Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 28 - Evidence
OTTAWA, Wednesday, February 6, 2002
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-41 to amend the Canadian Commercial Corporation Act, met this day at 3:35 p.m. to give consideration to the bill.
Senator E. Leo Kolber (Chairman) in the Chair.
[English]
The Chairman: We have with us this afternoon representatives from the Department of Foreign Affairs and International Trade, and from the Canadian Commercial Corporation.
Do you have an opening statement?
Ms Marie Lucie Morin, Director General, Development Policy and Planning, Department of Foreign Affairs and International Trade: Yes, we do. I understand that Mr. Patriquin from the CCC will also be making a statement.
[Translation]
Mr. Chairman, on behalf of Mr. Pettigrew who sponsored this bill, I am pleased to outline and explain the context and purpose of the amendments to the Canadian Commercial Corporation Act that are included in Bill C-41.
Mr. Doug Patriquin, the President and Chairman of the Canadian Commercial Corporation, is also present today, and he can speak directly to issues regarding the operations of the CCC.
At the outset, I would like to note the important role this committee has had in the development of the CCC's mandate and governing legislation. As you will recall, the committee published a report in April 1996 on Canada's Crown Financial Institutions, also known as the Kirby Report. The CCC was one of the four Crown financial institutions closely studied by the committee.
While one of the main recommendations of the report was never acted upon, namely to merge the CCC and its much larger and better known sister Crown, the Export Development Corporation (EDC), many of the committee's findings and recommendations have influenced CCC's operations subsequently and still have particular resonance today.
[English]
The committee's report led to a review of the CCC and it's mandate. In August 1998, the corporation's distinct mandate was reaffirmed by both the Minister for International Trade and the Prime Minister.
As noted in the committee report, the CCC has made a positive impression on all those companies who have worked with it and benefited from its value-added services. I am pleased to report to you that this sentiment remains true to this day as the corporation's client satisfaction ratings are still high.
No doubt the client satisfaction is partly due to the efforts that CCC has made, along with the other Crown financial institutions, to eliminate duplication and overlap in services offered by all Crowns. A key element in achieving this success was the establishment of the Council of Crown Financial Institutions, also a direct result of recommendations contained in the Kirby Report. CCC hosted the fourth annual general meeting of the council last week.
The committee's report of 1996 also recommended that Crown financial institutions be encouraged strongly to move into the direction of self-reliance. Once again, I am pleased to report that, in fact, increasing CCC's self sufficiency is one of the overriding objectives of the bill before you for consideration, in particularly the second and third amendments.
[Translation]
The bill proposes three changes: separating the positions of Chair of the Board of Directors and President; permitting the charging of fees for service on CCC's non-Defence Production Sharing Agreement (DPSA) business; and authorizing the Corporation to borrow funds in the commercial market.
While the bill is straightforward and administrative in nature, there is a need for these changes to the legislation governing the CCC in order to allow the Corporation to modernize certain issues regarding governance and operating procedures as well as to give it new tools to serve the needs of Canadian exporters in a commercially responsible way.
With respect to the first amendment dealing with the corporate governance issue, the CCC is one of 41 wholly- owned Crown corporations in Canada. While Crown corporations are used as tools to deliver important public policy programs, they also operate with arm's length independence from government in their day-to-day activities.
This arm's length relationship is outlined in the Financial Administration Act. It allows Crown corporations to have more autonomy so they can operate in a more commercial environment.
[English]
The Auditor General indicated in her 2000 annual report that Parliament provides appropriate direction and control for Crown corporations through several mechanisms including approval of corporate plans and annual budgets. Parliament also has the power, through the cabinet and Governor in Council, to appoint directors to a board of directors and to select a chief executive officer to manage the corporation.
In this bill, the government is creating separate job descriptions for the offices of chair of the board of directors and the president of the corporation. In doing so, the government is ensuring that the board can function independently of management. In addition, this amendment brings CCC's governance structure in line with Treasury Board guidelines for the administration of Crown agencies as well as with modern corporate management practices. Indeed, a recent report by the Joint Committee on Corporate Governance to its sponsors, the Toronto Stock Exchange, the Canadian Institute of Charted Accountants and the Canadian Venture Exchange, has recommended that all boards of directors should have an independent board leader who is not the chief executive officer.
[Translation]
A second amendment allows the Corporation to charge fees for the optional services it provides which fall outside of its mandated services pursuant to the Canada-US bilateral treaty, the Defence Production Sharing Agreement (DPSA). By allowing the Corporation to charge its clients a fee for these non-mandatory or optional services, it can become more self-supporting and increasingly expand its business beyond the US market.
[English]
The corporation earlier introduced the cost recovery fee for some of the international market development services it provides. The CCC introduced this cost recovery fee structure in 1996 and earned some $900,000 in revenues in the first year. In 2000, some 15 per cent of CCC's revenues came from cost recovery fees. The approach introduced in this legislation would build on that experience by moving to a fee structure that fairly balances fees charged and value received. It clarifies the ability of the corporation to charge fees that include not only cost recovery, but also risk premium. Currently, as a result of an inability to charge a risk premium on a transaction, the CCC can only help an exporter if it can eliminate all risk in the export transaction, which is difficult to do, especially for small and medium- sized companies.
The final amendment would allow to CCC of the access to capital markets for borrowing. This will address liquidity pressures regularly encountered by the corporation on its DPSA business due to late payments received from the U.S. Department of Defence. The CCC incurs a contractual obligation to pay Canadian suppliers within 30 days, which in turn allows Canadian exporters, particularly those cash-strapped, to sell to the U.S. Department of Defense without jeopardizing their business base with long payment delays. Rather than pass on this liquidity problem to its client, the CCC mitigates this concern through short-term borrowing and cash management. Currently, this cash management is only done through transfers from the Consolidated Revenue Fund. This amendment will allow the CCC to have an additional capability to borrow on commercial markets to meet this need.
