WORKING VENTURES CANADIAN FUND INC
ONTARIO WORKER CO-OP ASSOCIATION
BESPOKE CO-OPERATIVE ENTERPRISES INC CO-OP HOUSING FEDERATION OF EASTERN ONTARIO
CONTENTS
Thursday 14 May 1992
Labour Sponsored Venture Capital Corporations Act, 1992, Bill 150
Working Ventures Canadian Fund Inc
Ron Begg, president
James W. Hall, vice-president, investments
Ontario Worker Co-op Association
John Brouwer, president
Bespoke Co-operative Enterprises Inc; Co-op Housing Federation of Eastern Ontario
Hazel Corcoran, member, BCEI
Mark B. Goldblatt, president, CHFEO
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
*Chair / Président: Hansen, Ron (Lincoln ND)
*Vice-Chair / Vice-Président: Sutherland, Kimble (Oxford ND)
*Caplan, Elinor (Oriole L)
*Carr, Gary (Oakville South/-Sud PC)
*Christopherson, David (Hamilton Centre ND)
Jamison, Norm (Norfolk ND)
Kwinter, Monte (Wilson Heights L)
*Phillips, Gerry (Scarborough-Agincourt L)
*Sterling, Norman W. (Carleton PC)
*Ward, Brad (Brantford ND)
Ward, Margery (Don Mills ND)
*Wiseman, Jim (Durham West/-Ouest ND)
Substitutions / Membres remplaçants:
*Owens, Stephen (Scarborough Centre ND) for Ms Ward
*In attendance / présents
Also taking part / Autres participants et participantes: Evans, Jim, executive director, revenue services and operations branch, Ministry of Revenue
Alkalay, George R., special adviser, deposit institutions division, Ministry of Financial Institutions
Clerk / Greffier: Decker, Todd
Staff / Personnel: Campbell, Elaine, research officer, Legislative Research Service
The committee met at 1008 in committee room 1.
LABOUR SPONSORED VENTURE CAPITAL CORPORATIONS ACT, 1992 / LOI DE 1992 SUR LES CORPORATIONS À CAPITAL DE RISQUE DE TRAVAILLEURS
Consideration of Bill 150, An Act to provide for the Creation and Registration of Labour Sponsored Venture Capital Corporations to Invest in Eligible Ontario Businesses and to make certain other amendments / Loi prévoyant la création et l'inscription de corporations à capital de risque de travailleurs aux fins d'investissement dans des entreprises ontariennes admissibles et apportant des modifications corrélatives.
The Chair (Mr Hansen): Good morning. I'd like to welcome you all here to the standing committee on finance and economic affairs. This morning we're having public hearings on Bill 150, An Act to provide for the Creation and Registration of Labour Sponsored Venture Capital Corporations to Invest in Eligible Ontario Businesses and to make certain other amendments.
WORKING VENTURES CANADIAN FUND INC
The Chair: The first group we've got on, for 10 am, is Working Ventures Canadian Fund Inc, Mr Ron Begg, president. Would you come forward, please. On your presentation, you have one-half hour, and in that one-half hour perhaps you can leave some time near the end within that half hour for questions from the three parties.
Mr Ron Begg: By all means.
The Chair: Thank you, and welcome to the committee.
Mr Begg: Good morning. My name is Ron Begg and I'm president of Working Ventures Canadian Fund. I'm also chair of the government relations committee of the Association of Canadian Venture Capital Companies, but I'm appearing before you this morning in my capacity as president of Working Ventures.
With me today is Jim Hall. Jim is the vice-president, investments, at Working Ventures.
We have three objectives in appearing before you this morning. The first is to communicate our strong support for the legislation, for Bill 150. We've had an opportunity to participate in the consultation process, principally with the four ministries that have been involved. We have had close cooperation, and we've had an opportunity to have some experience with this proposed direct legislation and we strongly support it.
The second purpose is to share with the committee our experience to date. We have had two years' experience with the similar federal legislation and a full RRSP season with the Ontario program.
Our third objective this morning is to share with you. While we strongly support the legislation in its current form, we would bring to the attention of this committee two important refinements which we would ask be considered at the third reading stage.
