Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 3 - Evidence of November 7, 2002
OTTAWA, Thursday, November 7, 2002
The Standing Senate Committee on Banking, Trade and Commerce met this day at 11 a.m. to examine and report upon the present state of the domestic and international financial system (Canadian perspective to the Enron collapse).
Senator E. Leo Kolber (Chairman) in the Chair.
The Chairman: Good morning, ladies and gentlemen. We are here to continue our study. I am pleased to welcome a person I know very well, and a leading star in the Canadian business firmament, Stephen Jarislowsky, Chairman and Chief Executive Officer of Jarislowsky Fraser Limited, who is joining us by video conference.
Welcome, Mr. Jarislowsky. We look forward to hearing what you have to say.
I assume you have a prepared statement, and then we would ask you to please take questions.
Mr. Stephen Jarislowsky, Chairman and Chief Executive Officer, Jarislowsky Fraser Limited, Canadian Coalition for Good Governance: I have a statement, honourable senators. I also have sent along a speech which I delivered recently to a Canada Live-organized conference of professionals in Montreal, as well as an outline of a document that I drafted for the Canadian Coalition for Good Governance, which is currently being debated by the coalition in order to come up with a final document that can then be distributed to all public corporations, auditing firms, investment firms, et cetera.
While I am an organizer of the Canadian Coalition for Good Governance, we are not advanced enough to supply the committee today with an authoritative statement, other than that the coalition has been formed to include enough managed money to be able to have clout with the corporations who have listed shares on the stock exchange and who do not conform to what will be our definition of ``good governance.''
As members, we have presently assembled some $500 billion of capital, and our additional observer list enhances this number further. Investors, directly or indirectly, of our funds de facto have combined control of many of the truly public corporations in Canada. Moreover, our investing power makes us essential for successful offerings of shares and bonds of controlled corporations.
We believe that the onus of good governance must, in the first place, be enforced by the corporations, and that has not been done in the past. Boards of directors represent the shareholders, who are the owners or the beneficiaries of the funds that we manage and for which we act as fiduciaries. To the extent that together, we have control, or very close to it, it is our belief that the boards will heed our guidelines without much work on our part or will accept our placing directors on their boards. Alternatively, we can remove a whole board entirely.
The previous automatic endorsement of management slates and proposals has been just as responsible for poor governance as anything else that has happened. We have the power and the fiduciary duty to ensure good governance, but most institutional investors have failed to do so. It is no wonder that boards and management often got too close.
The reasons are multiple, and range from laziness — it costs time and money — to conflict of interest. Many of us looked at corporations as a source of business — custodianship, the transfer agent, the insurance, the pension fund mandates, research information, et cetera. Moreover, the laws in Canada have usually upheld board of director decisions over the claims of oppressed shareholders. Brant Keeprite is a blatant case of this. The law is slow. It can take up to five years or more to get a final judgment. Keeprite took eight years. Lawyers tend to drag things out, especially those who know they are wrong. Such lawsuits are very expensive and time consuming.
Proxies are too frequently sent in blindly by the banks, trust companies and underwriting firms, again, as they curry favour in that manner. Also, often there are financial rewards — so much money for proxy or shares sent in management solicitations. Many investors are never really consulted by the custodians or, if they are, they do not know what the issues are upon trying to read 40 pages of gobbledegook.
Small shareholders have no input. In our company's case, even when owning 20 per cent of a company, which is the limit before which we have to make an offer for the whole corporation, we have been outvoted by these automatic proxies time and again.
Mutual funds are the worst offenders in supporting management. Time and again we have seen them withdraw at the last minute from any confrontation they agreed to carry out with us. It seems to me that laws should stipulate that institutional investors must act as fiduciaries, demand the very best for their clients, and should be liable to stiff fines if they automatically send proxies to management. Moreover, it should be absolutely prohibited to pay brokers, trustees, banks, et cetera, to procure management proxies. If custodians, financial firms and institutional investors are held to a strict fiduciary code, naively, I believe that at least some progress will result.
Similarly, I believe that corporate directors should have qualifications. There should be a short course that directors must attempt and pass before being qualified to be on a major board. I am discussing such a development with Les Hautes Etudes Commerciales and also the McGill Business School at the moment.
Definitions of ``independent directors'' must be arrived at, and such directors should take an oath of conduct at the outset of a mandate to act for all the shareholders alike. I would suggest a similar procedure for investment analysts who go public with their views in the press or to investors. This would give both directors and analysts a very definite commitment to integrity and make prosecution easier in case of failure.
Similarly, institutions should, by law, be fiduciaries, as should corporate directors. At present this is quite vague in the law. Laws have been around for 5,000 years and have always failed to protect against human greed. Accountants, lawyers and crooks have ever found legal and less legal ways around these laws. Laws and restricted regulations alone will not protect us this time around either.
Laws, though, must ensure that investors can act jointly and protect their assets. The successful establishment of a Canadian Coalition of Good Governance is a far more effective way to ensure integrity in the boardroom and in the executive suite. It will also have more effect on the audit firms because, as a group, we can exclude rogue firms from the Canadian scene.
If we succeed, I believe that the pieces will fall together, with qualified and honest boards leading to good management and conservative accounting. For investors there will be a large, biting watchdog to ensure integrity of the markets and individual corporation governance, so restoring the confidence of the investing public.
We will have our own full-time office. Our firms and analysts will have input on governance at each major company. We will develop guidelines and lists of qualified, independent directors whom we will suggest to corporations and, in the worst case, we have the ownership power to act.
We will also be able to supply input to the stock and bond market governance and come to grips with some of the blatant conflicts of interest there. We can influence accountants to have integrity and to act conservatively at all times.
We believe that there should be but one security commission in Canada and that its lawyers should be so well-paid that they will not have one eye on returning to their law firm and so no longer worry about alienating their old partners. I said many years ago that we would be better off not to have an OSC, Ontario Securities Commission, as then no one would naively believe that it would protect the shareholders. A commission that many years after Bre-X still has achieved no convictions strikes me as a toothless tiger.
The securities commissions should have top-quality people and real power, or else they are just nuisances, collecting fees and issuing regulations that waste our time and money without coming to grips with real problems.
In summary, I believe it is the institutional investor who must act as a true fiduciary for clients to assure quality boards at all the material public companies. I further believe that if small companies cannot have independent directors, then they should not be able to list on the Toronto Stock Exchange. All public listed companies on the TSE should have a majority of independent directors.
Furthermore, there must be rules on options. Options have been used to loot corporations without executives becoming truly long-term shareholders. Not expensing options has been a mistake. Giving favourable tax treatment to options has been another. Excessive compensation of all forms has pushed greed to extremes.
