidate, the legislation says you must hold 5 per cent of the share capital in circulation. At the Royal Bank of Canada we would need $80 million in shares to present a candidate. We cannot find that, we are too poor. Shut up, poor man! With the cumulative vote, we could present a candidate to access the board of directors and that would change the face of "shareholder democracy" in the way the boards work. This possibility of a cumulative vote presently exists in the Bank Act and in the Business Corporations Act. If the cumulative vote were legislated, that would be immense progress for democracy in business.
Senator Meighen: In the context of proposals from shareholders, if I've understood you correctly, you want to have the merits evaluated by "an independent tribunal" like the Securities Commission.
Mr. Lussier: When the proposals are refused by management. Of course, if a proposal is made and if the company agrees to put it in the annual meeting's list of proxies, then there is no problem. However, if management does not want to have it in there, then you need an external agency to judge its acceptability.
Senator Meighen: What criteria would you establish for this shareholder proposal?
Mr. Michaud: The abolition of section 137 with respect to economic, religious and political factors. As a result of this abolition, the proposal could be reworded in the following way: The shareholder proposal must relate to the business of the undertaking. There is no need for any racial economic policy. At one point we thought of challenging the Act with the Supreme Court of Canada. The Act would be invalidated by the Supreme Court in the case of any challenge. If you can come up with the financial resources, we can provide you with a demonstration. A share-holder proposal must refer to the business of the company.
Senator Meighen: This may affect the business of the corporation in a significant or marginal manner. If I am not mistaken, the American criterion is the equivalent of 5 per cent of the market value of the corporation for the proposal to be judged.
Mr. Michaud: No, with all due respect, I think you are mistaken, senator. The 5 per cent relates to shareholder proposals to have someone elected to the board of directors. In order to make a share holder proposal, it is enough to have a single share.
Senator Meighen: With all due respect, Mr. Michaud, I think there is a threshold with ECC.
Mr. Michaud: To make a proposal?
Senator Meighen: ... a shareholder proposal.
Mr. Michaud: I would like to have the reference in the Act. Are you talking about the American law or the Canadian one?
Senator Meighen: The American one.
Mr. Michaud: I seldom use examples from the United States. I prefer to live in Quebec and Canada.
Senator Meighen: Yes, but we have to look at the rest of the world.
Mr. Michaud: There are other examples of apportioning in the world, like Great Britain.
Senator Meighen: There are examples for or against our point of view throughout the world. Do you contemplate any limit to shareholder proposals? You are saying that you want to abolish section 137 so that it applies solely to company business?
Mr. Michaud: We advocate the abolition of section 137(5)(b):
It appears quite clear that the main purpose of the proposal is to uphold --
We want to see it abolished. The remainder is acceptable.
Senator Meighen: If I have understood correctly, you wish to establish that proposals coming from shareholders must relate to company business in order to be entertained and discussed.
Mr. Michaud: Yes, but without the need for $2,000. At the present time we have the most democratic legislation, one that is exemplary for the rest of the world with respect to the operation of large corporations. It says that a shareholder with one or several shares may make a proposal. Mr. Manley's bill establishes a requirement for $2,000, to have been held for six months, in order to make a proposal. These restrictions are not in the present legislation. You are restricting shareholders' rights. You are requiring an asset of $2,000. Why $2,000? Why not $10,000, $100,000 or even a million?
Mr. Michaud: It is allowed to hold more than one of these amounts.
Mr. Michaud: So you would have to go look for other people, meet the financial requirement et cetera. I repeat, the present legislation is very well drafted, we are not challenging it. Why not keep the legislation as it is to allow a bona fide shareholder of the company to make a proposal?
Senator Meighen: Let us take the case of a big corporation like Nortel as an example: If I have a proposal relating to the environment in general, is this not related to the business of the company? In other words, I am attempting to find out whether this heading of "relating to company business," would not open the door to all sorts of proposals, even frivolous ones.
Mr. Lussier: That is why we suggest leaving it up to the Securities Commission to rule on what is acceptable or frivolous if the management of the company thinks it is something frivolous.