There should be on the table before you a letter from Jim McCambly, who is president of the Canadian Federation of Labour and also chair of Working Ventures Canadian Fund. On behalf of the Canadian Federation of Labour, Jim has confirmed the support of the CFL and that of the Ontario council of the CFL that recently passed a resolution last month at the Ontario convention of strong support for Bill 150. Also in front of you is a submission prepared by Working Ventures, which again confirms support for this legislation and proposes the two refinements I spoke of.
By way of background, Working Ventures is the first national labour-sponsored investment fund to be established under federal Bill C-18, which was enacted December 18, 1991. We are also the first labour-sponsored fund to be pre-registered under Bill 150 by the Minister of Revenue, subject to enactment of the legislation and compliance by Working Ventures with this legislation.
In the time we've been in the marketplace with the first labour-sponsored investment fund, we've been breaking new ground with, I think, five different constituencies. I'd like to share with you the experience we've had, which has been very positive. We think that the various constituences have embraced this concept. We've found general support in the public and in professionals dealing with this new concept.
First of all, we have worked with securities regulators, both with the Ontario Securities Commission in Ontario and with securities regulators in other provinces, and we have found that experience has helped to mould and shape this as a financial product that has the kind of disciplines that have been built into it, at the insistence of the Ontario Securities Commission and other regulators, which make this a product that will very definitely serve the public interest. We think the disciplines that have been imposed by the OSC as part of its responsibility have been very beneficial to making this a better product.
A second constituency is really the financial industry. We have been working closely with all major firms in Ontario. The major brokerage firms which distribute Working Ventures have embraced this concept, and in the month of January this year we had an opportunity to actually visit some 70 to 80 branches in Ontario to help train professional stockbrokers in the investment merits of this product and the various tax implications of this new concept. We found an open mind, a willingness and an interest in this product.
It is being sold by brokers throughout the province, properly, in my view, as part of an otherwise balanced, long-term portfolio. This is not intended as any individual's first or only investment, but rather as part of an overall, long-term investment strategy. Across Canada now, as I mentioned, and in Ontario, all major firms are offering this product to the general public and to their clients. We have approximately 1,500 brokers across Canada, about two thirds of these in Ontario, who are actually personally selling shares in Working Ventures and distributing these shares to the public.
The third constituency I'd like to mention is our extensive work in communicating with members of the affiliated unions of the Canadian Federation of Labour. As sponsors of Working Ventures Canadian Fund, the Canadian Federation of Labour has arranged for introductions to the leadership and the membership of the affiliated unions, and this has been a particularly exciting experience for us. We've had the opportunity to get out into the union halls, into the conventions, and to put the membership in touch with licensed professionals who can provide the individuals with independent investment advice and bring this product to their attention.
It has been particularly exciting to see the dialogue that this has generated between professionals in the financial community and the membership of the union. There's a high interest in terms of increasing the stake in the free enterprise system by taking advantage of this program, one that has the potential to enhance retirement incomes but at the same time to create employment to add to the general prosperity by helping support companies that tend to generate more in the way in the way of exports and more in the way of research and development.
As you know, some 90% of the new jobs created in this province in the last decade have come from the small- and medium-sized businesses, which are the target of this legislation and the focus of Working Ventures' investment strategy.
The fourth constituency, of course, that we've addressed is the general public. We have been communicating through registered representatives in the major stock brokerage firms and through an advertising program. I'm pleased to report that Working Ventures, which until the beginning of this year had only $5 million in assets under administration, has now increased our assets to $43 million. With only $5 million in assets, we felt that pool was too small to properly diversify, but now we are swinging aggressively into the investment mode, and subject to enactment of this legislation will begin making investments focused in Ontario.
Of the $43 million, in this most recent season we actually raised $29 million in Ontario, and in total across the country we have 15,000 shareholders now, of which just over 10,000 are residents of Ontario.
The shares were initially offered March 1, 1990, at $10 per share, and the net asset value per share, which is published in the financial press on a daily basis, now stands at $11.81 as of April 30.
The fifth constituency with which we've been communicating in this period are small- and medium-sized businesses, the clients of the investment activities of Working Ventures. As I mentioned, until this year we really felt we couldn't diversify the portfolio, but Jim Hall, leading the investment process at Working Ventures, is now focusing his energies on Ontario, and Saskatchewan which also provide the matching provincial tax credit.
