Seldom if ever before has the confrontation between Canada’s public and private sectors been quite so clear-cut. The benignly titled Corporate Shareholding Limitation Act (S-31), introduced by the Trudeau government last month, is a textbook example of Ottawa’s determination to cut provincial investment agencies off at the pass, allowing them to own only meaningless minority holdings in national corporations. The bill, which could produce the most acrimonious confrontation between Quebec City and Ottawa since the referendum campaign, limits provincial financial funds to 10 per cent of the shares in any Canadian company that operates interprovincial transportation or pipeline facilities.
The significance of the federal power play was underlined by the circumstances of the new law’s introduction. It was unexpectedly tabled in the Senate, where legislative amendments can be put forward without unanimous consent, on the evening of Nov. 2. Its provisions went into force the very next morning.
Drafted by Lawson Hunter, the combines cop brought into the federal service by Michael Pitfield to replace Robert Bertrand, the bill’s provisions are specifically designed to halt expansion into corporate control positions by the Caisse de dépôt et placement du Québec, the provincial agency that manages the country’s largest capital pool. Although the subsections of the bill apply equally to all provinces, other, roughly comparable organizations, such as the Alberta Heritage Fund, have been quietly moving out of the private sector. Also, the rules of the game are very different, with the western agency allowed to own only as much as five per cent of any one company, while the Caisse can hold as much as 30 per cent.
The real motivation of the feds is to ensure that national companies operate in the national interest, or at least without any regional bias that would betray their mandates to shareholders. Jack Austin, the ascendant B.C. senator who helped sponsor the new law, compares its effects to the weather. “God decides when it’s going to rain or hail or snow or when we’ll have sunshine,” he told Maclean’s. “In a sense, the private sector, by making its decisions on a commercial basis, is making the same kind of neutral choices about the corporate climate—on the basis of the mar-
ketplace and consumer preferences. The federal role is to maintain such neutrality and fair competition among the commercial interests involved. Now, provinces such as Alberta or Quebec want to step in and interfere with that neutrality by making corporate investments and guiding their decisions on the basis of regional interest. They want to make the weather. The federal government must stop the provinces from destroying that essential neutrality in the way our economy works.” The Caisse has become the law’s chief target, not because it’s run by a separatist government but because it controls
the largest pool of private capital in the country. Its $16-billion investment portfolio includes large chunks of commonstock in Alcan Aluminium Ltd., Dominion Textile Inc., Noranda Mines Ltd., Trust General du Canada and Maislin Industries Ltd., as well as control blocks in Domtar Inc. and Provigo Inc., the huge, Quebec-based chemical and supermarket companies. In the latter two firms, the Caisse’s representatives also heavily influence the boards of directors.
What brought on the current confrontation was a move by the Caisse to increase its holding of Canadian Pacific Ltd. past the 10-per-cent mark
and a demand that it be represented on CP’s board. Fred Burbidge, the company’s chairman, rushed to Ottawa to ask the Trudeau government to stop this move. (The Caisse had owned CP stock for many years but, until recently, it was at a passive twoto three-per-cent level.) “The full scope of the long-term problem has yet to be grasped,” says Burbidge. “These funds are very powerful economic engines. To allow them free rein to invest, amounts to creeping nationalization.”
What Burbidge didn’t say was that future control of CP has already been unofficially claimed by Paul Desmarais, the chairman of Power Corp., who recently joined the transportation company’s board and holds just less than 15 per cent of its stock. Quebec Finance Minister Jacques Parizeau has charged that the federal bill “protects the traditional Canadian Establishment from Caisse incursions and even succeeds in giving this establishment means to allow it to disqualify recent investments made in good faith by the Caisse.”
Even though the bill is limited to impacting companies involved in interprovincial transport, its effect would be to stop the Caisse from trying to control either Alcan (whose Saguenay Shipping Ltd. vessels use ports in several provinces) and Provigo (which owns two small trucking lines through an Ontario-based subsidiary called M. Loeb Ltd.).
Bill S-31 has received rave reviews from most of Canada’s private sector. The influential Business Council on National Issues believes the same constraints should apply to the federal government’s $67-billion empire of Crown corporations. The major exception in all this hurrahing is Pierre Lortie, president of the Montreal Stock Exchange, who has condemned the Liberals for acting like “bandits at a time when high unemployment makes provincial investments welcome.” The fact that he wants to succeed Claude Ryan as leader of the province’s Liberal party may account for at least part of his anger.
The Caisse and similar provincial funds control capital pools in excess of $28 billion which account for nearly a quarter of the value of all the stocks listed on the Toronto Stock Exchange.
The debate is really just starting, but on its outcome will depend much of the future decision-making that will shape Canada’s economic future.
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