Like deers caught in the headlights, Prime Minister Justin Trudeau and his hapless finance minister Bill Morneau have attempted to deflect the blame for the WE Charity scandal to their senior civil service. Most pundits derisively scoffed at that effort. But, just maybe, they have a point.
When any major public deal is done, it’s the job of the civil service to vet it and conduct due diligence to ensure that the government provides contracts to entities which are stable, solid and scandal free. It’s akin to conducting due diligence when purchasing a business.
There are some very basic questions asked in any due diligence process:
- How much experience does the organization have in a project of this nature?
- Has there been any recent changeover at the board level? If so, why? The government would then seek consent to speak to those retired/terminated board members and ask for a waiver of confidentiality to have those discussions. If consent to speak to them is refused, that will generally be the end of any deal as it’s too significant a red flag.
- How financially stable is the company relative to the size of the project being considered?
- What are its covenants with its bank? Is it in breach of any of them? If so, unless there is an extraordinarily good explanation, the government would never co-venture with such an organization on a major project.
- Has the company recently changed auditors and why?
- How have the funds been used in the past?
If these basic questions had been asked, no prudent civil service would have ever approved the WE deal. Indeed, if those questions were not asked or, if they were and the civil service still recommended proceeding, that would be an act of such incompetence as to create cause for the dismissal of the staff members who vetted the deal.
If the questions were asked, the answers would have been fundamentally unsatisfactory.
Virtually all of the board members of WE had been recently replaced. Michelle Douglas, WE’s former chair, stated to Parliament this week: “I did not resign as result of a routine matter or as part of a transition. I resigned because I could not do my job or discharge my governance duties.”
That damning condemnation made clear that WE was entirely inappropriate as a partner for any government project. In fact, when she raised questions of the founders the Kielburgers, Douglas was asked to resign. It was clear that she had not been previously asked these questions by the government as part of vetting the transaction.
If these due diligence questions had been asked, the government would have learned that WE Charity Foundation was largely a real estate holder and, as Douglas testified, “the board was never satisfied that the operation of this foundation was in the best interest of the charity or its various stakeholders.”
Due diligence would also have uncovered that WE was in breach of its banking covenants. It would have learned that the foundation’s assets are largely in real estate and that too much of its monies had been used for that purpose. They would have realized that the charity had significant liquidity and financial stability problems, suggesting that it was an imprudent governor of finances. It would also have uncovered, as the chief of the Privy Council Office has stated, that WE had no experience whatsoever in a project of this kind.
But, perhaps the civil service, who vetted and entered into this transaction, learned all this, developed precisely these concerns, expressed them but were ignored by the PM and the Cabinet.
That takes us back to Trudeau and Morneau. What if they were the CEO and CFO of a private corporation? If they approved such a transaction over the recommendations of their auditors, that would be cause for their dismissal. If they failed to ensure such vetting occurred in such a massive project, that would similarly be cause.
They did not recuse themselves and voted in favour of a project with a company their family members had financial relationships with — which brings us to the law of conflict of interest.
As one court said: “In conflict of interest cases, the ‘Rule of Caesar’s wife’ applies, it must not only be pure, it must be seen to be pure.” Their conduct fails on both counts.
Conflict of interest is one of the legal “causes’ for discharge, which the courts take most seriously. The more senior the executives, the more likely the court will view their conflicts of interest to be cause for dismissal. That’s because we must have absolute faith in the rectitude of senior executives.
I will end with a case from my own experience. I acted for a company which was in economic difficulty and about to enter Companies’ Creditors Arrangement Act proceedings, which would have been a major embarrassment for the company’s owner.
He was close to his brother who was one of Canada’s richest persons and owned a major company. A major supplier of his, financially dependent on the richer brother, swooped in to purchase my client’s business, thereby saving his major customer and his brother (my client) from the embarrassment of bankruptcy. Effectively, a major payoff for his customer, who was too wealthy to be paid off otherwise. Is this analogous to WE giving hundreds of thousands of dollars, not to the Prime Minister who could never have received it, but to his family, to Morneau’s children in the form of jobs as well, in his case, and to him directly in the form of free holidays abroad?
The failure to declare their conflict while approving WE would undoubtedly be cause for discharge at law for both Trudeau and Morneau if they were CEO and CFO in any Canadian company.
Got a question about employment law during COVID-19? Write to me at [email protected] .
Howard Levitt is senior partner of Levitt LLP , employment and labour lawyers. He practises employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada.
Copyright Postmedia Network Inc., 2020