The increased borrowing limit of $90 million is based on private sector credit provisions established for corporations with similar business volume using qualified receivables as security. CCC quarterly receivables from G-7 government buyers totals approximately $120 million. A similarly situated private sector corporation would be assigned a bank credit line of at least $90 million. Given the excellent credit rating of G-7 nations, the receivables in question would be considered secure by any private sector banking institution. The risk to the Crown associated with providing increased statutory borrowing to the CCC is therefore negligible.
Additionally, it is important to recognize that the CCC borrowing limit was set at $10 million in 1966 when the corporation was first established. Times have changed significantly since then as have the corporation's fiscal pressures. Among other things, the corporation's annual business volume has grown to well over $1 billion. Increasing the CCC's borrowing authority will help the corporation keep pace with 21st century cash flow requirements.
[Translation]
It should be noted that in keeping with the Financial Administration Act, usage of the proposed borrowing authority will have to be approved on an annual basis by the Minister of Finance in the Corporation's Corporate Plan process.
This increased authority will also enable the Corporation to minimize its risk exposure by providing emergency cash flow to the exporter in advance of contracted payment flows from foreign buyers.
This will enable the exporter to finish its production run and deliver the contracted goods to the buyer, and thereby minimize the likelihood of calling in CCC's performance guarantee.
[English]
In sum, these amendments will strengthen CCC's capacity to deliver the specialized services that have spelled success in export markets for thousands of Canadian companies and that have helped produce high quality employment for Canadians throughout the country for many years.
As you will no doubt appreciate, it is essential that all public and private sector institutions evolve over time in order to remain relevant and effective. This is particularly the case with the Canadian Commercial Corporation, which operates in an ever-changing and highly competitive global marketplace. The legislation will ensure that the corporation is responsive to the needs of Canadian exporters, particularly small and medium-sized companies.
Senator Tkachuk: Bills we receive from time to time allow us an opportunity to examine not only the bill, but also the particular creature asking for it, that is, the institution itself. From what I understood from the briefing book, this corporation was established in 1946 to help with the procurement of defence contracts, which only proves the point that when you set something up in government it grows and grows. Now, some 50 some years later, the corporation still exists and it wants to expand its operation to do other things.
If this corporation did not exist, would people be unable to do business?
Ms Morin: If the corporation did not exist, we cannot say today that Canadian businesses would not be able to do business. The issue is that CCC provides a very effective way of doing business. In particular, in the framework of the DPSA, it has proven to be a very successful executor for the treaty.
Over the years, the government has reviewed the role and mandate of CCC, and it has decided that this corporation has an important role to play. In this spirit, it is proposing the amendments that I have presented today.
Senator Tkachuk: Why are its activities other than defence activities growing?
Ms Morin: First, more than 70 per cent of the activities of the CCC remain in the defence sector. It is also in the position to offer additional services, in particular to small and medium-sized companies that they would only with difficulty find through other means.
Senator Tkachuk: Can you give me an example?
Mr. Wayne Robson, Deputy Director, Export Financing Division, Department of Foreign Affairs and International Trade: For example, the CCC plays an important role in those projects or situations where a foreign government is looking to procure services or products, and they are looking to procure those services or products through another government. If a foreign government is looking to do procurement and is expecting the Canadian government to play a role, the CCC does an excellent job acting as the agent on behalf of the company in ensuring that they can gain access to these government procurement markets overseas to which they would otherwise not have easy access.
Ms Georgina Wainwright-Kemdirim, Export Financing Division, Department of Foreign Affairs and International Trade: The role of the CCC in this regard is to enhance the credibility of our small and medium-sized exporters when they are competing against large companies from other countries around the world. By having the CCC provide that backing, that Government of Canada guarantee, we enhance their credibility and their opportunity to win that particular contract. It is a unique service, one that is valued by our companies.
Senator Tkachuk: Do you provide the guarantee to the purchaser or to the seller of the product?
Ms Wainwright-Kemdirim: It is to the purchaser.
Senator Tkachuk: It is to pay the seller. Let's say that Saudi Arabia were buying something from a Canadian company. What would happen in that case in terms of the credit facility from you?
Mr. Robson: In the case of a government procurement contract, the guarantee goes in both directions. The Canadian government through the CCC and the foreign government which is procuring the product have guarantees to supply and to produce. CCC then goes through a back-to-back contract situation, which they will ably explain to you afterwards if you like, to tie the Canadian supplier to produce the goods and deliver them. This provides assurance from the other direction that there will be payment from the foreign government.
They provide a role of assurances in both directions, which is important in the international government procurement situation.
The Chairman: Senator Tkachuk, I have been asked by some of the members on this side if it would not make sense to hear the other presentation before we open the floor to questions. I think your questions are good but, perhaps, the other presentation will shed some light on those areas in which you are interested.
Senator Tkachuk: If you want to do it that way, Mr. Chairman, that is fine.
Of course, it would have been better to have the minister here. These are policy questions.
The Chairman: I will tell him you said that, senator. He will be flattered.
Senator Oliver: It is normal for ministers to come to defend their bills.
Mr. Douglas Patriquin, President, Canadian Commercial Corporation: Mr. Chairman, it is a pleasure for me to appear before you on behalf of CCC with respect to Bill C-41 and to offer a brief overview of CCC's purpose and activities.
[Translation]
The bill now before you is crucial to the Canadian Commercial Corporation in that it will allow this Crown corporation to become more autonomous and better able to meet the needs of exporters, in addition to strengthening its governance structure.
[English]
Mr. Chairman, the corporation's purpose and main focus can be expressed by saying that it is to assist Canadian companies to take advantage of government procurement opportunities wordwide. It is estimated that each year governments around the world purchase over $5.3 trillion U.S. worth of products and services. CCC has worked with Canadian exporters in over 50 countries since its beginning in 1946 in a wide variety of sectors.
As I recall from reading the history, our first exports were over 10,000 pigs and 10,000 horses to Poland in post-war reconstruction. Our activities have evolved since then.