There must be guidelines on compensation, especially options. We will address this, but politicians must not surrender to contributions to their campaigns that fan greed. A bit of greed and a bit of fear are good. In excess, both spell disaster. Each Sunday some of us say, ``and lead us not into temptation but deliver us from evil.''
Mr. Chairman, that is a summary of my remarks.
The Chairman: Thank you for your forthrightness.
Senator Oliver: One of the things that I would love to have your advice on is, you have stressed the need in developing good corporate governance for having an independent board of directors. At one stage you said that definitions of ``independent directors'' must be arrived at.
A number of learned scholars, and others, have made suggestions on what the word ``independence'' means. As you know, the Americans have also given a lot of thought in the last six or seven months to the word ``independence.'' I would love to know some of the things that you feel independence of directors would mean and what it should entail?
Mr. Jarislowsky: Under normal circumstances, I would say that it means that you have no business dealings with the corporation, that you are not related to any executive in the corporation in a major way, that you do not have a major conflict because you are a CEO of another corporation and the CEO of this corporation is sitting on your board; in other words, the normal type of items.
On the other hand, I know a great number of directors who, even if they have certain conflicts, will truly carry out their mandate as a fiduciary for the shareholders.
While there should be a basic minimum required, at some times it should be able to lead to exceptions.
Senator Oliver: Do you have any suggestions for what can be done to ensure the independence of audit committees? Should there be a rule, for instance, or a policy, that members of an audit committee of a Canadian corporation should only be appointed or chosen by independent directors, and not by management and so on?
Mr. Jarislowsky: Senator Oliver, I have sent you a draft of eight pages, which I believe you have received, containing our suggestions in regard to this. I believe that pretty much all the members of the audit committee, the human resources committee and the nominating committee should be independent to the utmost degree possible.
That would certainly mean that all the members of the audit committee should be independent. It is one of the two committees where I would insist on that. The other one is the human resources and compensation committee.
Senator Oliver: Could you tell us a little about some of the things you feel should be included in a course that you are now working on with the universities for training directors?
I know the Institute of Directors is doing a lot of work in that area, and directors like Bill Dima have written papers on the courses and the training that directors should have.
Mr. Jarislowsky: I believe that if you had people who are absolutely superb directors basically guiding newcomers through this kind of activity, that would be probably the very best situation, because they would act as a kind of mentor.
On the other hand, there are just the normal guidelines of no conflict of interest, of spending time and, again, in my eight pages, when I talk about the human resources and compensation committee, I feel that a director's main job is to ensure that the people in management are absolutely of the first quality.
He should not only go to board meetings and meet the chief executive officer, or the chief financial officer or the chief operating officer; he should be well acquainted in much greater depth with individuals in the corporation.
The course obviously would be outlined in a formal manner. However, I would absolutely insist that directors of unquestioned integrity and unquestioned excellence be lecturers at those sessions.
Senator Fitzpatrick: I was interested in your comments about institutional investors, brokers, trustees and banks.
I am not sure how you could require that the institutional investors act as fiduciaries, and I am not sure how you could prevent the brokers and financial institutions from acting for management in obtaining proxies.
Those are systems that I think are entrenched in our investment and brokerage systems at the present.
What you have not mentioned, and perhaps you could comment on, is the role of nominees and the depository systems that we presently rely upon. There was a time when one knew the shareholders. Now one does not know who they are because the individual shareholders participate through an institutional investor or through a pension fund.
Management cannot get to shareholders. Shareholders really cannot get to management. They do not have the same kind of influence that they used to have because they work through nominees and their shareholdings are hidden. One does not know who the shareholders are; one cannot find out.
It seems to me if one knew who the shareholders were, and the shareholders had some form of direct communication with management, the shareholder participation might be more effective.
Would you care to comment on those matters, please?
Mr. Jarislowsky: I believe that the average shareholder really does not understand what good governance is. He does not understand what good management is. He does not know any of the people on the slate, when a slate of directors is being named.
He also does not feel qualified to know how many options would or would not be the right number.
That is essentially why I believe that the coalition has come into being. It has come into being because everybody makes more money from the shareholder whose rights I defend as investment counsel, in my case, or the shareholder who would be protected by a mutual fund that has people who can weigh these suggestions that management wants a proxy for, rather than the small shareholder doing it himself. It is precisely for that reason, because we know their excesses; we know that rate fees beyond a certain point are too high and that options that never lead to shareholdings and are only exercised to get another bonus are wrong.
That is why I feel that people who manage other people's money should be in a fiduciary capacity and legally defined as such.
Similarly, I believe that an analyst who talks to the public, and does not just talk to his superiors inside a corporation, to the extent that he makes a statement or that his corporation makes a statement that is attributed to him, if he has an taken an oath of qualification, like a doctor, he would be in a much different position from somebody who will receive a big bonus because there is a big underwriting.
Senator Fitzpatrick: How will you establish a fiduciary responsibility between an investment institution and a shareholder of a fund? That is really what you need to do, so that they will attend to their fiduciary responsibility. In other words, you have shareholders' rights with respect to the investment institution. Is that what you are suggesting?
Mr. Jarislowsky: In our firm, for instance, on major issues where we do not agree with the proxy, we write our view to our clients and ask them to comment in 10 days if they disagree with our view, and if not, we represent them as the fiduciary or as the agent for those clients. I think the same basically can be done by any other investment counsel like us. It can certainly be done by any pension fund that is self-governing and self-investing. It certainly can be done by a mutual fund because, if it has people who look at these things, instead of currying favour with the people in the corporation, and are by law in a fiduciary capacity for the shareholders, I believe that they will pay attention to it. If they do not, and do not do their fiduciary job, even a firm like ours could sue them.
Senator Fitzpatrick: What kind of a response are you getting to these recommendations or suggestions?
Mr. Jarislowsky: We have had an absolutely superb response, senator.
Senator Fitzpatrick: What percentage would that be?
Mr. Jarislowsky: Of the people in our coalition, I would say 95 per cent. I believe, in mail that I receive, the figure is 100 per cent. It is about time, I am told.
People are fed up. People are fed up with the feeding on the investor.
Senator Fitzpatrick: Can I ask you how many clients you have? What percentage of the market would that represent?
Mr. Jarislowsky: We represent $33 billion in funds and we have about 500 institutional clients. We have about 5,000 personal clients. We are the number one or two firm among those that are not owned by others and are truly independent in the Canadian market as far as investment management is concerned.