In the past three months, the investment department has reviewed some 179 business plans. We have narrowed and are focusing on the top 10, and we have two very exciting investment opportunities on the front burner which are presently being reviewed with the Ministry of Revenue to ensure their eligibility.
We believe that Working Ventures is now solidly established. We have built a foundation for growth, and we're confidently looking forward to the enactment of the legislation so that we can swing aggressively into the investment mode in Ontario and begin investing in the kind of companies that will create increased employment and generate more in the way of exports and research and development.
Throughout the consultation process, we have had an excellent opportunity to work with the various ministries, and particularly have worked closely with Treasury and Economics, with the Ministry of Revenue, with the Ministry of Financial Institutions, and in the early stages with the Ministry of Industry, Trade and Technology and are very pleased to have had excellent cooperation and opportunity to comment. We know the legislation before the committee now has had some important refinements which we think are in the best interests of this legislation.
We have had an opportunity to review the 42 amendments which we understand were tabled at this committee last Friday, and we're in agreement with these 42 amendments as well. I want to be clear in our support for the legislation as it presently stands, and at the same time I would like to recommend for your consideration two important issues, which are covered in some detail in the submission which has been distributed to you.
I would like to briefly summarize those. The first has to do with the issue in the legislation which places a restriction on the ability of a labour-sponsored investment fund to take a control position in the companies in which it invests. Let me be clear that the objective of Working Ventures, and I believe any LSIF, quite properly is to become a significant minority investor. We are not interested in and we are not in the business of wanting to manage and control companies. For the most part, these situations come about, from time to time, for very good reasons, and it is important in our view that LSIFs have the ability to take control positions. One of the areas where this would occur is in the case of startups, particularly significant and aggressive startups where capital is required well beyond the means of the owner-managers and employees who are participating in the business. In these situations the principals involved recognize that they have insufficient capital and are prepared to part with an equitable split of the equity. If it is not possible for an LSIF to obtain an equitable split of equity, and given that its mandate of course is to make investments on their merits, then there would be a bias against this type of startup, which we think is very much consistent with the objectives of the legislation.
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Another situation that arises is where an investment that has been made in an investee company is in jeopardy for one of two reasons: An additional investment of capital is required. Take the case where an LSIF has invested perhaps to the point where it takes a 30% interest in the company. The company can run into difficulty either because of unexpected problems or because of unexpected success, to the point where a substantial additional equity infusion is required. It's important that an LSIF have the ability to make these infusions and to do so on an equitable basis.
A third situation is that as companies grow there's always the possibility they will become the target of a foreign takeover. We would like to be in a position in these circumstances to be able to increase our equity stake to prevent the company from falling into foreign hands or into third-party hands, which would not be in the best interests of the investee company, the shareholders or the employees.
We would urge the committee to consider eliminating the restriction on majority control, or failing that, if the committee decides not to do that, we would urge that the legislation be enacted to provide broad ministerial discretion to allow majority control in those circumstances where the situation is consistent with the spirit and intent of the legislation.
The second refinement to the legislation we would urge you to consider is with respect to the investment timetable restriction. The original legislation required that 70% of capital raised be invested within 48 months. The legislation before us now has been amended to call for 70% being invested within 24 months. We would urge the committee to phase this in over a longer period of time. The federal and the Quebec legislation require that 60% of capital raised be invested within 60 months. We think that the federal and Quebec and Saskatchewan limit of 60% in the case of the dynamic Ontario market could be exceeded. The target requiring 70% invested in the dynamic Ontario market can be achieved, but we would urge that rather than having a 24-month objective this be phased in between 24 and 48 months, so that 70% of capital raised is invested at the end of the fourth year after the capital has been raised.
In summary, we think our experience to date has clearly demonstrated, to us at least, that the general public, the membership of affiliated trade unions and the financial community have embraced the concept. We think the experience with the regulators and financial community has developed a product that has the disciplines such that the public interest will be served and the objectives of the government in terms of increased employment will be achieved.
I'd be very happy to take any questions from the committee. You can direct them either to myself or to Jim Hall.