I can express how we work by saying that acting in the role of prime contractor CCC signs contracts with foreign buyers to facilitate the sale of Canadian products and services. This government-to-government mechanism simplifies the procurement process in many countries and lowers the procurement risk to the buyer. In turn, our participation enhances the credibility, as my colleague has said, and competitive position of Canadian companies in what are often difficult markets.
[Translation]
SMEs in particular benefit from the CCC's involvement in their international projects. By using its status as a government agency, the CCC helps Canadian SMEs that are not as well known internationally to compete on a level playing field with larger foreign companies that enjoy a higher profile.
[English]
I should like to quote briefly from a few letters that have been sent to the government about our services. One is from the Canadian Manufacturers Association, or the Canadian Manufacturers & Exporters, as it then was.
CCC makes a unique contribution to the competitiveness of Canadian exporters in government procurement markets around the world. The role CCC plays as a prime contractor offering buyers performance guarantees backed by the Canadian government is invaluable in assisting Canadian exporters secure foreign contracts at a time when business is being won by those companies that are best able to meet their customers' needs for services, financing, and contract security. Many small and medium-sized companies in Canada would be excluded from foreign government contracts if it were not for the market access, expert advice, and credibility provided by CCC.
From another small company based in Winnipeg I would quote the following letter:
These contracts have allowed us to operate in a way that helps us even out the cyclical nature of our non- governmental business. CCC has opened markets up to us that are outside Canada, and to which we would not have otherwise had access. They have helped liaise between ourselves and customers when negotiating and completing contracts.
Those are two examples of the kind of practical and much appreciated support that CCC provides to Canadian exporters.
The corporation plays a special and strategic role in Canada-United States trade, particularly in the aerospace and defence sector. In particular, CCC provides an access mechanism for Canadian companies that wish to export to the U.S. defence and aerospace market, which, like the defence sector in most countries, is not covered by NAFTA.
Maintaining secure and efficient access to U.S. markets remains one of the government's key priorities, as noted in the most recent Speech from the Throne and, indeed, the budget.
Beginning in 1956, Canada signed a series of agreements with the U.S. known collectively as the Defence Production Sharing Arrangements, DPSA. Under these agreements, Canadian companies obtained direct access to the very large and highly protected U.S. aerospace and defence market by contracting through CCC. Their alternative would be to sell through U.S. companies, which puts them at some disadvantages.
Access to the U.S. market is economically essential for the country to maintain the industrial capacity in Canada to service our own defence needs. In times of crisis or war, CCC plays a central role in mobilizing Canada's defence industrial base to meet the needs of our collective security and defence efforts between Canada and the States.
Since September 11, CCC has experienced a significant acceleration of its business with United States agencies under the DPSA.
Finally, concerning the corporation as a whole, I should like to emphasize the point that CCC is a low input/high output kind of operation. Like most of the Canadian exporters we serve, the smaller companies, we are not an enormous bureaucratic corporation, but we are effective, we believe.
[Translation]
Last year, with a staff of 90 and a total of $13.6 million in parliamentary appropriations, the CCC used its credibility and contracting expertise to help 273 companies across the country record export sales of approximately $1.3 billion Canadian.
According to Statistics Canada, this business volume helped either to create or to secure approximately 13,000 jobs in Canada.
[English]
CCC remains committed to helping Canadian companies achieve credibility, contracts and closure — to put another three words to our CCC logo — in international markets, particularly during the current economic downturn.
[Translation]
Mr. Chairman, on behalf of the Canadian Commercial Corporation, I wish to thank you and your colleagues on the committee for your time and patience and for supporting the CCC's goals and efforts. My colleagues and I will now be happy to answer your questions.
[English]
The Chairman: Senator Tkachuk, would you care to continue your line of questioning?
Senator Tkachuk: I will move to another point.
One of the amendments will create the position of chairman. How many board members do you now have on the board?
Mr. Patriquin: The legislation at present allows for a board of between five and nine members, plus the president. Under the new arrangement, it would be five to nine members plus the president and the chair, or a total of seven to eleven members.
Senator Tkachuk: The legislation provides for an additional member.
Mr. Patriquin: That is correct.
Senator Tkachuk: Is there a reason for that?
Mr. Patriquin: The advice we have from the corporation is that the size of the board need not be overly large and complex. Most boards have downsized over a number of years. The average statistics on Canadian boards is ten. Over two-thirds of the corporations in our size of business have between six and twelve members. We did not necessarily want to be restrictive by lowering the number of members on the board, and therefore our advice was that it would be consistent with good governance to add a position for chairman.
Senator Tkachuk: Will the board play a role in determining who the chairman will be?
Mr. Patriquin: I do not know because we have not gotten that far. As outlined in our annual report this year, we have played a significant role in identifying the kinds of need requirements for board members and their criteria, and we have had an active dialogue with the minister's office in the whole process of helping the shareholders appoint board members.
Senator Tkachuk: I know in the presentation in the House and here, the report of the Auditor General is used as an excuse for some of the additional amendments needed. One of the points the Auditor General made on the governance of Crown corporations was that boards of directors should be more engaged in the selection of their chairs and the corporation's chief executive officer. Without meaningful board involvement in the selection of the chief executive officer, his or her accountability to the board is weakened, and corporate governance as a whole suffers.
One of the provisions of the bill is that the Governor in Council appointee will hold office during pleasure rather than for a fixed term. Will it be a cabinet appointment that will go on until the next government comes in and they then axe that person? Is that the way it will run?
Mr. Patriquin: If one looks at the legislation, members serve, as I recall the legislation, for terms no longer than three years, but they serve during pleasure. During pleasure is a condition of their participation as board members, but there is a term.
I have not personally investigated how long chairs tend to be appointed. In the case of chief executive officers, there tends to be an initial term of five or three years. The legislation will permit the government to appoint a chair for longer than three years, but others may have a better sense of the normal length. I believe that in almost every case there is a fixed term.