Mr. Michaud: If the management of the company, such as a bank, refuses, we would have to go to court. What I did five years ago, fighting alone, and quite innocent, because I was not a lawyer, just a journalist, up against eight of the most brilliant lawyers in the Montreal Bar. I went to Superior Court, to the Court of Appeal to defend my rights, and that is where I got the nickname Robin of the banks. It took me 70 years to make a name for myself, and all I have now is a nickname.
Senator Meighen: Do you think a federal statute could impose this duty on the Quebec Securities Commission?
Mr. Michaud: The federal legislation could do this by leaving this up to the Securities Commission of Ontario, Quebec and the other provinces. The federal government could ask the Office of the Superintendent of Financial Institutions to look at the wording and say whether it applies to the corporation's business or not, without giving up the possibility of appealing the decision to the Superior Court or to the Court of Appeal. If the Office of the Superintendent of Financial Institutions says no, there could still be an appeal, but that would be our decision. However, our position will be weak if a competent, objective body like the Office of the Superintendent says that the proposal is out of order.
We would probably pick up our files and not go to court. We would want a sort of "clearing house" for our proposals by an objective body. When the bank or the big corporation says no, they are not being objective. They are saying that we are bothering them with our proposals. We would want to have a body, which the federal government could designate in the legislation, that could assess the merit of our proposals. I confess that the Securities Commission wants to get into a constitutional quarrel, and we have enough of them as it is.
Senator Meighen: I'm teasing you a little.
Mr. Michaud: The federal government has made some indecisive efforts to include all the provincial Securities Commissions under a single system. However, that is another debate.
[English]
Senator Furey: Thank you for attending today, gentlemen. My question may be somewhat repetitive, since it deals with the issues Senator Meighen has just explored.
You were quite clear in what you would like to do with clause 137. There are, however, proponents who believe that the general intent of that clause is a good one and would like it to be retained. What, Mr. Michaud, would you propose to replace it with? What could replace it that would retain the intent of giving the shareholders this advantage yet eliminate some of the things that you said are problematic?
[Translation]
Mr. Michaud: If I understand you correctly, you are referring to clause 137.5(b).
Senator Furey: Yes.
Mr. Michaud: We would like this to be removed, because we think it runs counter to the Canadian Charter of Rights and Freedoms and to the Quebec Charter. We would like it to be removed and replaced by a different wording that would specify that the proposal made by a shareholder must have to do with the corporation's business. In the current wording, the clause refers to general economic causes. Any proposal made by a shareholder to a corporation meets general economic causes. This is an old provision in a statute that is no longer in keeping with our modern, democratic system.
[English]
Senator Furey: We had some discussion yesterday on the consequences of including phrases such as: "...the proposal relates in a significant way...". The general thrust of the comments made would give one the impression that that approach is fraught with all kinds of problems, not the least of which would be judicial interpretation. Do you see this as ameliorating what you see as a problem in this particular proposal, or do you see it as just adding a whole new layer of problems, particularly with judicial interpretation?
[Translation]
Mr. Michaud: I would have no objection to the bill being changed to state that the proposal must have a significant relationship to the business of the corporation. This would be much better than the current wording which gives rise to quite improper interpretations. Our position is similar to that Social Investment Organization and the Taskforce on the Churches and Corporate Responsibility, which express the same reservations as we have, I believe.
The Chairman: Our next witnesses are Mr. Jacques Cartier, President, Agropur, Agri-Food Cooperative, Mr. Serge Riendeau, Vice-President, Mr. André Gauthier, Corporate Secretary and Mr. Yvon Martineau of Fasken, Martineau and DuMoulin.
[English]
Welcome, gentlemen. You have 45 minutes for your presentation so I would suggest that you limit your opening comments to 10 minutes so that we have time for questions. However, that is entirely up to you.Please proceed.
[Translation]
Mr. Jacques Cartier, President, Agropur, Agri-Food Cooperative: I would like to start by thanking the members of the Senate Banking, Trade and Commerce Committee for giving us this opportunity to express our views on Bill S-19 on the Canada Cooperatives Act.
First of all, I will introduce myself. Obviously I don't have my predecessor's talent. I am a dairy and grain producer from Saint-Hyacinthe, and have been chosen by my fellow producers to represent and head the Cooperative.