The Chair: Okay. Mr Evans here would just like to ask one question on your recommendation. A little bit of clarification for the committee here.
Mr Jim Evans: Mr Begg, there is a clause in the existing act which provides for 12 months for control and broadly corresponds in terms of its reasoning or design with the points that you have outlined. Are you specifically looking for a longer time frame, or for the removal of any time frame in relation to that clause?
Mr Begg: I would look first of all for elimination of the requirement altogether, if that's possible. That would be our conviction: that the legislation would be best served by that.
Failing that, I would urge broader ministerial discretion, both in terms of the 12-month timing and also with respect to those circumstances defined in the legislation where the minister can exercise discretion. I think the minister should not be bound to the rather short list of crisis situations where discretion could be exercised. I believe there are circumstances where the minister could review a transaction and say, "This is very much in the spirit intended in the legislation." So very broad ministerial discretion I think would be appropriate.
Mr Evans: Okay. Thank you.
Mrs Elinor Caplan (Oriole): In your experience with investments by individuals, one of the concerns that has been expressed to me is that I understand the Ontario Securities Commission now will have some authority within this legislation to ensure that individual investors will have the information they need so that they can be aware, be fully knowledgeable, of the risk. Are you satisfied that the provisions are strong enough within this legislation to protect the individual who otherwise might not know or understand or have advice from a knowledgeable source?
Mr Begg: Yes, I believe that the process that has been put in place by the OSC from the beginning has ensured that the disciplines have been built into this as a financial product. We're being held, I believe quite properly, to the strictest accountability, as required by the Securities Act. Our prospectus is, I believe, a very fulsome description of the potential rewards, but certainly details the additional risks that are associated with this financial product. It has been required that this product only be offered to individuals who have the proficiency requirement to sell other securities and that it be done in the context of the full know-your-client regulations of the securities commission. This is our third year selling under the prospectus that discloses this information.
In addition to this, we make considerable effort to get out into the financial community to train professional brokers on the merits of this product, and we're very clear, in doing this, to position the product as one which should be sold only as part of an otherwise balanced, long-term portfolio.
Mrs Caplan: Thank you.
The Chair: Mr Phillips, do you have any questions?
Mr Gerry Phillips (Scarborough-Agincourt): No, sir.
Mr Gary Carr (Oakville South): Thank you very much for your presentation. On page 1 you say Working Ventures has now swung into an investment mode. You go on to say that as soon as these are accomplished and Working Ventures complies with the requirements of the OSC, "We will aggressively pursue investment opportunities in small and medium -- "
I think as you are probably aware, the bill will pass. What are your plans now in terms of aggressively pursuing? Maybe you could just give us a little more detail of how far you are at, what you're looking at doing, companies and so on.
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Mr Begg: By all means. Our focus has been on communicating with the financial community, with small and medium-sized businesses as to the investment criteria which Working Ventures has established, consistent with the legislation. We've done this in a number of ways. We are working closely with lawyers, accountants, bankers who are known to us, who are active in the Association of Canadian Venture Capital Companies, but beyond this we have made every opportunity through the press to make business owner-managers aware of the investment criteria.
A special means of getting deeply into the community is that we've had an opportunity to get out into smaller centres throughout the province, to train licensed brokers not only in the merits of this as an investment but also to draw to their attention our investment criteria and to say: "You have clients in the community who need equity capital for growing businesses. Here are the criteria. We invite you to bring forward investment proposals." Those have started to come forward.
We've begun to review those. Jim Hall, our vice-president of investments, a thoroughly experienced investment professional, has begun to review these investment proposals and to go through the process with, the buzzword in the industry is, due diligence. Typically, "due diligence" in the case of private equity investments is about a two- to three-month process, where you get in and meet with the owner-managers, you get out and talk to the employees of the company, to the competitors, to the suppliers, to the customers, to understand that business so that you're in a position not only to make a proper investment but also, after the investment is made, to help add value to that investment.
This process is well under way. We do have some interim restrictions that have been detailed in an order by the Ontario Securities Commission, which we, of course, are respecting during the interim period, which really expires June 30. This interim order was in anticipation of consideration of this legislation by the Legislature, and as soon as the legislation is enacted, we have several requirements which we've agreed to with the OSC. Once those have been satisfied, we will then swing in to the investment mode.