Senator Tkachuk: There has been no discussion on the board of directors about appointing a chair from their own membership.
Mr. Patriquin: We have not had any discussion at all yet because the legislation has not yet been passed by Parliament. We have not discussed the arrangements for those propositions.
[Translation]
Senator Poulin: My questions are along the same lines as those of the committee vice-chairman. First off, I want to thank Ms. Morin and Mr. Patriquin for their excellent presentations.
Since September, I have had the opportunity to take part in several government trade missions and to see first hand the excellent work being done by your team. I have seen the extraordinary results achieved by Canadian SMEs, including SMEs based in Northern Ontario. You truly have a good team.
Once again, my question concerns the CCC's structure. There are several schools of thought as to the advisability and effectiveness of separating the positions, and splitting the responsibilities, of board chair and corporation president. Given that the CCC is running smoothly, why have you put forward this recommendation to separate the two positions?
Mr. Patriquin: That is an excellent question, Senator Poulin. Speaking from experience, when it comes to presenting a proposal, it is difficult to act both as the chair of the board and as the president of the corporation.
Currently, nomination calls are not handled by the committee of the whole, but rather are referred to a separate committee. A separate chair is elected to preside over that committee. Motions are passed and the outcome referred to Parliament which confirms the Board's decisions.
Senator Poulin: The legislation stipulates that the president would report to the board of directors. Why did you not recommend then that the board of directors be responsible for hiring the president?
Mr. Patriquin: Could you repeat that question?
Senator Poulin:The legislation stipulates that—
[English]
Both the chairman of the board and the CEO are appointed. However, in the legislation it is also written that the CEO is there to serve the board. Why did you prefer having both senior executives appointed instead of leaving the responsibility to the board to hire a CEO? Why did you make that recommendation? There are two schools of thought on this also, as we know.
[Translation]
Mr. Patriquin: The answer is simple: currently, the policy of the government is to leave the appointment of CEOs in the hands of shareholders.
[English]
The Chairman: Does this not happen in every Crown corporation, like the CBC, et cetera? There is nothing different here. I do not think it is the right way to do it, but the fact is that is what we do.
Senator Poulin: There are different models in different Crown corporations.
The Chairman: At the CBC, for example, the government appoints the head.
Senator Poulin: The National Arts Centre here in Ottawa follows the other model where the board hires a CEO. There are two models.
The Chairman: That is somewhat forward thinking.
Senator Tkachuk: It would be difficult to find out which system is better.
Mr. Patriquin: It is a policy of governance. It is the province of the government.
The Chairman: You say that it is done both ways.
Senator Poulin: Yes, it is, but there are two schools of thought, and the studies that have been done show the strengths and the weaknesses of both. There is no magic in any one. It often depends on the individuals.
I would like to know Mr. Patriquin's view. He has been wearing both hats and seems to favour this model and I was wondering why.
The Chairman: You might also point out that the whole idea of having a separate CEO and a separate chairman is a question that has not been settled.
Senator Poulin: That was my first question.
The Chairman: Ms Morin, in her opening remarks, said this was her recommendation, and it has been of the TSE and many others. Some companies embrace it and some companies say it is ridiculous. I do not know the answer.
Senator Poulin: What would you say, Ms Morin?
[Translation]
Ms Morin: I also know that there are two models. However, the proposed model for the CCC appears similar to one for CEOs. It also appears to be the model that has been adopted by other Crown corporations of a financial nature. It reflects current government policy.
[English]
Senator Oliver: One of the most significant news items in the media for the last few weeks has been Enron, and it raises many issues that touch upon the legislation before used today insofar as some of the issues raised by the collapse relate to principles of corporate governance. It relates to some of the things that officers and directors of that corporation did. I know that members of this committee, a few years ago, said they would like to see you move in the direction of self-reliance, and from the evidence presented today you are doing just that.
However, my concern relates to potential issues of conflict of interest. When you are acting as an agent or broker for a company, and you institute a fee-for-service to earn some money so that you can become self-reliant, and you provide consulting services to the client that you are attempting to serve, will you not ultimately find yourself in a conflict of interest much like the same conflicts of interest in which the Enron officials, directors and senior officers have found themselves? How will you draw a line or build a glass wall to avoid a conflict of interest?
Mr. Patriquin: I certainly hope we do not end up as Enron has done and, therefore, I hope my answer will be clear.
If you go back to the purpose of the organization, it is to assist companies fundamentally to gain a contract. Before the point at which a company has, through us, for example, gained a contract, there is a whole series of steps: preparation of offers, assistance with negotiation, and, indeed, our own due diligence, all of which are costly and have some value to the company.
It is those particular elements that we would, under our new legislation, generally speaking, charge for. All of those steps are being taken in complete concert with the company and are intended in the mutual interests of the company and us to win the contract. Our constraints in doing that, of course, are that if these negotiations with the buyer were successful we would end up as the prime contractor and have a responsibility to, in effect, ensure that the performance of that contract is carried out. We are therefore unwilling to make rash statements that company A is capable of doing this work, or that we would be comfortable committing to provide the goods or services through company A to the buyer unless we are certain that the company is solid.
Throughout that process of trying to win a contract, which is the major value of the corporation to the Canadian client, we are substantially not in conflict of interest in any sense, but we have our own requirement to be careful because we will ultimately need to protect the taxpayers' money, which is what would be at risk if, in fact, the contract failed.
That is the fundamental area that I could see which responds to your question. Is there another angle that occurs to you?
Senator Oliver: When you gave your evidence, you said that one of the important things you give is ``expert advice,'' consulting advice to the companies for which you intend to act as agent or broker. It concerned me that you would be giving consulting advice for which you would be charging a fee to this person that you should be at arm's length with to broker their deal. You are planning to take them on as a client and give them advice and be paid for it. Is that not going to set you up in a conflict situation?