Just to remind everyone, Agropur is the largest dairy cooperative in Canada. It belongs to over 5,000 active dairy producers. We employ over 2,700 people, and deal with over 1,000 contractors, suppliers and distributors. We have plants in all regions of the country. In all, we have 18 plants in Canada -- some are in Quebec, some in Ontario, some in Alberta and some in British Columbia. Our distribution network covers Canada as a whole. Agropur's combined sales amount to $1.5 billion annually, each year.
This morning, we are here because we have a great interest in the Canada Cooperatives Act. We are in the process of transferring from the Quebec legislation to federal legislation.
In my view, we are affected by some issues in particular. Two years ago, our members gave us the mandate to open and broaden our partnership within Canada, and to make it possible for any Canadian dairy producers who so wish to join our cooperative and control the distribution and marketing of their dairy products. We are affected by some issues in particular, including democracy, representation of partners, and the link between members and the Cooperative.
At the present, the Agropur Cooperative includes 5,000 partners in 15 regions, represented by 15 directors, each for one district. The members of each region elect their representative on the board. Each director is elected for a term of three years, the third year of which can be renewed each year. We have to maintain that representation, for a very important reason: the partners of each region know their representative best, and ensure that he is an active dairy producer who genuinely represents his sector. We have talked about representation and voting at the board of directors, and in my view the rights of members are important.
The other topic we wanted to talk about is the link between members and the Cooperative. In Canada, for almost 30 years now, dairy products have been marketed by means of a federal system involving a joint marketing plan. Because of increased powers it has acquired over the years, the system is undermining the link between members of the Cooperative and the Cooperative itself. This is gradually destroying the very spirit of our dairy cooperatives. The cooperatives should be the first to receive milk from their members, and pay for the transaction between the member and the cooperative, so that the link between them can be developed and maintained. With the current system, cooperatives will remunerate their member's capital, and gradually undermine and destroy the very essence and life of the cooperative. These are very important issues that must be dealt with. There are other points as well, but those were the two main issues I wanted to raise.
Mr. Martineau, Legal Counsel, Fasken Martineau DuMoulin: Mr. Chairman, the purpose of our presentation this morning is to highlight two important aspects of the cooperative concept per se, and the spirit of the cooperative.
First of all, we are satisfied with the bill in its current form, as a whole. Agropur has decided to extend its structure. Agropur is a Quebec cooperative, but will soon go to its members with a proposal to become a federal cooperative. In Quebec, legislation has made it possible for Agropur to extend its operations in the form of a federal cooperative.
Agropur has existed historically cooperative, as recognized by its members. The president pointed out that directors were elected by members from a given region. In subsection 15(2), the current bill does not make it possible to divide partners into groups, where directors can be elected by the members of a given region. For example, if Agropur were to expand and recruit members from other parts of Canada, we could easily have members in Alberta and British Columbia. If that were the case, it would be a good thing to have directors from those regions. Under the bill, directors would be elected by class. I don't think there would be a class B or a class C, but people from specific regions. The territory of a given cooperative would be divided into a number of regions. We do not believe that option to be possible under this bill.
Senator Meighen: Forgive me, but do you have a legal opinion on that?
Mr. Martineau: The legal opinion is mine. Administrative regulations could be so arranged as to qualify a director, provided that he be appointed and come from a given region. In our view, this is not direct democracy.
The other point raised by the president was the link between the member and the cooperative. In our view, that link is broken by a presumption established in section 159 of the Canada Cooperatives Act. If you read that section, you will note that the cooperative does not exist for some purposes, since members are deemed to have fulfilled their obligations by meeting the joint plan. In establishing a presumption of this nature within the legislation, you set aside the very spirit of a cooperative. I was recently talking with a legal drafter, who stated that the purpose of this wording was tax-related. I can accept that, because tax objectives must be met. However, a given presumption should not break the link between a member and his cooperative. If you read the brief we have submitted, you will see that with Agropur, milk is routed to plants that do not necessarily belong to the cooperative, therefore breaking the link between the member and the cooperative. The producers' board determines where the cooperative member's milk goes. We do not want the breakage of this link between the member and the cooperative to be enshrined in the legislation because of a presumption. That is what we wish to say.
[English]
The Chairman: It seems that some of these amendments are highly technical, so I must wonder if there is not a better way to approach the situation. There are people from the department here this morning. Perhaps they would stay after our hearing is completed today and tell us if there is some other way this matter can be handled.