Senator Fitzpatrick: How many other firms follow the same kind of program that you do?
Mr. Jarislowsky: Practically everybody and his brother have joined, either as an observer or as a member of this coalition. When we have meetings, we have over 40 people in the room and maybe 20 others on the telephone.
Senator Fitzpatrick: What other kind of, if I may call it, client relations do you have? What other kinds of communications do you do? Is it only at the time of an annual general meeting, for example, that you would communicate with your clients, or are there interim communications?
Mr. Jarislowsky: Once a month we review each of our portfolios, both institutional and private, and write what we have to say in a letter that is partly institutionalized and at the end is privatized to the particular account.
Senator Tkachuk: You make quite a strong statement here about options and looting the corporation.
I am trying to get an idea of how you would treat options. That is my first question.
You also mention favourable tax treatment for options. Do you mean that up to $100,000 — I believe it is up to $100,000 — of those options are not taxable until sold, while the rest is taxable at the time the options are exercised? Could you also comment on the first point?
Mr. Jarislowsky: The first point is that I believe that options are part of a compensation package. In the guidelines that are distributed to you, I talk about options. I am probably tougher than many other people. To my mind, there are three sides to compensation. First is the salary, which should be just to generous. Second, there should be a bonus, which, to my mind, should never exceed 50 to 100 per cent of the salary. Third, there should be options.
I do not believe that any company should ever issue more than five per cent of its capital for option distribution. Our firm has opposed anything higher than that, and very often has been able to make changes. Otherwise, it becomes far too diluted.
I further believe that options should be given in order to make executives who can have an influence on the company into long-term shareholders, preferably until the day they leave the company for retirement or otherwise.
I further believe that an executive should only receive an option at such time that he is being awarded a position in the company where he can have a direct influence on the corporation's development. He should only be given that option once, not every year. He should only be given a further option if he receives a major promotion. The option should be limited to a percentage of his salary, and once he exercises this option, whatever is left apart from taxes and the initial amount should be kept until retirement, so that he is basically the same as a shareholder and looks at the company in the same way. What has happened these days is that people have received one million options one year that are exercisable three or four years later, and the moment they were exercisable they dumped them. At the end, they still did not own any shares.
Senator Tkachuk: Just so that the viewers know, I believe that a company can issue no more than 10 per cent of its total float in options. Is that not correct?
Mr. Jarislowsky: I am not a lawyer, so I will not comment on that.
Senator Tkachuk: You say it should be five per cent.
Mr. Jarislowsky: Our feeling is that five per cent is totally sufficient. I also firmly believe that there should not be a ``star'' executive system, where the chief executive gets $1 million and the next guy gets $20,000. I believe corporations are best run on a team basis, and that the star system only encourages people to cut each other's throats to get to the position of CEO.
Senator Tkachuk: Would it not be better not to tax options until they are actually sold? Would that not give great incentive to executives not to sell their options?
Mr. Jarislowsky: If the options were modest, I would definitely go along with that idea. Obviously, in most cases some of the options have to be sold to pay for the original option price. I personally do not believe in corporate loans to executives. I think that is a mistake.
Senator Tkachuk: I have two short questions, if I am not taking too long.
We are often told in the committee that options should be expensed. Yesterday, I asked a question of the certified management associates — and it is still a question that bothers me. How do you expense an option? Where does it sit on the balance sheet?
Mr. Jarislowsky: There are a number of methods. It is a question of arriving at one method that appears to everyone to be the best, because if you are going to expense them, there should be only one way. Let me illustrate for you the cost of an option. Let us say that a corporation has one thousand options that are being exercised for shares at a price five times higher than the strike price. In order to get back to the status quo ante, the company would have to buy back an amount five times as high in order to get the same number of shares, which are then reissued as options. That difference would be the cost of that option to the corporation.
Senator Tkachuk: That is when it is exercised, but let us say an option was exercised in the fiscal year of a corporation in February and the stock price was five times higher than what the option was exercised at. Within that same year, the stock price goes down to less than the actual option price. How would that be expensed on the balance sheet for that fiscal year? Would that be a true expense if, at the end of the year, the stock price was the same as what the option was exercised at?
Mr. Jarislowsky: I firmly believe that the unexercised option liability would at all times be the expense. The moment an option is exercised, clearly it is getting back to the status quo ante that illustrates the cost. If that cost had already been taken in the year before, then there is no additional cost.
Senator Tkachuk: We have had previous hearings on governance. You are in charge of a mutual fund, and during the 1990s, all those working with mutual funds and pension funds who came before us were bragging about their great gains and how well they were doing in the marketplace. During that time, executive compensation was absurdly high in many cases and, to my mind and to many others, ridiculous in many more. Yet we never heard those calls for good governance practices when the market was good. Everyone was talking about how well they were managing the market. Now that the market is bad, it seem that everyone wants to be involved in talking about good governance, about all of the things that were taking place when the market was good. Did you and your colleagues in the industry have the same concerns a number of years ago, when the market was good, as you do now that the market is bad?
Mr. Jarislowsky: Speaking for our firm, we have fought these battles for the last 40 years. I went to the newspapers and on the airwaves to point out that these salaries and options were ridiculous and that these bubbles would burst. My conscience is clear. I can also say that many people in my industry felt exactly the same way and also expressed themselves, but I am ashamed to say that the bulk of the people were only looking after their own interests in selling mutual funds and in showing off how well they were doing.
Senator Kelleher: In your address to us this morning, you touched on a pet concern of mine, which is that there should be but one security commission in Canada. Everyone talks very piously about this, but nothing ever happens. Part of the concern has to do with the fact that they are worried about being taken over by Toronto. Quebec and B.C. certainly appear to have problems.
Do you think there is any realistic way we can arrive at a national securities commission? What does your group advocate in this regard?
Mr. Jarislowsky: We certainly advocate having one commission, but I believe that the possibility is tied up somewhere in the Canadian Constitution and its division of powers between the provinces and the federal government. I am not a lawyer and do not know whether the federal government could set up its own commission on top of the other ones. If that commission had more teeth than the others, then that would certainly be one way of circumventing them. I have written letters to my friend David Brown, the head of the OSC, time and time again. He must be getting very tired of it. He and I are good friends and have been on boards together, but nothing can be done because he tells me that the laws do not permit him to act. The other thing I feel very strongly about, and which gave rise to the coalition, is that you could not really pursue these things with laws. It took too long and was too expensive. Therefore, the only way to really have clout in the boardrooms would be to have sufficient shareholders under one roof to act together and ensure that the boards would be of superb quality. As a result, the corporations would be well run. If that were true, we would have better run corporations that would provide better and more employment in this country. They would pay far more taxes because they would be more profitable, and you would have far fewer shenanigans.
