COLUMN

Into the hands of the powerful

Thomas Hockin’s apparent demotion could help kill attempts to slow corporate concentration in financial areas

DIANE FRANCIS March 6 1989
COLUMN

Into the hands of the powerful

Thomas Hockin’s apparent demotion could help kill attempts to slow corporate concentration in financial areas

DIANE FRANCIS March 6 1989

Into the hands of the powerful

COLUMN

DIANE FRANCIS

Thomas Hockin’s apparent demotion could help kill attempts to slow corporate concentration in financial areas

Proposed changes for the financial services industry contained in Bill C-56, which was introduced in 1987, have not become law because they could not move through Parliament before the last federal election, and it is now doubtful that they will ever become law. The bill would have reformed Canada’s financial institutions and imposed measures designed to arrest concentration of ownership among some of the country’s most prominent and powerful groups. While that is a laudable concern, fierce lobbying by opponents turned a delay of the bill’s appearance into its eventual disappearance. Opposition was ferocious and may also have had something to do with the fact that the bill’s sponsor, Minister of State for Finance Thomas Hockin, was shuffled off this winter to a new, unrelated portfolio for his pains—minister of state for small business and tourism.

I would not presume to second-guess the policy intentions of Hockin’s replacement by Gilles Loiselle, the new minister of state for finance. He may propose even more draconian measures if he, too, embarks on yet another kick at the proverbial can. Hopefully, he will realize that Hockin’s bill was definitely on the right track because it established a way to ban certain forms of ownership.

At first glance to most of us, Hockin’s proposed legislation and the debate over the way financial institutions operate would seem to have little relevance. But such institutions are the backbone of any capitalist system, whether they be a bank, trust company, credit union, insurance company or securities dealer. Those institutions are the custodians of the public’s cash in the form of deposits or investments. They are licensed and regulated by government. But once allowed in, their economic power is absolute.

The large financial institutions have the power to pick and choose our economy’s winners and losers by lending or investing money at variable rates and different terms. To whom they lend, or in whom they invest, how much

they invest, and what interest rate they offer, can make or break plans, individuals and even corporations. A nation’s financial institutions are the gatekeepers of success, and that is why they must be independent from one another and free from conflicts of interest, favoritism, nepotism or political patronage.

Those were some of the many issues Hockin, and his predecessor, Barbara McDougall, tried to address in their successive roles as minister of state for finance. They both realized that the system needed reform to maximize the benefits to consumers and the country. McDougall’s proposals ended along with her tenure in that portfolio. Without doubt, so have Hockin’s, particularly because he went a step further by attempting to arrest the frightening extent of corporate concentration in Canada. The bill’s delay and demise is perhaps a symptom of the political influence enjoyed by Canada’s wealthiest families.

Hockin made proposals that would have increased competition by enlarging opportunities for such corporate and individual participants as Trevor Eyton and Trilon Financial Corp. His first reform took place in 1986 when Hockin, in concert with the provinces, allowed

banks to buy brokerage firms. His legislation was going to open up things even more by letting insurance companies lend money like banks, by letting banks perform trust company services and trust companies perform bank functions. At the same time, he addressed the issues raised by the collapse of Edmontonbased Principal Group Ltd. by banning a whole series of transactions that could result in conflicts of interest. Among other innovations, he wanted financial institutions to set up so-called ethics committees of independent directors to review potentially troublesome transactions that involved affiliates or associates.

But Hockin’s restrictions on ownership rankled the rich and powerful. “As I understand it, the only thing holding up the reforms was any restriction on ownership,” said Bernard Ghert, formerly president of Cadillac Fairview Corp., who lobbied in favor of restrictions. “If this is true, and I believe it is, it will mean that these groups with widespread ownership have more political influence than I thought they did.” Hockin not only wanted to hold bank ownership to a maximum of 10 per cent for any shareholder, but he also wanted to curb cross-ownership to prevent any corporation or individual from owning both financial and nonfinancial assets. To that end, his bill imposed a 65-per-cent ceiling on the ownership of both financial and nonfinancial assets and froze those below that ceiling at current levels. That effectively stemmed increasing control by the country’s biggest empires—including Peter and Edward Bronfman’s, with their Trilon Financial Corp. and Brascan holdings. The ceiling also would have forced two Montreal giants, Imasco Ltd. and Power Financial Corp., to reduce retroactively their level of controlling share positions in their trust companies. Opposition from Quebec was particularly strong, fuelled by such powerful figures as Paul Desmarais, head of Montreal-based Power Corp. of Canada.

But the most upsetting measure was Hockin’s proposed ban on the sale of their share positions in the future. They were not to sell controlling share positions to another controlling shareholder, but were only allowed to sell their stock to the public. In essence, Hockin was freezing the existing levels of concentration, but putting into place a means of eliminating it through attrition. Opponents argued that if they could not sell their controlling positions as control blocks, it amounted to expropriation because it reduced values.

Hockin stood firm about ownership limits when I interviewed him last summer about the fierce opposition among financiers. At that time, he said that he had not decided on the issue of divestiture of control blocks in the future. He also said that the 65-per-cent ceiling represented a “philosophical breakthrough.” He added, “What it means is that the next government can ratchet that 65 per cent down, at their pleasure.” But with Hockin tucked away in small business and tourism, we can only hope that Loiselle will propose equally beneficial reforms. Let us hope that he realizes how high the stakes are for all of us in wrestling effectively with these issues.