[Translation]
Mr. Martineau: I am not putting forward a dozen technical proposals. The two basic proposals I am putting forward are on the election of directors as a principle, and the break of the link between the member and the cooperative, which flows from a presumption in the bill. Those are the two essential points.
[English]
The Chairman: Does that pertain only to cooperatives?
Mr. Martineau: Yes, sir.
[Translation]
Senator Meighen: But those two proposals could in theory be dealt with by a technical amendment to the bill.
Mr. Martineau: For directors and the link between members and cooperatives, yes it could, Senator Meighen.
Senator Meighen: Perhaps those problems can be solved.
Mr. Martineau: If this committee supports our approach, we would be extremely happy. We are talking about principles here. If you tell those in favour of the bill that you agree with the principles we have put forward, then technically we can find solutions.
[English]
The Chairman: Yesterday and today, we received a whole bunch of amendments or regulations, I am not sure which, which we will have to review. We will make enquiries about the two points you have raised.
Senator Kroft: In the spirit of trying to be helpful -- and I am not asking you to argue against your own case -- can you tell us if there are complications that we do not know about? Is there an argument on the other side about which we are not aware as to why this might not be as easy as it seems? I recognize that, if someone has an opposing view we should hear from them. Life is such that there often tends often to be two sides to a question.
[Translation]
Mr. Martineau: You have asked an intellectually honest question, and I will answer in the same spirit. Section 159 recognizes the existence of producer boards, generally called marketing boards in Canada. The marketing boards determine how milk will be allocated and distributed within a given region. Cooperatives would like milk from their members to go to their plants. As you can imagine, marketing boards and the cooperatives have different viewpoints. We would not wish Parliament to enshrine the supremacy of marketing boards over cooperatives. Of course, marketing board people would take a different view.
[English]
Senator Kroft: Thank you. That was extremely helpful.
[Translation]
Mr. Cartier: I have an important point to add. A significant portion of dairy producers' output is under supply management, and controlled by marketing boards. We do not want to question the system of supply management and marketing boards in Canada. But there is something else we should add: we do not want to destroy our cooperatives. There must be a fair compromise. There is a place for both organizations, because both have a very important role to play.
Clearly, as a representative and member of a cooperative, I want to continue delivering milk to my cooperative. As president of a cooperative, I find it unthinkable that my milk would go to my competitor. But that is what is happening right now, because of the way milk is routed through marketing boards and federations. Any member's milk can be routed to any plant, whether it belongs to the cooperative or not. Thus, my milk could end up with my main competitor. We agree with the supply management system and with the marketing boards. They do have a role to play. But we must recognize the priority and primacy of cooperatives.
There is an important factor I should mention. This week in Quebec, there was an announcement on the disposition of the Lactil group, which is a group of cooperatives. I want to highlight that move this morning, because now in Quebec there is only one large cooperative, Agropur. If we take a look at Canada as a whole, we have Agropur in Quebec, AgriFood in the West, one cooperative in Ontario, and a few regional cooperatives in the Maritimes. But these cooperatives are part of our Canadian heritage, of our culture. Producers established the cooperatives to help them. Agropur was established in 1938 to control the marketing of dairy products, and joint plants were established as additional means for people who were not members of cooperatives. Gradually, it was decided that if the plans were to be effective all producers would have to subscribe to them. Thereby, over the years, the cooperative system was undermined, and now we are destroying it completely. If we want to keep the few cooperatives remaining in Canada in their current form, these changes have to be made. Agropur is not threatened as an institution, but it is threatened as a cooperative. Take a look at section 159: we are clearly destroying the link between the member and the cooperative. We would have to review our status. If we begin to alter our capital structure in this way, we can simply consider ourselves a joint stock corporation like the others. Hence, there will no longer be any grounds for maintaining Agropur as a cooperative in Canada.
[English]
The Chairman: Frankly, I know nothing about the milk business, but are you suggesting that the people who drew up the law do not understand the milk business? Is that your basic point?
[Translation]
Mr. Martineau: In my view, the people who wrote section 159 did not realize its repercussions. This provision might have been drafted for tax reasons. As you know, a cooperative is not taxed in the same way as a corporation, because the revenue is presumed to belong to the members of the cooperative. This provision was drafted for tax reasons. However, there is other legislation applying to marketing, particularly in the dairy industry, where a number of marketing boards have been so heavy-handed that we even appealed under the World Trade Organization. We are talking about organizations that are now almost public, in the name of agricultural unionism.