After a time, I became fed up with the commissions not doing anything and the legal process. For years now, I have tried to get this type of thing going. We have a window now to do it. The law was changed, because before, we could not even talk to each other.
Senator Kelleher: You mention your friend David Brown. He appeared before us a few days ago, the day that they announced the new legislation in Ontario. Undoubtedly, you have had a chance to look at it by now. Do you think that it seems adequate? What is your feeling about the new proposed legislation?
Mr. Jarislowsky: I must admit that I have not studied it sufficiently to give you my views.
Senator Kelleher: There appears to be a perception, one that I share, that we in Canada seem to take forever to take action on people's misdeeds. I use Bre-X as an example of where we just do not seem to do anything. Yet in the States, they appear to be much tougher and to move more quickly.
We seem to be loath to put people in jail up here. People seem to feel it is not the Canadian way. I do not happen to agree with that. I think we have to get tougher, like the Americans. Could we have your comments?
Mr. Jarislowsky: I go back to what I said before. You will have far better results if we are successful with our coalition, because we basically control these companies. The boards will look at themselves and determine that they want to stay as directors. To do that, they had better pay attention to this coalition that could kick them out if they do not do the right thing. That will be far more effective than going after people with laws.
We have talked about various security commissions. None of them has enough money.
I have referred to the fact that the lawyers do not want to go back to their law firms in bad repute. I have known a number of lawyers on the OSC who could not go back to their law firms.
My personal view is that you are not going to change this situation with laws. You can bring in some laws to place a fiduciary responsibility on people. You can have some laws saying that directors have to take the course. You can put in regulations saying that all corporations listed on the TSE must have at least a majority of independent people on the board and on all the main, important committees. Those kinds of laws are fine.
Look at the enormous excesses in the United States. Where was the SEC? They were not around. There are many commissions, including the OSC and QSC. Our firm is bombarded daily with forms and things we have to do and complete in order to make them happy, but that does not catch a thief. That paperwork only creates more work, and more cost to the investor.
The Chairman: I have one brief question. You say in your opening remarks that there must be guidelines on compensation. From where should those guidelines be issued?
Mr. Jarislowsky: They should be issued by people like us. I do not think that you can legislate them.
The Chairman: Are you telling us that we should not legislate anything?
Mr. Jarislowsky: No, I am not saying that, Senator Kolber. I mentioned a number of things that you can legislate. For example, you can definitely legislate the fiduciary responsibilities of corporations like our own. You can definitely legislate that corporations cannot pay trust companies or banks a fee for sending a proxy. You can definitely legislate that banks have to send out the proxies to the actual owners of the corporations if they are custodians. All that can be done.
The Chairman: Where are you incorporated?
Mr. Jarislowsky: We are incorporated in Canada.
The Chairman: You are a federal corporation?
Mr. Jarislowsky: Federal incorporation.
The Chairman: We have certain restraints here. We can only suggest changes to the Canada Business Corporations Act. If it is a provincial charter, then we are impotent. We can send out signals, but cannot legislate.
Mr. Jarislowsky: This is the window of opportunity to send out the signals.
The Chairman: Yes.
Mr. Jarislowsky: This is an extremely good time to try to create a great improvement in corporate governance. If we miss this window, in two or three years when the stock market is going up again and everyone is happy, we will be back to the same money, same touting of stocks and the same type of incentives where every executive who is 56 years of age and has six years as a chief executive wants to cash in his options and become a billionaire, rather than the millionaire he was before he became president. The system just feeds on itself.
The Chairman: I agree with you. If you could wave a magic wand, what sort of salaries and guidelines would you recommend? Leave out the options that you have already talked about.
Mr. Jarislowsky: I indicated that a fair salary is one in which an executive can live in the style that he probably should be living in his position, and a little bit better. The bonus at the end of the year should be gravy for an executive.
In my guidelines, when a stock doubles, an option should never give an executive more than two years of salary. However, I do not think that you can make laws to that effect.
The Chairman: No, I do not think you can either. How did you react to the news of what Jack Welch received when he retired?
Mr. Jarislowsky: I thought it was rather amusing. I was told the background afterwards. The board wanted him to stay and wanted him to pay. He wanted to become a consultant. He wanted to maintain the perks that he had had, which included an apartment with a lease cost of $1 million a year and an airplane.
The poor guy was not really as greedy as he could have been. However, it looked very bad when his ex-wife decided that, ``hell hath no fury like a woman scorned.''
Senator Fitzpatrick: I have a comment and a question with respect to your coalition on good governance and board oversight. While I agree with the intent, it seems to me that you are picking the jury and acting as the judge. Do you think that that is a problem?
Second, if that is not the case and this practice is adopted by corporations, are you limiting the number of directors to a very small pool of people who would meet your criteria and would be prepared to serve as directors?
Mr. Jarislowsky: To the latter question, I have sent you my views on how the board of directors should be constituted. My view is that even a big corporation should not have more than 12 or 14 directors. There should be just enough directors to fill the committees. Every director on that board should be making a real contribution to it.
I believe that the nominating committee should review the performance of every director at the end of each year, and people who really did not contribute much should be removed. If you have 12 directors or so, they can take a real interest in the company, get close to certain major policy decisions, and be informed directors rather than people who only read the papers sent to them by the CEO on the way to the meeting — which I have seen. Then they largely sit through the meeting and hardly say anything, except to fall all over each other to make motions that favour management. I have seen that too, having sometimes been on 20 boards at once. That is my answer to the first aspect of it.
The second aspect, as far as being the judge and jury, we own these companies, or our clients own these companies.
If you owned a corporation 100 per cent, would you not want to have a good, well-managed board of directors?
Senator Fitzpatrick: I probably would, if I owned 100 per cent, which is the case with some of my companies. I make a good board of directors myself. I guess I win or lose, depending upon my judgment.
On the first question, when I talked about the number of people across this country who have the qualifications and who would be willing to serve as directors, serving as a director in a major company is not easy. The responsibilities involved and the amount of work to be done, if done properly, is momentous, and I just wonder if you are shrinking the potential number of directors who will be prepared to serve. That may be a good thing, but it may be a problem, too.
Mr. Jarislowsky: I do not believe so. I believe that to the extent that it would be something that you could study at a business school and in which you could become much more interested than the system that operates today, which is strictly based on people knowing other people — and I have been very involved in this myself, having been lead director of a number of large corporations in my lifetime — there could be many very public-spirited people. I am looking at public-spirited people like you, who serve in the Senate. It is an enormous honour to be a director of an extremely well run, successful corporation. To the extent that we can force these corporations to have excellent management and move forward, I do not see any great problem in attracting directors.