In the meantime, we have several restrictions. We're not allowed to invest more than 20% of our assets in eligible investments until the order has been lifted. We're also restricted to the equity participation we can take in any one investment during this interim period.
Mr Carr: What are the number of proposals you have now, in terms of numbers? You said you have a few. How --
Mr Begg: We have had 179 of various types come in over the last three to four months. We're focusing our energies on what we call the top 10. We have two very active proposals which we have now taken forward to the Ministry of Revenue and invited its comments on with respect to eligibility. We want to make certain that these are in fact eligible before we proceed further.
Mr Carr: So the top 10, and you've got it narrowed down to two. Was that through your suggestion, or was that the government that suggested --
Mr Begg: No.
Mr Carr: They were the ones that you selected as being the criteria --
Mr Jim Hall: No. The determination as to whether or not they're good investments is entirely up to us. We've gone to the Ministry of Revenue to determine whether or not these are eligible investments under the bill.
Mr Carr: But presumably the government, in anticipation of this, has said to companies, "Oh, by the way, do you know you've got this?" Do you know if these have come through your efforts to get out into the business community and meet with them, or has it been a direct result of the government saying to companies, "This is what we're planning to do," and they may come to you? Do you know if that has been through a government initiative or through your own hard work that you've been doing?
Mr Hall: Sometimes it's difficult to know exactly what the source of deals is. Basically they come from everywhere. They come from people talking to people on the street as to who has capital, and the capital itself acts as a magnet and the deals come our way. If you're plugged into the financial community, the word gets around and the deals start showing up on your doorstep.
Mr Begg: We're happy to have investment proposals brought forward to us by everyone, and at every opportunity, whether we're talking to the press or out at a union hall or meeting with a stockbroker or talking with legislators, we say: "These are the investment criteria. Please send business proposals to us," The reality in this business is that out of every 100 investments you can end up doing one or two because of the variety of proposals that come forward. So we welcome and get them from all sources.
I'm not aware of any of the investments that have come forward being things that have specifically been brought forward by a legislator.
Mr Carr: But with 179 that have come through -- and you've just gone through the process of how difficult it is getting in and meeting the suppliers and so on, the initial criteria of how you select them with the limited resources that you've got -- how are you making the selections now? How did you come down to those two in the 10, and so on? What were the big factors in that?
Mr Hall: Generally it's an assessment of each and every deal against every other deal that you've ever seen, and basically the process is such that we look at the package. If we're impressed with the package, the next step is to run some numbers to see whether or not the deal makes sense in terms of return on a preliminary basis, and if we feel that the next step should happen after that, it's meeting the people. The majority of deals never get to the meeting-the-people stage.
Mr Brad Ward (Brantford): I'd like to thank you gentlemen for coming before this committee and expressing strong support for this initiative. I share your enthusiasm and I think the majority of the committee will as well.
This is a new form of venture capital to be utilized by our small and medium-sized business people. When a concern is expressed about this initiative by some members of the opposition, it's primarily because it says "labour-sponsored." I'm not sure why that concern is expressed, but this fund is professionally managed. It is a type of investment that not all people will want to take. It is their option and it's open to all investors in the province of Ontario.
What type of response have you been getting when you have discussions with brokers throughout the province? I'm sure there has to be an education, an awareness, I guess, that this type of investment is now available. What type of response have you been getting?
Mr Begg: It has been very interesting and quite exciting because I think it has caused increased understanding, both in the financial community and in the labour community, of the realities of investment and it has created kind of a search for ways that business and labour can work together.
I must say that in some cases, in getting out to meet with brokers, we've been met with scepticism. We sound on the face of it to be an oxymoron, labour-sponsored venture capital. But once we have an opportunity -- and sometimes we'll arrive at a brokerage office and there'll be some arms folded and they'll want to know what this is all about. Typically, a fund manager going into a brokerage office might be given 15 minutes or half an hour to present the product. I don't think I've had a meeting at a brokerage office that's gone on less than an hour, because of the interest that this has generated.
One of the things we did when we first launched this fund is, I arranged to introduce the directors on our board who are drawn from the labour movement to leaders in the venture capital community, so there was an opportunity for these different parties to understand one another. I think not only the brokers but the venture capital community have come to understand and appreciate the merits and the bona fides of the investment strategy we're pursuing, and we've been welcomed.
