COVER

AT THE EYE OF THE STORM

ANN SHORTELL May 26 1986
COVER

AT THE EYE OF THE STORM

ANN SHORTELL May 26 1986

AT THE EYE OF THE STORM

COVER

In a lifetime devoted to dual careers in business and politics, Sinclair Stevens has struggled in the past with the elements that converged last week to force his resignation from Prime Minister Brian Mulroney’s government. Despite a network of connections in the business community—and his political support of free enterprise—Stevens never succeeded in shaking off doubts about his true business abilities. His career included a series of business failures in the 1960s, including a controversial attempt to establish a Bank of Western Canada. In the end, while Stevens clung to a measure of support in Canadian financial circles, there were, noted a Toronto business executive, “strong detractors as well.”

The political storm that led to Stevens’ resignation as minister of regional industrial expansion raised questions about the financial stability of his companies. It also focused attention on the web of interconnections among firms that were asked to help assist his family’s company, York Centre Corp., and the boards of Crown corporations Stevens controlled as a cabinet minister.

Money: Last week members of the business community were unusually reticent to comment on reports linking various firms with Stevens’ company. The latest and most controversial tie: Trevor Eyton, the powerful chief executive of Brascan Ltd., said that he had agreed in the spring of 1985 to help Stevens’ wife, Noreen, in her efforts to find money for York, the holding company for the couple’s relatively modest

I business interests in oil and natural gas, real estate and financial services companies. In October, 1984, Stevens announced the appointment of Eyton as a director of the Canadian Development Investment Corp. (CDIC).

An aggressive and sometimes innovative businessman, Stevens became president of the Treasury Board in 1979 in Prime Minister Joe Clark’s short-lived Conservative government. He declared at that time, “In my

I whole life I have never had anyone else manage my business affairs, and I don’t want to lose control.” Still, he formally complied with Clark’s conflict-of-interest guidelines at the time. And more recently he pointed out that his business interests were held in a blind trust managed by the National Trust Co. Ltd.—and that he did not

know about his wife’s activities.

But the links between businessmen who were asked to raise money for York Centre and the Crown corporations overseen by Stevens as a cabinet minister did seem to form a pattern. Frank Stronach, the chairman of Magna International Inc., whom Noreen Stevens initially approached for a

loan, was named to the board of CDIC at the same time as Eyton. He recommended that she contact Anton Czapka, a founder of Magna and vicepresident of a Magna subsidiary. Last May he loaned $2.6 million to a family firm, Cardiff Investments Ltd.

In that same time period she approached Eyton to help her find a source of funding. Along with Eyton, Stevens’ appointments included Paul Marshall, who is president of the Brascan affiliate Westmin Resources Ltd., as CDIC president and chief executive officer, and Patrick Keenan, a Brascan director, as director of both the CDIC and the CDC, a private holding company of which the government owns 10per-cent voting rights. In addition, Edward Rowe, the president of Stevens’ York Centre, was appointed to the CDC board.

At the same time, three brokerage firms—Burns Fry Ltd., Dominion Securities Pitfield Ltd. and Gordon Capital Corp.—were invited by Eyton to a meeting to discuss possible loans to York Centre last spring. The three firms expressed no interest. They were later awarded lucrative contracts to act as agents for the government in

the sale of CDIC assets. The assets included The de Havilland Aircraft of Canada Ltd., Canadair Ltd., Teleglobe Canada and Eldorado Nuclear Ltd. Jack Lawrence, the chairman of Burns Fry, is also a director of Magna International, which has made a bid for Canadair.

Director: The Stevens controversy also focused attention on the role Noreen has played in the couple’s business affairs since they met as law students in the mid-1950s. Married in 1958—the Stevenses celebrated their 28th wedding anniversary last week— the couple set up a joint law practice that same year. Since then, Noreen has frequently served as company legal counsel or as a director of many of the family firms. “She is a successful lawyer in her own right,” said a legal expert last week. “Is she to be restrained

because she is his wife and a woman?” Stevens’ varied business interests had modest beginnings. Born and raised just outside of Toronto, where his father managed a farm, Stevens graduated from Osgoode Hall Law School. He made his first major in-

vestment success shortly after establishing his practice as part of a consortium that earned a $290,000 profit on a $10,000 land purchase north of Toronto.

Dispute: From that financial base, Stevens had constructed a business empire by 1964 made up of real estate interests, financial services firms and four trust companies, including York Trust and Savings Corp., which opened branches in Ontario supermarkets. Granted a federal charter in 1966 to establish a Winnipeg-based Bank of Western Canada, Stevens appointed James Coyne as president. But Coyne, who had resigned as governor of the Bank of Canada in 1961 after a policy dispute with the government of John Diefenbaker, said that he became concerned over what he believed were Stevens’ plans for the bank.

Coyne said that Stevens planned to have one of his own firms borrow money from the new bank. Stevens denied the allegation. Eventually, the bank collapsed. A subsequent Commons committee report ruled that there was “no evidence of wrongdoing” by Stevens.

But when Clark’s Tory government was elected seven years ago, senior bankers urged him not to appoint Stevens as finance minister. The western bank affair, noted John Wintermeyer, a former

Ontario Liberal leader _

and a business associate Boyle: public of Stevens’, “was the beginning of Sinclair Stevens’ difficulties in the business community.”

Added Toronto lawyer Henry Knowles, a former chairman of the Ontario Securities Commission, Stevens is “a controversial guy; he always has been.”

Stevens encountered other business difficulties during the 1960s. As court battles were

launched by shareholders to recover money invested in the failed western bank, other firms controlled by Stevens faced problems caused by too-rapid growth. At one point, the stock value of some of his firms associated with York Trust plummeted, and investors publicly complained about inadequate disclosure. In 1967 Stevens was forced to merge York Trust with an outside firm to forestall its collapse. Worried that York Trust’s depositors might lose their savings, the Ontario government quickly introduced a stopgap provincial deposit insurance plan until the bill introducing federal deposit insurance— then working its way through Parliament-passed.

Revelations: When Stevens was first elected to Parliament in 1972 for the Toronto-area riding of York-Simcoe, he controlled a restructured group of solvent businesses. But financial problems and suggestions of possible conflicts of interest dogged him after Mulroney led the Conservatives to victory in September, 1984, and named Stevens to his cabinet. Serious concerns were raised following revelations earlier this year that the Canadian subsidiary of South Korea’s Hanil Bank had loaned $3.6 million to York Centre in 1983. The bank is partly owned by the Koreanbased parent company of Hyundai Auto Canada, a major beneficiary of loans from Stevens’ ministry. Stevens defended himself by disclaiming knowledge of Hand’s links with the car company and by explaining that all but $775,000 of the borrowed money had been repaid.

Czapka’s loan to York Centre’s troubled real estate subsidiary is not in itself illegal, nor is the earlier unsuccessful meeting between Noreen and the representatives of the three brokerage firms. At the same time, there is no evidence that Stevens violated the trust placed in him as a minister of the Crown. Robert Boyle, the federal bureaucrat in charge of administering Mulroney’s conflict-of-interest code, said that a minister knows what assets are being placed in a blind trust and has a

responsibility to warn his department when a problem might arise. “The message of the code is that you must be careful about giving preferential treatment,” he said. The outcome of the controversy will depend heavily on how well Noreen and Sinclair Stevens kept their personal and business lives apart.

ANN SHORTELL

THERESA TEDESCO