I also believe that having honest and excellent management all the way through is the only way for a major corporation to compete in the world today. With that kind of management, the job of a director becomes much less onerous than it is today, where you have to watch everything.
Senator Fitzpatrick: How much do you think a director should get paid? We heard your comments with respect to executives, but how about directors?
Mr. Jarislowsky: I have served on the boards of corporations that had ex-judges, ex-military men and ex-other people to whom $60,000 to $80,000 was a great deal of money, and I found that they fawned over and flattered the chief executive, who also happened to be one of the major owners, because that money really meant something to them. That amount of money, in their case $60,000 to $80,000, was much too much. I do not believe a director should be overpaid at all. To a large extent, it should be an honour. Obviously, expenses should be taken care of and they should be reasonably well paid, but certainly not overpaid. I do not believe in options for directors. That is the wrong approach. The board of directors, in fact, is the mentor for the chief executive and the top executives of the corporation, and as such, it is a job that is partially an honour and for which they should not be overpaid.
To the extent that you have an external chairman of the board, and I am an absolutely firm believer that the CEO and chairman should not be the same, clearly, that person should be paid much more and in a much more responsible fashion.
The Chairman: Thank you, Mr. Jarislowsky. It was a pleasure to have you here. Your forthrightness is welcome. I hope we can meet your very high expectations, and we will certainly work at it.
Our next witness is from Market Regulation Services Inc., and honourable senators will notice the ``RS'' that is shown in brackets after the name of the company.
Mr. Atkinson, in your opening statement, would you please explain ``RS'' and what your company does?
Mr. Tom Atkinson, President and Chief Executive Officer, Market Regulation Services Inc. (``RS''): I wish to thank honourable senators for the opportunity to appear before this committee today.
I am sure that after several sessions of this special post-Enron committee, you will know that a Pandora's box of real problems continues to spill out, in that convincing solutions that command even some slight consensus are few indeed.
I hope to provide what I believe is a national model of regulation that will work and that should go some way toward restoring investor confidence, which is indeed why we are here this afternoon.
Today's hearing is a responsible step by Canadian legislators. We need to look at what has happened, and watch the response from U.S. regulators. At the same time, we must keep an eye on our own backyard to prevent similar catastrophes and to take action to be one step ahead.
The U.S. response, in the form of Sarbanes-Oxley, has led to calls for Canadian regulators to respond in the same manner. For those who have studied the Sarbanes-Oxley report, I do not need to tell you the focus it places on deterrence. Deterrence comes in many forms: Enforcement, guiding principles and education. While many are calling for tougher penalties and more regulation, I counter that enforcement after the fact is actually the least effective form of deterrence. Instead, I suggest that we direct our energies more toward prevention and solve the problems before they hurt the investor, rather than lying in the weeds and waiting to catch those who knowingly break our rules.
The Chairman: Mr. Atkinson, are you suggesting that we not have any enforcement?
Mr. Atkinson: Do not get me wrong. I believe that regulators need to carry a big stick at all times and should be quite willing to use it. The direction we need to take must focus on both the prevention and the enforcement action.
The Chairman: That is true of all forms of crime, though.
Mr. Atkinson: Yes, it is true of all forms of crime.
The Chairman: I am not disagreeing with you; I just wish to ensure that I understand what you are saying.
Mr. Atkinson: There is already work underway in Canada to benchmark our regulatory practices against the U.S. and other jurisdictions to ensure that we are in step. The fines for trading infractions, for example, are equal to or greater than similar fines in the U.S.
Enron's biggest crime was the damage it did to investor confidence. If investors feel the market is rigged, they will take their money elsewhere. Our capital markets cannot function if investor confidence is low.
Low investor confidence first leads to poor overall market performance and ends in permanent damage to our economy. Maintaining the integrity of the markets to instill investor confidence is the reason we regulators exist.
Going to your first question, Mr. Chairman, I represent Market Regulation Services, or as we are called on the street, ``RS.'' We are Canada's independent, national regulator of equities trading. We regulate the Toronto Stock Exchange and the TSX Venture Exchange.
Let me give you a 10-second overview of how we approach regulation. I believe it provides a ray of light in the dark days that we have all been through recently.
First, RS is the only regulator that protects the investor in real time. This means we watch every single equities trade in real time to ensure it complies with the national unified trading rules across the country. It is a big job.
In Canada, we average about 175 million shares traded each day through more than 100,000 individual trades. If a rule is breached, we investigate and, if necessary, we have the power to reverse the trade. That is right, Mr. Chairman, I mean we can actually reverse the trade as it occurs.
As I like to say, we can immediately right a wrong without calling in the legal brigades. This is what I meant by prevention. If we were to take an enforcement approach, such cases could take years to run their course. The investors would have lost their money and the costs would be huge. Doing it our way, the investor gets protected right upfront and the harm to the market is greatly reduced because it is corrected immediately.
It is a lot less sexy, as the jail cell does not come into play as often; but I argue it is more effective. It is like having a lot of police with radar guns visible on street corners to encourage drivers to keep to the speed limit. This approach also has a disciplinary side. The trader and the firm are warned in the mildest cases, and repeat or severe offenders can be fined up to $1 million or banned all together. The difference in our approach is that the investor comes first.
Second, we use the data we collect to look at patterns of manipulation, such as high closing or insider trading. Then we investigate and prosecute these matters. We cannot make the market or traders 100 per cent honest 100 per cent of the time. However, we have amazing leading-edge surveillance systems that look over their shoulders. We are a powerful deterrent.
Third, we monitor national timely disclosure of material information from all public companies across Canada. We vet every press release; and, if necessary, we hold the stock and force the company to clarify or to allow the market to properly absorb the information. As in all our activities, the objective is that everyone gets clear, material information at the same time to make investment decisions. We are determined to have a completely level, de-rigged flow of information from traded companies.
Finally, and perhaps the most interesting thing from your point of view, senators, is that RS is in effect already a national regulator. One of the most marked responses in Canada to the fallout over Enron, WorldCom and other problems south of the border is a renewed call for a single, national regulator to replace Canada's existing 13 regulatory bodies. I was here for some of your earlier discussion. This debate, however, always gets hung up on the issue of jurisdiction.