We will be syndicating some of our investments with traditional venture capital firms and, in direct response to your question, I think the best testimony that the brokerage community has opened their minds and is positively supporting this concept is that across Canada some 1,500 brokers are actually selling this product. To put that in perspective, my best estimate is that there are about 4,000 to 5,000 brokers in all of Canada, and 1,500 of them have actually sold Working Ventures, and about two thirds of those are brokers here in the province of Ontario.
I think we're off to a good start. We've established a gold standard and a model that I think will serve this legislation well.
The Chair: I have got to go on to your colleague there. Mr Owens?
Mr Stephen Owens (Scarborough Centre): Thank you, Chair. I simply wanted to make a quick comment with respect to Mrs Caplan's question on the kinds of investor protections, but Mr Begg in his answer gave quite an excellent summary of the protections that they have in place.
I simply would like to add that in terms of the health warnings that will be explicit, these warnings will be in plain language so that people will understand without having to plow through a number of "whereofs" and "thereases" and other types of legalese.
The OSC has worked extremely hard to develop investor protections for something that's, in Ontario, a bit of a new animal, and I appreciate the other work they've done. I also, Mr Begg, appreciate your answer and your understanding of those protections that we've worked hard to put into place.
The Chair: Okay. I'd like to thank you gentlemen for appearing before this committee.
Mr Begg: Thank you very much.
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ONTARIO WORKER CO-OP ASSOCIATION
The Chair: The next presenter is the Ontario Worker Co-op Association, and a Mr John Brouwer. Would you come forward, please. We have one half-hour. In that half-hour, if you can make your presentation and leave some time at the end for questions from the three parties here. I welcome you here to this committee this morning. Go ahead.
Mr John Brouwer: Thank you. Good morning, I'm John Brouwer and I am with the Ontario Worker Co-op Association. Thank you for this opportunity to make this presentation.
As the Ontario Worker Co-op Association, we request that Bill 150 be amended to also include worker co-ops. Specifically the definition of organizations which can develop a labour-sponsored investment fund should be expanded to also include an association or federation of worker co-ops, since in its current form the bill won't be available to worker co-ops.
I want to note that worker co-ops are our most democratic form of worker ownership, such that they combine economic development with social justice, since they ensure that the creative business wealth is equitably distributed and stays in the community. Also, by forming worker co-ops, groups which traditionally have been unable to control their economic affairs can collectively control their business activities in a context of supportive community economic development structures. Amending Bill 150 would allow worker co-ops to become a realistic option within the industrial restructuring which Ontario is currently experiencing.
The worker co-op option ensures that workers retain democratic control of their businesses for the life of those businesses. Other forms of worker ownership don't provide that protection, and by not including the worker co-op option, workers will not have that option to develop ownership democratically. Amending the bill to include worker co-ops in all its aspects would allow workers to choose a protection of this democratic business form in the context of buying into their businesses.
Specifically, if we can expand the definition of "employee organization" to include "an association or a federation of worker co-ops," it has the potential to overcome the greatest obstacle that we've had in developing worker co-ops in Ontario, which is accessing investment capital for co-op initiatives. A secondary concern we had regarding eligible investment is now covered under the government's amendment, item 21, which expanded the definition of the meaning of shares.
I want to note that a worker co-op is a legislatively defined form of employee organization which is contained in the revisions to the Co-operative Corporations Act introduced in December. This amendment would allow worker co-op associations to develop a labour-sponsored investment fund corporation.
Worker co-ops have been strong instruments for job creation in the context of economic renewal and other jurisdictions. Quebec has 220 worker co-ops, employing at least 3,000. Within western Europe, they're very strong, having more than one million people employed in over 42,000 worker co-ops, and worker co-ops continue to provide jobs and create new jobs as part of the restructuring process within the European Community, especially in southern Europe.
Here, Prince Edward Island, Nova Scotia and Newfoundland have instituted worker co-op development programs. By providing a vehicle for channelling investment into co-op development, this kind of job creation potential could be realized for Ontario.