Mr. Patriquin: I do not believe that charging for it or not charging for it really changes the nature of our relationship with the company, other than in a commercial sense, obviously. We are, through our activities now and for many years, providing them with advice to analyze the contract that is put before them, trying to mitigate the risks in a contract. That advice, for example, on mitigating the risks in the contract, is equally useful to them and to us, because we would be the prime contractor and they would be our subsidiary.
Senator Oliver: Would they pay you for that, to protect yourself?
Mr. Patriquin: That is, of course, the commercial question. We have done much work now to look at the market in a fairly formal way. The answer is that there is a great deal of interest in having access to these services, which are not generally readily available or available at a particularly high place or available to larger companies, on the part of SMEs who need this advice to participate effectively in the international market. Obviously, we will only be able to sell our services in this sense, to the extent that people do want to pay for them.
Senator Oliver: That is fine.
[Translation]
Senator Hervieux-Payette: Do you only work with small businesses? When I was in the private sector, I was under the impression that you did business with companies like SNC-Lavalin. Therefore, small business are not the only ones to benefit from your services.
Mr. Patriquin: No. You are correct, Senator Hervieux-Payette. Last year, approximately 53 per cent of our contractual clients were SMEs. Value added or benefits accrued by the companies differ slightly, depending on the size of the companies. We lend SMEs needed credibility and expertise. In terms of the market of large companies, we provide them with the mechanisms for setting up government-to-government contracts. We have considerable expertise with SNC-Lavalin contracts. Our procedures have proven to be effective. We assign a value to each company, based on their size.
Senator Hervieux-Payette: One organization with which Canada has been unable to secure many contracts is the United Nations. Although many contracts are put out to tender, Canadian companies have apparently had little success in securing these contracts. Do you follow special procedures when dealing with international organizations like the UN?
Mr. Patriquin: Yes. We deal with two types of organizations. In the case of the United Nations, there is considerable procurement activity. We work actively with these agencies to promote Canadian sales.
Opportunities in the case of financial institutions are somewhat different. Aside from the procurement of goods and services, our involvement extends to large construction projects and transactions of a more commercial nature. We have had some success in these areas.
Senator Hervieux-Payette: Can you give me one example of a successful contract? Which organization was involved?
Mr. Patriquin: In Trinidad, for example, a Nova Scotia firm, Tri-Star Ambulance, worked on a public health project in which the Inter-American Development Bank had a major interest.
The country was having some difficulty making a decision and our firm stepped in. We worked out a government- to-government contract and the bank was very pleased to be assured of our involvement in the project.
I could give you other examples involving smaller nations where the key was performance, not the size of the project. We are experts in the area of performance analysis.
Senator Hervieux-Payette: Do you get involved in public works projects such as bridges, aqueducts and water treatment or filtration plants, or do you confine yourself to business service contracts?
Mr. Patriquin: For the most part, we focus on exports of goods, and occasionally, services. So far, we have not gotten involved in construction projects.
[English]
Senator Kroft: As I understand the history of the CCC, it grew out of the post-war environment of a pooling of defence production capabilities on a North American basis. It seems to me that, over the years, the scope of the customer in the U.S. must have expanded. I doubt that the word ``aerospace'' was in the original framework. I doubt the word existed or was used at the time the CCC was first established.
As I understand it, on the defence side, there is a legislative framework on the U.S. side to which CCC relates, so there are legislative agreements bringing CCC into play. Are there opportunities for expanding the range of potential buyers in the U.S. through GSA, through their general purchasing capability, or is it still narrowly in defence? What are the prospects for expanding the more formal government-to-government arrangement in the U.S.?
Mr. Patriquin: I would like to underline that from the beginning that the CCC's activities have been well beyond the particular ambit of defence. I mentioned the horses and chickens or pigs. At the same time, there were sales of steel to China and so forth. Since the 1950s, there has been a particular concentration in defence, as you say.
The common element of this is that governments are hard to sell to and the procurement processes are not as transparent, nor as consistent, as they are in the commercial world. We are needed because the markets do not work terribly well. We have worked in the last year to help to make it easier for Canadian companies to sell to particular agencies of the U.S. federal government. We had a kind of road show across the country in November that was extremely well appreciated and accepted. Senior people from the general services organizations in the States and some other organizations found it attractive to see if there were good technologies in Canada that they could access. They are happy to have an organization to facilitate their access to this market of suppliers. Indeed, we think there should be real opportunities, at least at the federal government level, to spread the activity and to get better penetration for Canadian companies in the U.S. market.
We have never managed to figure out how to do similar sorts of things with the U.S. states as a whole or the municipalities, which are even more Byzantine.
Senator Kroft: Do you help companies cope with ``Buy America'' legislation? To what extent is Buy America legislation a problem for Canadian companies?
Mr. Patriquin: Under the DPSA, there is a partial exemption from Buy America. There are certain points and elements that the Americans simply will not forego. There are some small business set asides that we have not been able to get past. In general, the big advantage of the DPSA is that they can avoid many of the Buy America clauses.
Senator Kelleher: Back in 1995 or 1996, the Banking Committee examined the CCC. I was a member at that time. As I recall, we strongly recommended that CCC and EDC be merged. As Ms Morin stated in her opening remarks, that was not accepted. It was subsequently recommended that your separate mandate continue by both the Minister of Trade and the Prime Minister.
I must assume that some lobbying went on subsequent to our report as to why you should not be merged, and obviously you were successful in those efforts. I would be curious to know what it was that you said that you were going to do in order to maintain this separate status.
We were particularly concerned about duplication and overlap. We thought that if we could merge, we could eliminate some of that. What have you done since then to justify remaining separate in your mandate?
Mr. Patriquin: Perhaps I could deal with the two questions in reverse order. If we were merged, the question is: Would the CCC's function disappear? The answer to that is that the CCC's function is to act as a seller and as an advocate for the Canadian company to obtain a sale. EDC's principal business is in financing buyers, which we do not do, and in providing a range of insurance for a series of perils, which we do not do. If we were part of EDC, a substantial part of the CCC's functions would continue, assuming there is some demand and interest for it. In other words, the degree of lap and duplication is not great.