I am here to talk about approaching regulation the way we do at RS to address function rather than jurisdiction. We embody this approach. We were created to replace the trading regulation functions previously exercised by the exchanges themselves. Prior to RS, each exchange had its own trading regulator and its own set of rules. It was a cumbersome system, with little crossover and tons of duplication.
RS was created to address a dysfunctional gap in Canada, which was to have common rules for equities trading applied consistently across the country. There was no jurisdictional concern — everyone wanted clearer rules that would make trading more efficient.
Because of this approach, everyone bought in. We are the recognized trading regulator in B.C., Alberta, Manitoba, Ontario and Quebec. All the other provinces and the territories seem to follow the lead of these provinces in securities regulation.
What is most significant is our recognition in Quebec. RS is the only self-regulating organization in the industry to be recognized in Quebec. Quebec approaches securities regulation differently from the other provinces, as I am sure you are aware. They have a stronger regional interest in the retention and flow of capital and, in many ways, take a more activist approach to regulation. RS's model, of function first with regional flexibility, contributed enormously to our working relationship in Quebec. Our function is jurisdictionally neutral.
Let me get back to why we are here today and talk about investor protection and protecting the integrity of our markets. Right now, with Martha Stewart and Enron in the news, it is easier to call for more rules, stricter penalties and more enforcement. We have an opportunity and a responsibility to act now to ensure that we do not import these problems into our markets. However, we need to make sure these rules strengthen our markets rather than strangle them.
By analyzing the problem, and by not arguing about whose job it will be to implement the solution, we can better determine what needs to be done to protect investors in the wider suite of challenges we face. My bottom line is to focus on the outcome and not the jurisdiction of the problems. Sarbanes-Oxley is a reactive approach to regulation.
Let me give you an example of a proactive effort that is happening right now. RS and the Canadian Securities Administrators are working on a review currently of insider trading. We have the cooperation of all jurisdictions. Let me stress, we are not responding to a crisis here. What we are doing is examining our tools and our tactics in a proactive manner to determine if we are doing the best we can in this area. We decided to look at the big picture, analyze the existing rules, share experiences, promote best practices, and open new channels for sharing information to tackle the problem we currently have with the structure.
While this process has just started, I am confident that it will result in recommendations for dealing with the problem without getting hung up on the issue of jurisdiction. Everyone agrees that we want to do our jobs the best possible way we can.
When I look at the different viewpoints in the debate over the national regulator, I am struck by the fact that everyone shares a couple of very basic principles. The first is that more rules are not necessarily the way to go. Instead, we all recognize that clearer rules and more consistent, nationwide application of those rules is what is required.
I will take it further and add that prevention must be part of the strategy. Let us better educate those interacting with the markets on what the rules are and what the spirit of those rules is meant to define. Let us move away from rule technicalities and, instead, adopt guiding principles. RS does this with the trading community. Our theory is that it is always preferable to halt a problem before it mushrooms.
Second, simply following the U.S. lead is not the best answer for Canada. We need to have a plan that embraces the intention of Sarbanes-Oxley, but from a Canadian perspective. We need to keep in mind that Enron happened under U.S. rules, not under Canadian rules. We need to think Canadian and accordingly have a Canadian response.
Third, the overall process is messy. I personally cannot see how the creation of a national regulator to replace the current provincial commission structure could be implemented without a prolonged federal-provincial battle. Taking the function over jurisdiction approach, securities regulators in Canada need to consider other, possibly more effective and cost-efficient ways of doing things that will reduce the cost of raising capital and are beneficial to the investor. This approach addresses common problems and respects sensitive regional issues.
When considering the Canadian reaction to Enron and Sarbanes-Oxley, I strongly suggest we take an approach that makes sense for our markets and addresses the functions of regulation. On the issue of a national regulator for Canada, I suggest we do not need a grand, new central structure. Instead, let us approach it from the benefits side. Let us look at how we can meet the shared objectives, which are to reduce the cost of raising capital in Canada, to attract investment, and improve investor protection and therefore raise the confidence in our markets.
Let us tell Quebec and the western provinces that, indeed, we will greatly reduce the cost of raising capital in their provinces, that investors will be afforded greater protection, and that as a result, more capital will be attracted.
Honourable senators, I believe that this is the best way to bring everyone to the table. Thank you for your time.
Senator Kelleher: As you probably have already seen on other days, I am confused as usual. I am having a problem trying to figure out the demarcation between what you are attempting to do, and the securities commissions.
Mr. Atkinson: Yes.
Senator Kelleher: This troubles me.
Mr. Atkinson: I think I can clarify that for you.
Canada has a self-regulatory organizational structure, as does the U.S.; they have NASDR. The New York Stock Exchange is considered a self-regulatory organization. These organizations work closely with the markets and with the trading communities. We are really the experts in the trading community. Our jurisdiction covers the investment dealers and their employees. That is whom we monitor. That is whom we discipline. The securities commissions monitor everyone who trades securities in this country. That is where the jurisdictional difference lies.
To give you an example, if a member of the public went through a brokerage firm to make an illegal trade, and maybe the member of the brokerage firm was in on it, the commissions would prosecute the member of the public. We would prosecute the member of the brokerage firm.
The Chairman: Who discovers it?
Mr. Atkinson: We would do the initial detection.
The Chairman: How?
Mr. Atkinson: We have surveillance systems that monitor, as I said, each and every equity trade that occurs on both markets. We have a very sophisticated surveillance system that is regularly benchmarked internationally. We have offices in Toronto and Vancouver. The office in Vancouver monitors the junior market while the office in Toronto monitors the senior market.
Senator Tkachuk: Who owns your company?
Mr. Atkinson: The company is half-owned by the Toronto Stock Exchange and half-owned by the Investment Dealers Association. However, there is no real ``ownership.'' When we were setting up the company, people were concerned that we would not be independent of the markets and the dealers, so independent directors were appointed to control our company.
The Chairman: Like Senator Kelleher, I too am confused. Are you telling me that you have a databank somewhere that records that if I am an insider of the Kelleher company, there are certain times, for example, when I cannot sell or buy stock?
Mr. Atkinson: No.
The Chairman: Are you saying that a red light goes on if Senator Kolber sells a share in the Kelleher company?
Mr. Atkinson: No. Let me explain.
The Chairman: How do you pick it up?
Mr. Atkinson: Our surveillance monitors volume and price movements. The way the algorithms are set up on our surveillance machines, if there are movements in price or volume that are different from historical activity, an alert goes off. At the same time, we have compliance officers watching the market. When a company issues a public press release, we vet it.
We are watching for unusual stock movements, either before or as important news is released into the market. We have people watching not only the news that is coming out —
The Chairman: Would not a lot of people escape that particular detection?