The president has said that one system should not be enshrined as having primacy over the other under the legislation. The two systems should co-exist. The marketing agency system would be added to the cooperative system and the marketing system.
In that context, if Agropur goes before its members with a proposal to expand into the federal arena -- well, this is a very forward-looking bill. This bill on cooperatives is very forward-looking and deserves a great deal of praise. Recently, I heard that the Canada Business Corporations Act was cited and admired as a model piece of legislation in other parts of the world. It is a very forward-looking piece of legislation. The Canada Cooperatives Act will be just as forward-looking. It promotes the cooperative link between members and the cooperative. This is a way of marketing products and services that unfortunately is poorly understood. However, it is very important. Yet the approach often comes up against board programs, joint plans, and commercialization programs that undermine the principle of cooperative law as we know it.
That is why I would like to tell Parliament -- through you, senators -- to be very wary of section 159, because it establishes presumptions that will lead to debates that you do not need.
[English]
Senator Tkachuk: I just want to understand this a little better. You deliver the milk to a processing plant which you own. The marketing board sets the price of the milk, does it not? For what reason would the marketing board want you to send the milk to someone else?
[Translation]
Mr. Cartier: The marketing system involves powers that go far beyond price. The marketing system directs milk to supply markets, with preference to certain markets. These include the fresh market for fluid milk, then other categories of milk, yogurt products, and specialty cheeses. Milk is distributed to plants on the basis of days of the week. If you want consumers to receive the freshest possible fluid milk with the longest possible expiry date, then fluid milk plants can be supplied only two or three days a week. Cheese, yogurt and other dairy product plants receive their milk later. Hence, much more than price is involved here. We must also take into account milk routing and other considerations added over the years.
We must understand that cooperatives simply do not exist in some regions of Canada. Take Ontario, for example: there are almost no cooperatives there. But in Quebec, over 75 per cent of producers belong to cooperatives. Their role is very different. The role of federations and the Milk Marketing Board has become much broader over the years.
Initially, in the early 1970s, the Milk Marketing Board was established to assist producers who were not members of cooperatives. Now, it has become a universal instrument for all producers, either by convention or through government decree. Today, the link between members and their cooperatives are being questioned in all the provinces. One fundamental problem for us is that we are in the process of extending our operations under the federal statute, section 159. The marketing system is given primacy, thus destroying the link between the member and the cooperative. This is causing us significant concern.
As for the other consideration mentioned, Agropur's objective is to expand and make it possible for all producers in Canada to become members of the cooperative, and to control and develop their processing and farm production. Controlling processing and marketing will make it possible to develop production. The primary goal of a cooperative is to develop farm production. Our purpose is to commercialize and market the product as dynamically as possible, then to generate surpluses that are returned to producers.
Over the past few years, we have returned over $75 million in cash to our members. These amounts represent cooperative surpluses that are returned to producers, thus generating some economic momentum in each region of the country. We do not want the link between the member and the cooperative to be broken, and we do not want to become a business corporation like any other. Every entity's role must be clearly identified and justified, and the entities should not compete amongst one another.
Mr. Martineau: I can complete the answer. Is it only the price? I must say no. A "marketing board" can decide that Mr. Cartier's milk that will be carried by a truck will be delivered to the Saputo plant in Montreal and not to his cooperative's plant. In Quebec, you have a market based essentially on cooperatives in terms of production.
In Ontario, as the Chairman mentioned, it is different. You have artificial persons that are corporations. The marketing boards ship the milk based on demand. It is supply-side management. If you only go by supply-side management, the milk coming from members' farms doesn't go directly to the cooperatives. If, in your legislation, you have a provision that recognizes the supremacy of management supply rules over the cooperatives, you are infringing on the cooperative principle where the user chain, the provenance of the milk from the cooperative member's farm is broken because you are going in a direction other than the cooperatives. The marketing board can sometimes play by rules that go against cooperative principles.