One would acknowledge that there is duplication, in a sense, in that essentially we are providing the buyer with a guarantee of performance. You could obtain that in the commercial market, if you have the right financial resources, contract guarantee insurance, a contract bond. To some extent, CCC's participation in transactions acts as a substitute for commercial bonding. The need for commercial bonding is reduced and thus it costs the buyer less and the seller less. This has been of particular assistance to the smaller firms. At that level, there is, in some sense, duplication. We are offering alternative instruments to do the same thing.
One would then question whether it is a good idea to have two approaches. The market would say, yes.
The wisdom of merging the two organizations is simple. Obviously, any organizational arrangement could be made to work. The view of the exporters, in my experience and in all the discussions that have occurred about CCC has been unequivocal, straightforward and simple: Don't do it.
Exporters feel that the function will get lost because of the differences in the sizes of the organizations. The CCC takes a very much hands-on, customized approach as opposed to a rather larger insurance pooling risk basis approach. I am saying nothing critical about the EDC institution, but in the view of the exporters, and in my experience, the absolute, simple, and only deciding factor has been: Don't do it.
Senator Kelleher: There is no doubt in my mind that that they said that.
As you know, at one point in my career, I was, theoretically, the minister to whom you people reported. I am somewhat familiar with the situation. Any minister who believes he is in charge is headed for trouble. As Solicitor General, I dealt with the RCMP and CSIS and I always waited several days after an incident occurred to see what story finally emerged.
In any event, as Alan Fotheringham says, ``I digress.''
No organization is perfect. What, if anything, did you do to try to eliminate any duplication or overlap since our 1996 study? Did anything change? Obviously, we felt there was some duplication.
Mr. Patriquin: I would be delighted to give you a brief report on some of the things that have gone on through the institution that was established, which is called the Council of Crown Financial Institutions. I chaired the meeting on that recently. The four organizations, BDB, EDC FCC and ourselves, looked first at whether a back office deal could be done to put all the back offices together. That did not work for them. Their systems and businesses were sufficiently different that it did not make sense.
We have had much private, but useful discussion, amongst the CEOs of the corporations. The Business Development Bank and the Farm Credit Corporation have done some useful alliances. When we met most recently, we were discussing how we might act to provide services across the country — the issue of regional offices. We are looking at whether it makes sense, in terms of economic purchasing power, to try not to have a single back office but to cooperate to get better prices in the market.
Presently, with EDC we are looking at doing a joint program in the area of working capital finance using our ability to essentially assess and underwrite the performance risk, which is an issue for banks in pre-shipment finance and to use their financial instruments to do more efficiently what either of the corporations can do individually.
We end up doing some deals together, but because we are focussed on the government and EDC is much more active in the commercial world, a great number of the deals we do are financed either by the buyers themselves or other people than EDC, although 25 or 30 per cent would be financed by EDC. That is a general picture of our interrelationship.
Senator Kelleher: That process, hopefully, is continuing?
Mr. Patriquin: Yes.
Senator Fitzpatrick: I may have missed this in the material that was provided to us, but I have not had an opportunity to review a financial statement. Can you tell me if you make money and what level of profits you make? What do you do with the profits? I presume much of it is in American dollars. Can you give me a rundown of the financial circumstances?
Mr. Patriquin: I will give you a quick overview of the structure and then ask Mr. Thoppil, our chief financial officer, to speak more about it.
Our overall spending each year is in the neighbourhood of $20 million, or a little over that. Of that, approximately $15 million is granted by appropriation, and the other $5 million comes from fees which we raise on a partial basis now and the use of our capital.
Most of that appropriation financing is required because of the DPSA work that we do where there is no charge to the clients because of a mutual understanding between the states, and part of that appropriation finances the international business. The purpose of this legislation is to encourage the corporation and enable us to become more self-sufficient in that international business.
Mr. Paul Thoppil, Vice-President, Risk & Financial Services, Canadian Commercial Corporation: We do have a mixture of our cash holdings, our working capital, in various currencies, Canadian, U.S., even Deutschmarks and now Euros, in order to facilitate international contracts.
In the event that the corporation does make a profit, as we have consistently over the past several years, which does augment our equity base, which is our basis for risk capital allocation, it permits us to more deals for SMEs for which the risk is higher than the large companies.
Senator Fitzpatrick: You have profit objectives. You set a budget each year as to the new business that you intend to attract with a profit level. Is that part of your operation?
Mr. Thoppil: We will be encouraged, through this bill in particular, to be more commercial, and employees and management are, in part, remunerated based on performance targets we set at the beginning of every year and which are approved through a corporate plan by the Governor in Council.
Senator Fitzpatrick: How many offices do you have across Canada? You are not a well-known Crown corporation, in my view. Are you intending to increase your profile, particularly as you are trying to pursue a more profitable existence?
Mr. Patriquin: Regrettably, you are correct, senator. We have one office here. We have regional representatives in Vancouver, Toronto, Montreal and Halifax at the present time. We have a number of provincial partnerships, in Alberta particularly, Saskatchewan, also in Ontario, New Brunswick and Newfoundland, which essentially are representative. We make our services known to the provincial representatives and encourage them to make our services available to people in those jurisdictions.
We do need to do deal with the very low recognition factor because, however much the people who use us appreciate the services, one of the questions we hear when we meet someone new and explain what we might be able to do is: ``Why have I not heard about you before?''
Mr. Emechete Onuoha, Vice President, Corporate Strategy, Canadian Commercial Corporation: We have limited resources to allocate to our regional presence in our offices in Toronto, Vancouver and Montreal. As opposed to trying to deploy a number of officers across the country, we have tried to leverage our partnerships in the provinces to try to increase our access direct to exporters who are already undertaking export assistance or related export services from our provincial partners, whether in Alberta, Ontario or Nova Scotia.