Mr. Atkinson: No, because we are not watching the people, we are watching the price and the volume movements of the stocks themselves.
Let me explain. Once an alert goes off, we have what I call a ``triage team'' that begins looking at who actually traded that stock. Then we try to determine if we can link that person back to the company issuing the news release. Okay?
The Chairman: Okay. But Senator Kelleher, of whose company I am a director, calls me up and says, ``I have fabulous news that will be coming out tomorrow.'' I proceed to buy 1,000 shares. The news he thought was fabulous was good, and the stock goes up. How do you know that I did anything?
Mr. Atkinson: We have a number of ways to try to link you back to the issuer. I cannot get into all the methods that we use. You are right; we do have a databank.
One of our jobs is to vet all of the officers and directors of any public company that lists on the Toronto Stock Exchange or the Venture Exchange, so we have a databank of all those people. Any time someone changes a directorship, we are informed and that information goes into our databank.
We also have our connections with the various police forces and with the securities commissions. We all share that information. We also have people monitoring what is going on in the brokerage firms. If you open a brokerage account, you have to say if you are a director of a public company. We try to match those connections. It is not an easy job.
The Chairman: You sound like CSIS.
Mr. Atkinson: Well, it is a very complicated process. Our processes are the same ones used by the NASDAQ and by the New York Stock Exchange. They are actually benchmarked against those practices. They are more automated than we are because of the volume of trading that occurs, but it is the exact same process.
Senator Kelleher: Now that you have explained what you do, let me ask you about a concern that I have.
At one point I was a Solicitor General. One of the biggest problems in that job is the brawl that continually goes on between CSIS and the RCMP. CSIS officials are not police officers. They do not carry guns. The biggest problem occurs when an issue becomes ``criminal.'' CSIS is then supposed to turn the file over to the RCMP. Guess what happens? They do not.
Mr. Atkinson: Yes.
Senator Kelleher: There is always a brawl going on about jurisdiction and when they should turn it over, when they should let it go. I get the feeling, from listening to you, that the same thing could happen here, because there is a crossover of jurisdiction at a certain point.
I am wondering what, if any, rules, regulations or policies you have to avoid the problem we have with our securities systems, for example.
Mr. Atkinson: Yes. I think you are right. Whenever you have multiple regulators anywhere, that problem can raise its head.
In Ontario, we have the Securities Enforcement Review Committee, which includes the director of enforcement for my organization, the director of enforcement of the OSC, all the heads of metro police and the RCMP. We have ongoing discussions with CSIS. We share information and resources. It is not one of these things that looks good on paper but does not really work. It is actually quite an effective organization.
Securities investigations are very high-cost, time consuming and complex. We need each other's help, really, to do our jobs properly. We have realized that fact over time. I think this agency works very effectively.
That is just domestically. Also, internationally, our association is a member of the Intermarket Surveillance Group, which is an association of the 26 major stock exchanges around the world. We also have entered into mutual information-sharing agreements. We are cooperating internationally. This goes on all the time. We get ISG requests. We could get maybe 10 a day, to which we respond. It is a very useful organization, and we continually go to them and say: ``We have got this problem. Have you seen this before? How do we solve it?'' The level of cooperation right now is very high. I have not seen any major turf wars since I have been there.
As I said, when we are working on this insider-trading project, I notice that people really want to solve these problems. People want to get this job done. It is a real strength in our industry.
The Chairman: I have a simple question. What has this to do with corporate governance? I am still confused. Could anything that you, or your cohorts or counterparts, have done have prevented Enron from doing what they did?
Mr. Atkinson: We are in charge of the corporate governance of the market, and that is why we are here. We know, when you are looking at this, that the regulation of the markets and public companies crosses over a number of agencies. For example, in terms of how directors have to act, one of the things they have to do is put information out to the market whenever there is a material change in their operations. That is what we regulate, and the commissions take it to the next step and regulate that on a continuous basis.
The Chairman: What the directors must do is described in the law. That is done. You catch them if they fail to do that.
Mr. Atkinson: Correct.
Senator Fitzpatrick: I am still a little confused. Does the Toronto Stock Exchange monitor price and volume of sales?
Mr. Atkinson: They used to, but now we do that.
Senator Fitzpatrick: Did you say that you go after the professionals, the firms that do the trading, the brokerage firms, while the TSC or OSC, as the case may be, goes after the corporate people, the insiders and the directors?
Mr. Atkinson: Yes, the Ontario Securities Commission would go after the directors and officers, unless those directors and officers were at a dealer.
Senator Fitzpatrick: Who pays you?
Mr. Atkinson: The dealers pay. It is a self-regulatory organization, so it is just like the law society. The dealers pay a fee. They pay fees to the securities commissions and they pay fees to us for that regulation.
Senator Fitzpatrick: Would that be on a volume basis?
Mr. Atkinson: Yes, it is based on volume. There is an initial fee, so the way it works is they are charged a per-trade fee. The more they trade, the more they pay, because it costs us more to regulate them.
Senator Fitzpatrick: Have I got this right? In effect you do a contract market surveillance for the TSE?
Mr. Atkinson: For the Toronto Stock Exchange and the Toronto Venture Exchange.
Senator Fitzpatrick: Have you found a way to track offshore trading?
Mr. Atkinson: That is one of the things we are looking at as part of this insider trading task force. There has been some talk back and forth. The international community really has not put its mind to this problem and they have not all agreed on how much a broker, for example, has to know about his client trading offshore. That is one of the problems we have taken out of the insider trading task force to examine; that is, whether it is appropriate for brokers to trade securities from an offshore account if they do not know that client.
Senator Fitzpatrick: I asked this question of our previous witness and I do not think I got an answer. How do you deal with the nominees — the depository system? You do not know who is trading. You are dealing through a bank and the Canadian depository system, which may be connected to a European bank and then to another bank. How do you figure all that out?
Mr. Atkinson: It is very difficult. When we are doing an investigation, for one thing, we look at our international contacts through the RCMP or CSIS, but if we want to go further, we have a stable of private investigators under contract at all times who have contacts on the ground in various countries who know the business community and the bad people in those countries. If we are very concerned about something, we will use either our police contacts or our private investigators to dig deeper and try to get more information on who is actually behind certain activities.
Senator Fitzpatrick: How long have you been doing this?
Mr. Atkinson: About seven years.
Senator Fitzpatrick: How many have you caught?
Mr. Atkinson: We have had maybe 30 cases a year. Since we have amalgamated, that is obviously increasing, but it is a fair amount of activity. We do not have a huge staff because most of our organization is focused on information technology, but we have about 80 people across the country.