The federal legislation you are proposing and which is the one Agropur has chosen to put forward to its members is proposing supremacy by presumption. When the member delivers to the marketing board according to its directives, the marketing board is deemed to be going by the rules of the cooperative. In this context, we would not want the Canadian legislator to say it as clearly but to say it in a complementary manner. Maybe the best way to deal with the problem would be to abrogate it.
[English]
Senator Tkachuk: Perhaps the solution would be to get rid of the marketing boards.
[Translation]
Mr. Martineau: That is politics. I am here to present a legal viewpoint.
[English]
Senator Kroft: Thank you for a very valuable response to my rather innocent question. However, as one who grew up in the agricultural industry in Manitoba I am now much sensitized to the issue behind the issue here. Clearly, you are concerned with, let me say, maintaining at least neutrality so as not to tip the balance in what is a bigger issue and a bigger war, in that we do not inadvertently stumble into something that we are not dealing with here today.
I can give you no more comfort than to say that we now understand that there is something more at stake here than might have been visible when we were dealing with the technicalities. Obviously, we will pay careful attention to this.
[Translation]
Senator Meighen: Mr. Martineau, did I understand you to say that your "solution" in quotes, to this problem would be simply to abrogate the proposal? Is that the best solution?
Mr. Martineau: If you are delivering to your cooperative, you respect the marketing board. That would be the best proposal for us. At the present time, both systems exist in parallel. You should be very careful with the wording of clause 159 if you want to help the member tax-wise.
Mr. Cartier: I have something to add. Contrary to Mr. Martineau, I am a producer and it is clear that I would like the cooperative to have the primacy. Abrogating is one way, but the best element you could hope for would be to keep the user link. Senator Kroft mentioned Manitoba. We know there is a fundamental difference between the wheat pools and the milk sector. In the milk sector, you have what are called milk marketing boards which is something that does not exist in the wheat pools. The problem is slightly different. The legislation we are talking about is the Cooperatives Act. Normally, we should be promoting co-operation. That is the least you could expect from a Cooperatives Act.
Senator Meighen: Both go together. Mr. Chairman, perhaps we could look at whether there are technical changes to be made to help most of the provinces.
[English]
The Chairman: We will have to discuss this with Mr. Manley's officials, if they will stay after this meeting is adjourned.
Senator Kelleher: I do not have a question, Mr. Chairman. However, having had some experience in matters of trade, I would observe that the pillar of our trade policy in agricultural products, as these gentlemen well know, is supply management and marketing boards. They are very important in terms of the free trade agreement, NAFTA, and now the WTO, which is the successor to GATT. I am not saying that they do not have a good case or a good point, but I should warn the committee that we should be very careful before we step into this quagmire. We would need to bring in officials from DFAIT as well, Mr. Chairman.
Our farm marketing boards and our supply management system, as these gentlemen well know, are under attack both from Europe and the United States. What they did in the last round regarding absolute quotas terrified me. They abolished quotas and applied a tariff to all of these products, and they are now under attack.
Therefore, we should be very careful before we wade into this. It is not a question of not wanting to help. It is a real quagmire. I do not think there is any easy solution to their problems, certainly not at this time.
The Chairman: I do not believe they are trying to change them; I gather they are trying to cooperate with them.
Senator Kelleher: I am sure that is their belief. However, I am sure that would be seen differently by our trade officials, and I have not heard from them in this regard. I am just saying that we only have part of this story.
[Translation]
Mr. Cartier: I have a comment. I totally approve what has just been mentioned. We are also promoters of the supply management systems. As milk producers, a major asset of our businesses are our quotas. We would never question that. On the other hand, I would like to remind you that the three biggest dairy concerns in Canada -- you have Parmalat, Agropur and Agri Food -- count for more than 65 per cent of marketing in Canada and two of the biggest there are cooperatives. We must not forget that.
As for supply management, we are talking about the availability of milk for businesses. As for trade, I would like to remind you that there is no milk marketing board system that processes or markets any productr at all except for making the producers' milk available. The only businesses engaging in trade, processing and exports are commercial businesses whether they are cooperatives or private enterprises. We should not forget that either. In no way are we questioning the milk marketing boards or orderly marketing. We are here to defend and promote our cooperative without destroying what already exists in the area of supply management or milk marketing boards. It is important to emphasize that. It is also important to remember that the commercial aspect in Canada is done by those who process, distribute and export, and not necessiraly the milk marketing boards. The milk marketing boards are there to defend general policies concerning the marketing of products domestically, to develop or ensure that the businesseshave product available except for the commercial sector. The people in the commercial sector are people who can do business and have the tools to do it.