Furthermore, going forward, we recognize that our level of awareness is sub-optimal, and we have taken a decision to make strategic investments in increased marketing and awareness nationally as well as in the regions, in particular, the partnerships we have in some of the remote regions of the country. For example, in the prairie provinces, the Saskatchewan trade and export organization is one that we are trying to increase our engagement with so we can try to reach the many Canadian exporters who, as you point out, are simply unaware of the services that we have to offer.
Senator Tkachuk: I would like to go to the authorization to increase the $10 million to $90 million that the minister can authorize for CCC to lend out.
From what I understand, you need an Order in Council for an amount to be appropriated, but with the amendments, an Order in Council would no longer necessary for the money to be borrowed by the Minister of Finance. Is that correct?
Mr. Patriquin: There are various kinds of levels of authority. Under the general borrowing regulations, the Minister of Finance reviews and approves or does not approve a borrowing plan put forward by each of corporations each year, and that becomes part of the corporate plan and indeed is approved by Order in Council. The whole corporate plan is approved by Order in Council.
Senator Tkachuk: That is the way it is presently.
Mr. Patriquin: That is the way it will be in future. There will be ultimate Governor in Council approval of the plan, and it will be specifically on the recommendation of the Minister of Finance that the borrowing plan for the year be approved. That is how that will work.
Senator Tkachuk: How does it work now? The minister has to pass an Order in Council to loan money to the CCC so it can dispose of it in the way it wants to dispose of it. In increasing the amount to $90 million, will this be required? Will he still be required to pass an Order in Council?
Mr. Thoppil: It will be done through the auspices of the Order in Council that approves the corporate plan, which also includes the borrowing plan, and that is based on the Financial Administration Act.
Senator Tkachuk: As it works now, you have up to $10 million. You are confusing me. I am talking about the borrowing authority; you are talking about the borrowing plan.
Mr. Thoppil: Correct.
Senator Tkachuk: Let us go back to what I am talking about, which is the borrowing authority. Presently, an Order in Council is required to borrow money. Is that correct?
Mr. Thoppil: Yes, it is. The way it is currently drafted, you need a separate Order in Council for borrowing from the CRF.
Senator Tkachuk: The beauty of that is that the Order in Council is gazetted. It is a public document, and people know that this money is being moved to you.
Mr. Thoppil: That is correct.
Senator Tkachuk: After this is bill passed, though, that will no longer happen. We will just know about the $90 million.
Mr. Thoppil: You will know through various other means such as the annual report and the financial statements which are audited by the office of the Auditor General.
Senator Tkachuk: We will not know at the time.
Mr. Thoppil: That is correct.
Senator Tkachuk: Additionally, in the Supplementary Estimates, with a dollar vote you could receive $1 billion; is that not right? Is that not what will happen now, whereas before it could not happen? As it stands now, after this bill is passed, with a dollar vote in the Supplementary Estimates you will be able to borrow an unlimited amount of money. Is that correct?
Mr. Thoppil: Yes, if Parliament approves that.
Senator Tkachuk: It is a dollar vote. It will begin at $90 million and that could just as well be $100 million. It could be possible to borrow as much as you want on a dollar vote, once you have the dollar vote.
Mr. Thoppil: In any tabling of dollar votes there is an explanation that accompanies the dollar vote of what the amount is that forms part of that, Therefore, it is up to parliamentarians to decide whether that dollar vote should be passed.
Senator Tkachuk: You could not do that previously.
Mr. Thoppil: That is correct. Based on the current legislation, we are only allowed to borrow up to $10 million from the CRF.
Senator Tkachuk: Now you will be able the borrow $90 million.
Mr. Thoppil: That would be from the CRF or from the private sector.
Senator Tkachuk: Would that be in total?
Mr. Thoppil: Yes.
Senator Tkachuk: The private sector and the CRF combined. Do you plan to put a vote into appropriations to receive more?
Mr. Thoppil: No, we will not do that based on current financial requirements. Presently, it is based on our current foreign government receivables, as was explained by Ms Morin, at approximately $120 million quarterly. Based on private sector banking principles, that would permit one to borrow up to $90 million, if required. You may wonder why a corporation might require to borrow more. If the corporation's business volume with foreign governments increases beyond today's present requirements, the corporation would then have the financial requirement to borrow more. That would be based on situations that would occur in the future.
Senator Furey: In your most recent annual report, there is a graph of your exporters by geographic region. Do you have any further provincial information, particularly as it may relate to the Atlantic and Western regions?
Mr. Patriquin: The distribution of contracts that we have, in a real sense, reflects the interest of the companies in servicing the kinds of exports in the markets that we cater to and their access to our knowledge and services. The work that we have done in Newfoundland has not, surprisingly, focussed around the opportunities available for Goose Bay to sell to foreign governments.
We have also looked at and entered into some transactions with companies in the area of diversification of seafood products. There has also been an interesting but difficult housing project that we attempted in South America. We would be happy to do more. That is our current status.
Senator Furey: Do you have a breakdown of the percentages by provincial geographic regions?
Mr. Patriquin: We have that but only in aggregate. It is on page 21 of our brief.
Senator Furey: You do not have it.
Mr. Patriquin: We would be happy to provide more specific follow-up information for the committee.
Senator Furey: I would like to see the figures by province.
Mr. Patriquin: Yes, absolutely.
Senator Kelleher: I want to say that I did not want to leave the impression that I was unhappy with the workings of the Canadian Commercial Corporation. To the contrary, they were excellent to work with, they were well regarded, they did a good job and they never embarrassed the government with any nefarious activities.
Senator Kroft: I also speak as a fan of the corporation with one caveat. On one or two occasions you listed the provinces where you have either offices or partnerships, but I did not hear mention of Manitoba. I know you do business in Manitoba. Is there a problem? Have you been unable to establish a working relationship there?
Mr. Patriquin: There is no problem that I am aware of.