The difficulties in regard to investment relate to a level playing field. The tax regulations, mainly federal ones, provide incentives for investment and joint stock corporations and partnerships which are not available to investment in cooperatives. That's largely because the legislation never considered co-op investment. But this resulted in investors having to take rates of return for co-op investments which are 20% to 90% lower than potential returns in conventional equivalent investments.
This amendment would allow us to work to level the playing field in attracting investment, and we note that the Advisory Group on Taxation of Co-operatives within the Fair Tax Commission has made a strong interim recommendation supporting expanding this definition. At the back we've included a copy of their letter.
There's a large reservoir of socially oriented investment which can be attracted to such an investment fund if from the investor's point of view the opportunities were equivalent. We note that Vancouver City Savings Credit Union's ethical growth fund, which they initiated, now has over $70 million invested in it.
The Canadian Co-operative Association has identified capitalization as a foundational issue for co-op development over the next decade, and this amendment would allow us to develop a vehicle which can access private investment for co-op development.
Since this is a labour program, we have had discussions with the Ontario Federation of Labour in regard to expanding this definition. They support this expanding of the definition. We also included a copy of their letter at the back of this paper.
Ontario needs community economic development. We want to emphasize that worker co-ops are engaged in community economic development since they are organized to provide employment directly. Within a worker-controlled enterprise, worker co-ops' primary goal is long-term stable employment for their members. This in turn of course contributes to the economic base for stable communities.
Worker co-ops exert full control over their co-ops and, as residents of local communities, they bring their communities' values to their co-ops in terms of decisions about the direction of their business. As such, they ensure that the business remains responsive to community needs. The created wealth stays in the communities in which it is generated. The very structure of the worker co-op ensures that capital is recycled, the capital remains anchored in the community and the jobs stay in Ontario.
Presently, most community economic development in Ontario is constrained by a lack of capital. The proposed amendment would provide a vehicle which we can access private capital for co-op economic development.
We note that in regard to compatibility with the federal program that British Columbia and Saskatchewan have a broad definition of the type of organization with can develop the labour-sponsored investment fund and that both of these provinces are recognized for their federal tax credit.
In British Columbia the definition includes a labour organization or other group with a work-related affiliation. In Saskatchewan it's a recognized labour association including a trade union, a corporation formed by employees of the same company or an investment cooperative.
Since these are broader definitions, we conclude that the definition of Bill 150 is overly restrictive. We also note that Nova Scotia just recently announced the establishment of a worker ownership program under the 1992 budget which specifically notes that employees of co-operatives will be eligible for that program.
We've excerpted pages from the discussion paper on the operation of labour-sponsored investment funds in other provinces. I want to note that the discussion paper around this bill recognized that:
"Cooperative corporations, by design, subscribe to the participatory values which this program promotes. Cooperatives are currently not eligible for this program due to a number of technical issues which remain to be addressed. Many of these issues are part of the Cooperative Corporations Act.
"Through the consultation process, the government will be seeking to identify changes to the CCA and this program necessary to enable cooperatives to participate in the program."
Amendments to the Cooperative Corporations Act were introduced in December. They should shortly receive second reading, so the technical obstacles are being eliminated. By expanding this definition, we would allow worker co-ops to contribute to the economic renewal which Ontario needs. Thank you for this opportunity to make this presentation. We hope we can work together in contributing to Ontario's economic renewal.
The Chair: We'll start off with the third party. Mr Sterling or Mr Carr.
Mr Norman W. Sterling (Carleton): Thank you very much, John. I appreciate your coming down. I've had an opportunity to talk to you on the phone about inclusion of worker co-ops and you have our full encouragement and endorsement for the inclusion of you, even if it doesn't mean -- I'm not sure whether the federal government has moved on it or not, but nothwithstanding that, I don't think we should limit the scope of our legislation based on federal legislation. We should do it in an equitable and even-handed fashion here.
In reading over the government amendments which were introduced last week -- and I've just seen them for the first time in the last five or 10 minutes, not through the fault of the government but just that I haven't got down to it -- is there any amendment which would include them in the definition of "employee organization"?
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Mr Evans: Not at the present time.
Mr Owens: I would like to respond to the question but perhaps I can respond to it when we reach our turn in the speaking order. At this point, there is no amendment --
Mr Sterling: That would include them.