[English]
The Chairman: Thank you very much, gentlemen.
Senators, our next witnesses are from the Canadian Co-operative Association. Please proceed.
Ms Mary Pat MacKinnon, Director, Government Affairs, Canadian Co-operative Association: We wish to thank the committee for the opportunity of speaking before you today.
When we were last before this committee, we were dealing the Canada Cooperatives Act. We appreciated the time and attention of senators at that time, and are pleased to be here today to speak to our concerns with Bill S-19.
We are fully in agreement with and in support of most of Bill S-19 and think that it is a good bill. We do, however, have some concerns.
I will begin with a brief background on the Canadian Co-operative Association. Our organization was created to provide support to the cooperative and credit union organizations, primarily in English Canada. We have 31 member organizations, a number of which are federally incorporated cooperatives; larger business cooperatives such as Federated Co-operatives Limited, Co-op Atlantic, The Co-operators Group Limited, and some smaller organizations such as the Canadian Worker Co-operative Federation, the Co-operative Housing Federation of Canada, and Arctic Co-operative Development Fund. Indeed, CCA itself is incorporated under the federal act, as are our francophone colleagues, the Conseil canadien de la coopération.
The members of CCA collectively representative over $50 billion in assets. We have approximately 300 primary cooperatives and credit unions at the provincial and local levels. Cooperatives serve millions of Canadians in a wide range of industries including financial services, agriculture marketing, housing, groceries, et cetera. Collectively, cooperatives and credit unions employ over 150,000 people and have assets in excess of $167 billion. We are, therefore, no small force.
As I have said, the CCA commends the Senate for its initiative in introducing Bill S-19. We support the steps being taken to update Canadian corporate law. As well, we are particularly pleased that the amendments in Bill S-19 to update the Canada Cooperatives Act reflect and recognize the importance of cooperatives to the Canadian economy.
As you may know, the Canada Cooperatives Act was significantly updated and amended in 1998 and came into force on December 30 of 1999. That act provides us with full legislative capacity and the flexibility to compete domestically and globally. We believe that it is very important that the amendments to the Canada Cooperatives Act proposed in Bill S-19 continue that approach; in other words, are enabling as well as flexible.
We should like to raise seven points with you today, of which two or three are more important. In a moment I will ask our legal counsel, Mr. Joe Dierker, to speak to those points, but before doing so I will put in context our first issue, which is on electronic communications.
When we were dealing with our own act in 1998, we knew that we would be dealing with certain deficiencies with respect to electronic communications. We did try to bring into the act at that time some provisions to deal with electronic communications, and we were able to do that. However, we were aware that there would soon be amendments to both the CBCA and the CCA. Therefore, we were looking to that statute to bring in a more comprehensive regime for electronic communications.
When we received Bill S-19, we of course went through it very carefully and we noted, with concern, that we did not have the same statutory provisions for electronic communications as exist for the CBCA. We shared our concerns with Industry Canada officials, who have been very understanding of these issues.
We believe that we need the same statutory provisions in our act as will exist for the CBCA. With that, I will ask Mr. Dierker to go into that point and a number of others in greater detail.
Mr. Joseph Dierker, Gauley & Company, Canadian Cooperative Association: Honourable senators, the more important issue that we would like your committee to consider is the code for electronic communications that would be available to cooperative enterprises in Canada after the adoption of Bill S-19. For the purposes of the Canada Business Corporations Act a complete code is being added to the legislation. Indeed, the consequential amendments will update and integrate that code with the impact of Bill C-6.
With regard to the cooperative structure, the proposal is that the code be established by regulatory provisions. It is of importance to note that the regulatory powers provided for in the CBCA and in the Canada Cooperatives Act are parallel, if not identical. However, in the CBCA there is also provided the express code by which electronic communications can be completed.
It is extremely important that there be a commonality in the manners by which electronic communications take place. If one contemplates the public offering of securities by a cooperative and by a business corporation, the manner by which this communication is effected must be common so that there is certainty in the marketplace.