Mr. Onuoha: We do not have direct regional representation in the Province of Manitoba. However, there is no problem. In fact, we have quite robust clients who have historically used CCC. Services. I am referring to companies, such as Bristol Aerospace, that have proven their capacity to sell their technology and services abroad by using the CCC. The Province of Manitoba has provided us with robust exporters that we have tried to help reach the world.
In terms of regional representation, we try to utilize our regional partnerships in some of the neighbouring provinces, in particular Saskatchewan, to try to address some of the local requirements for exchange of information, sales calls, et cetera. In the case of the Manitoba-based companies, some of our account executives and business development personnel will directly service the province from Ottawa, as required.
Senator Tkachuk: I forgot to ask what board members are paid.
Mr. Patriquin: Our council and board secretary has that data.
Ms Tamara Parschin-Rybkin, Coordinator, Legal Services & Corporate Secretary, Canadian Commercial Corporation: In the fall of this year, the remuneration was raised by the Governor in Council. Currently, a director receives an annual retainer of $4,700 and a per diem rate of $375 per attendance at meetings. When a new chairman is ultimately appointed, he will be receive an annual retainer of $9,400 plus the per diem of $375 for each attendance at board meetings.
Senator Tkachuk: Does that include all the subcommittee meetings of the board?
Ms Parschin-Rybkin: Yes, they will be paid for that, provided the meetings are not held on the same day. If the meetings are held on the same day, they receive the per diem of $375 once for that day.
Senator Tkachuk: In the presentation some references were made to accountability, the TSE, the CDNX, Crown corporations, and so on. Are the salaries of the chief executive officers and the executive officers in Crown corporations made public?
Mr. Patriquin: The salary of the chief executive officer, as far as I know, is available in a range, by which it is governed. I believe that to be the standard practice. I do not think anybody has asked us for information on the salaries of executives.
Senator Tkachuk: Would I be out of line if I asked you that question now? I believe the TSE is required to disclose that information. I know in the States they are now required to do that.
The Chairman: In the TSE the salaries of the top five decision makers are disclosed separately. The interesting thing about the TSE requirement is they do not say who the highest paid people are. I was chairman of human resources at TD Bank and we listed the five, but it is somewhat illusory because people on the trading desk made a lot more than the president and we did not have to disclose that. If that is good or bad I do not know, but it is a fact.
Senator Tkachuk: I do not think it is good, but I am asking whether this attempt to make Crown corporations more responsive would also include the requirement to disclose in future annual reports the salaries of the top five people. The top five executives could be listed for public information, and our young people may want to aspire to those positions.
Mr. Robson: The range of salaries for those executives, as stated, are covered as a range and explained in the Gazette, but the individual salaries of employees are covered by the Privacy Act and are not generally disclosed in that manner.
The Chairman: Could you tell us what the range is for the chief executive officer? That information is public, is it not?
Mr. Robson: Off the top of my head I do not have it, but we can certainly provide that to the committee.
The Chairman: Would you provide to me the legislative ranges, and I will circulate it to committee members?
Mr. Robson: Certainly. As Minister Pettigrew is responsible for only two Crown corporations, those would be the only two that we would have.
Senator Tkachuk: Does the Privacy Act apply only because the Crown corporation is considered a private corporation?
Mr. Robson: No, the Privacy Act in this case relates to the release of information on the individual salaries of employees of the government.
Senator Tkachuk: That is nice.
Mr. Robson: That is our understanding.
The Chairman: There is a legislative range, so they cannot exceed a certain amount.
Senator Tkachuk: I think the public should know the salary of the president of the CBC, for example. I do not think there is any question of privacy there.
The Chairman: I agree.
Senator Tkachuk: He is spending people's money at the rate of $1 billion a year. That is a big deal.
The Chairman: My understanding is that, by commercial standards, the heads of Crown corporations are quite underpaid because of the legislative caps.
Senator Oliver: I have my parochial hat on now. I see that half of your board of directors are from the Province of Ontario and there is absolutely no one there from Atlantic Canada, which includes Prince Edward Island, Nova Scotia, Newfoundland and New Brunswick. Your annual report states that you have done some consultation and you have determined that you want people to have export experience, sectoral knowledge, compose a regional and gender balance, and have good personal skills profiles. It says that your president asked that they identify a long list of potential candidates. I hope that they included people from Atlantic Canada in that list, because you do work with Atlantic Canadian exporters and they should be represented on your board.
Mr. Patriquin: I completely agree. Amongst the private-sector members there is one from Ontario, two from Quebec, one from Saskatchewan and one from B.C. at the present time. A specific vacancy is to be filled in Atlantic Canada.
Senator Oliver: The report I have indicates there is no one from Atlantic Canada but three from Ontario.
Mr. Patriquin: Yes, you are quite correct.
Senator Tkachuk: As well, there is only one woman on the board, who is from Saskatoon I gather.
Mr. Patriquin: Since that report, of the two members appointed, one is a woman, a lawyer from Montreal, and the other is a shipowner from Quebec. We have an Atlantic vacancy as well.
Senator Fitzpatrick: I want to compliment the CCC for recognizing British Columbia as a separate region. It was established, as we all know, as a separate region in 1996, so I appreciate that. It is also appropriate that the graph delineates British Columbia in a gold colour.
The Chairman: Thank you everyone.
Is it agreed that we go into clause-by-clause consideration of Bill C-41, to amend the Canadian Commercial Corporation Act?
Hon. Senators: Agreed.
The Chairman: Is it the intention of any honourable senator to propose an amendment?
Hon. Senators: No.
The Chairman: Shall the title stand postponed?
Hon. Senators: Agreed.
The Chairman: Shall clauses 1 to 6 carry?
Hon. Senators: Agreed.
The Chairman: Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Shall the bill carry?
Hon. Senators: Agreed.
The Chairman: Shall I report the bill?
Hon. Senators: Agreed.
The committee adjourned.