Senator Hervieux-Payette: You were talking about your collaboration network. We have a unit on money laundering. Are they part of your network?
Mr. Atkinson: There is no specific person, but they are tied into the police force. They are available to us whenever we need them. We belong to a number of groups that share intelligence, such as Revenue Canada. There are a number of information sharing groups that work together to help prevent crime and we rely on those contacts.
Senator Hervieux-Payette: A few years ago, we had an incident in Montreal with BioChem Pharma, where bombs were planted, but they were planted at the same time as people who were investing and playing the markets could benefit from that stock going down and, of course, selling it back. This was discovered because one of the culprits finally talked. Today they are in prison and they have reinforced security at that company. It is more difficult to get in there than to Parliament Hill.
Would this kind of manipulation of the market be detected by your system? People are doing certain things, not always with bombs.
Mr. Atkinson: Anything unusual happens, if a stock acts unusually, we should be alerted. After September 11, we went back and checked to see if anyone seemed to have advance knowledge of this, in terms of real estate stock or whatever related stock might be affected by this kind of action. It is not just news releases that we are watching, it is everything, and the real strength of our organization is its national and international contacts. We go a long way toward protecting the investor by relying heavily on those information sources.
Senator Hervieux-Payette: If I understood your presentation, you were talking about not necessarily establishing a national regulator. It seems that it is almost impossible that you would be mandated, like the national Ombudsman, appointed by the bank to monitor the market, to monitor every stock exchange, including Vancouver and Calgary, and different operations, not just the movement in the market. You could go deeper into the monitoring through your organization, which would not have government status, but would more or less be contracted out to do that monitoring.
Mr. Atkinson: That really was not the point I was trying to make. I am not asking that our organization be designated as the national market regulator. My point was that when we went into B.C. and Alberta, for example, to regulate them, they said that they were not happy with this. They questioned what people in Toronto would know about regulating the Western provinces. I told them that we would be hiring someone out there, and would have an independent operation that knows the local players. It is basically a dotted-line reporting relationship, so if there were a problem out there, the commissions call my vice-president in Vancouver. My point is that that approach worked very well.
It went well in Quebec too, because they were self-interested. They have NASDAQ Canada — if that became a stock exchange it had to be regulated.
My point was that instead of creating a national regulator that just gets everyone's back up from the start, why not tell Quebec and Alberta that we want to find a much cheaper way to create capital in those provinces. It should be coordinated across the country. We should use people from the local area who understand the derivatives market, especially in Quebec. That is the way to entice these other provinces.
I am not saying that it is a bad idea to have a national regulator. However, I do not think that we should start with that form. Let us find out what Quebec, Alberta and B.C. want and start with that. I believe we can bring them to the table if we focus on what is good for them.
Senator Hervieux-Payette: In your presentation you say that your recognition in Quebec is very important, and then you go on to talk about the working relationship. I was under the impression that you had a presence in Quebec. I was trying to put the pieces together.
The TSX can certainly buy stock in Quebec. What about the specialized stock exchanges in Quebec, besides NASDAQ? Are they part of your operation?
Mr. Atkinson: NASDAQ Canada is not really operating as an exchange currently in Quebec. If they were, we would approach them to become the regulator. I believe that the Quebec government would allow to us do that.
When we went to Quebec, we said, ``We are good for you. If an exchange takes off in Quebec, we can be the regulator. You need a regulator that cooperates with everyone else.''
Senator Hervieux-Payette: You are not there yet.
Mr. Atkinson: No, but we are the only self-regulatory organization that is recognized in Quebec. There are other self-regulatory organizations, such as the Mutual Fund Dealers Association and the Investment Dealers Association, that have been around a long time. The Investment Dealers Association has been around for 65 years and is not recognized in Quebec.
When we went to Quebec, we asked them what we could do to make their market better, instead of claiming that we in Toronto know how to make things better.
Senator Tkachuk: I have several short questions. Senator Fitzpatrick asked about compliance and the number of investigations. You mentioned 30. I am not sure if you meant 30 files or 30 prosecutions.
Mr. Atkinson: I meant 30 prosecutions or settlements a year.
Senator Tkachuk: How many would be found not guilty out of those 30?
Mr. Atkinson: I thought you meant ``successful.'' That is what I was talking about.
It operates as a giant funnel. We get thousands of alerts on our surveillance system each day. From the alerts they go to a triage unit, about which I spoke. That unit analyzes the data and looks at the client data, because stocks move in strange ways for many different reasons other rather than manipulation.
If the triage unit is convinced that there is a problem, the matter is sent to our investigations and enforcement division, which complete the investigation. They would do a prosecution at the end of it, if that is appropriate.
Senator Tkachuk: I am always worried about privacy in regards to government. You tweaked my interest when you said that you work with Revenue Canada. What possible help would Revenue Canada give you?
Mr. Atkinson: There are a number of organizations that talk to each other, such as Environment Canada and Health Canada.
Senator Tkachuk: Do they access people's files?
Mr. Atkinson: I am sure there are limits to what they can share.
Senator Tkachuk: There is a limit.
Mr. Atkinson: I do not know the specific areas in which they share information. I am not at those meetings, but it is important that they are not completely separated.
Other parties may have enforcement concerns within their own area. They might gain ideas from the way we deal with fraud.
There are all kinds of crossovers that I could share. I do not believe for a minute that we should share patient files or things like that.
Senator Tkachuk: Could you send a letter to the committee telling us the information that is shared by the government agencies? Why would Revenue Canada be involved with you at all? You are checking out whether people are being honest on the brokerage side and following the rules of the security commission and the Criminal Code of Canada.
How would information from Revenue Canada help you? They are obligated under law not to give you any information whatsoever.
Mr. Atkinson: We have prosecuted someone who made some type of illegal profit. We told Revenue Canada that. That sort of thing.
Senator Tkachuk: If you could write us a letter and give us an explanation of your relationship with Health and Revenue Canada. You could send it to the clerk.
Senator Hervieux-Payette: I thought that it was a one-way street. If you discover something that does not look good, you send it to Revenue Canada; however, you do not wait for Revenue Canada to come to you. It is the other way around.
Senator Tkachuk: I always worry about scratch one back, scratch another back.
Senator Hervieux-Payette: You lead a pure life and do not need to worry.
Senator Tkachuk: That is not the point, senator. It is none of their business.
Senator Hervieux-Payette: I agree.
The Chairman: Thank you for being with us, Mr. Atkinson.
The committee adjourned.