As important, the Business Corporations Act has adopted many protection devices that are provided for consumer protection in the use of electronic communications. That type of code should also apply to cooperative communications.
We believe that it is extremely important that there be a commonality. Our request is very straightforward, and that is that Part 20.1, which is being proposed for the Canada Business Corporations Act, be also inserted into the Canada Cooperatives Act so that there will be a total parallel structure. That would create parallelism throughout the Business Corporations Act and the Canada Cooperatives Act, both in statutory and regulatory provisions.
The Chairman: Is there some reason to think it will not be included?
Mr. Dierker: It is not provided for.
The Chairman: Is that an oversight or is there a reason for it?
Mr. Dierker: You may have to ask that of the minister's representatives. As referred to by Ms MacKinnon, when we worked with Justice in drafting the Canada Cooperatives Act, which was only completed approximately one year ago, we did include those provisions dealing with electronic communication that we felt we could include without overly anticipating what might happen in the Canada Business Corporations Act. There may have been some misunderstanding of the extent to which we did put those provisions in the Canada Cooperatives Act.
We certainly did not carry forward the electronic code structure that we anticipated and which is now in the Business Corporations Act. That would have been totally inappropriate at that time. I think it is an oversight in the sense that there was not a clear understanding of what was in the statute.
Our second point relates to the proposal in the Canada Business Corporations Act to change the residency requirement for directors. The position we bring before your committee is that similar treatment should be provided for cooperative structures as is provided for business corporation structures. We do not hold the position that there should be a change one way or the other. Our position is that there should be a parallelism in these matters. That does not mean that control of a cooperative is being taken away from its members. That is already provided for in the statute, and that would not be affected by that amendment.
There are a number of technical amendments, Mr. Chairman. Unless you want me to go through them, I will leave them with you.
Item 3 is simply a request that we add a reference to bylaws to the suggested amendment. We agree with the suggested amendment. It is just a matter of carrying it forward more completely into the structure of the legislation.
Item 4 is simply an oversight in the drafting that we are bringing to your attention, and that is a matter of technically completing that relationship to ensure that the proposal relationships will work in that sense.
Item 5 is to again maintain the control of the cooperative in the hands of the cooperative members.
Item 6 is a simple technical amendment. A word was left out.
Item 7 is asking the committee to clean up a mistake that I made when I drafted that particular section. The history of the Cooperatives Act, Mr. Chairman, was one of cooperating with Justice. The cooperative sector created the Cooperatives Act and brought it to Justice for review and improvement. In drafting it, unfortunately, in section 8, I used the wrong expression. I recognize that that particular clause is not before your committee in the sense that it is not being proposed for amendment, but it is an extremely important amendment to assist cooperative development in Canada. I would ask your forbearance in having that matter taken care of.
I would be pleased to respond to questions.
The Chairman: When we do our clause-by-clause study, we will need to handle the technical amendments in some way. Does anyone have any suggestions about that?
Senator Kroft: On the issue of clarifying residency, would you help me with qualifications for membership? If a director must be a member, then obviously if you need non-resident directors, it means that you can have non-resident members, if that logic follows. I am not completely clear of an example of circumstances in which you would have non-resident members of a cooperative association.
Mr. Dierker: The Canada Cooperatives Act permits a cooperative to operate internationally and to have members wherever it provides services. There is no Canadian residency requirement for membership.
Senator Kroft: What if it were a credit union? Use that as an example.
Mr. Dierker: I should quickly interject to advise the senator that this deals only with commercial cooperatives and not credit unions, which are financial cooperatives.
Senator Kroft: Thank you for that.
Can you give me an example of an international cooperative activity? Could you give me an example of some of the business activities that might go beyond Canada?
Mr. Dierker: There is a cooperative in Ontario called GROWMARK which has a substantial American component.
Senator Kroft: What do they deal with?
Mr. Dierker: Groceries and farm supplies.
Ms MacKinnon: GROWMARK is primarily farm supply inputs and farm services, with some marketing.Much of the input involves seeds.
Senator Kroft: There are members of that cooperative.
Ms MacKinnon: They are actually a north-south organization in the United States and Ontario.
Senator Kroft: With members in both countries?
Ms MacKinnon: That is correct.
The Chairman: Thank you for your time.
The committee adjourned.