Mr Owens: -- in your package. However, I intend to address that.
Mr Sterling: Well, if Mr Owens is representing the ministry, perhaps he could respond then.
Mr Owens: Our intention today, Mr Sterling, is to signal to the committee that we'll be bringing forward an amendment to include worker co-ops in this bill. We are certainly looking at unanimous consent when we bring this amendment forward. I appreciate your comments of support on the issue. It's also my understanding that Mrs Caplan has indicated support for the issue. It's my understanding that clause-by-clause begins on June 5 and that --
The Chair: I believe so, after we've had all the other presenters forward on May 28.
Mr Owens: I simply want to say that the amendment will be available for the perusal of the opposition parties with enough time to allow for commentary. Again, I appreciate the support from both the Liberal and Conservative caucuses on this issue. We think it's an important inclusion.
Mr Sterling: Could I then ask Mr Brouwer, where does the federal government sit with regard to its legislation? This would give, I guess, a fund set up by yours the advantages of the provincial grant, but as I understand it you don't have that advantage with the federal. Is that correct?
Mr Brouwer: We don't have this advantage anywhere in Canada at this point. This would allow us to initiate such a fund here in Ontario and work with the federal government to get its backing to piggyback its credit on to the Ontario initiative.
Mr Sterling: Your definition of a "worker co-op" is what?
Mr Brouwer: "Worker co-operative" will be defined -- it is being defined in the amendments to the Co-operative Corporations Act as a co-operative in which at least 80% of the employees are members.
The Chair: Could I just stop for a minute because Hansard's having a problem recording there. Can you signal me when you're ready to go again?
Go ahead, Mr Sterling.
Mr Sterling: Perhaps for the record, I will just repeat it. My question was, what is the definition of "worker co-op" and you were explaining. Perhaps you could repeat that for Hansard.
Mr Brouwer: The definition of a "worker co-operative" is defined in the revisions to the Co-operative Corporations Act which received first reading in December and essentially it says that 80% of the workers in a business have to be members of the co-op.
Mr Sterling: Do they have to have the ownership of the --
Mr Brouwer: They would have voting rights in the co-operative; 80% of the workers would have voting rights in the co-operative.
Mr Sterling: Does a co-operative have to have ownership rights in the business in which they're working?
Mr Brouwer: Yes, the co-operative owns the business.
Mr Sterling: One hundred per cent?
Mr Brouwer: There are other forms of investment that can come into that business, but the common shares would be owned by the workers. They can issue preferred shares. They can issue debt instruments so other people can invest in the business.
Mr Sterling: Are there any workers' co-ops that exist outside of private industry, for instance, a group in a non-union public enterprise?
Mr Brouwer: For example, in Quebec, they have ambulance cooperatives which here are considered to be a public enterprise. In the Quebec situation, there are some workers' co-ops or ambulance cooperatives. It depends upon the situation as to how close you would get to being a public enterprise.
Mr Sterling: Okay.
The Chair: For some clarification, Mr Sterling, we have Mr George Alkalay and maybe he could come forward to explain a little bit in this particular area of co-ops if the committee would wish.
Mr Sterling: I'm satisfied right now, but that's fine if some other members would --
The Chair: I'm not taking any time away from you, Mr Sterling.
Mr Sterling: I'm satisfied with that. I've got the right answers.
Mr George R. Alkalay: Do you want me to just quickly summarize what the amendment is?
The Chair: Yes.Mr Alkalay: Under Bill 166, which received first reading in December, "worker co-operative" will mean a cooperative, "the articles of which provide that the cooperative's primary object is to provide employment to its members" -- this is an employment co-op -- and "the articles of which provide that it is a condition of membership that, except in circumstances prescribed by the regulations, a member must be employed by the cooperative."
What's going to be prescribed in the regulations are certain provisions so that somebody who's a part-time worker working less than 15 hours a week doesn't necessarily have to be a member of the co-op or that the co-op can say that for a period of one year somebody's on probation and they're not a full member. The requirement is just a slight point of correction, that at least 75% of the permanent, full-time employees of the cooperative be members of the cooperative. It is not 80%; it's 75%; 75% of the permanent full-time employees must be members of the cooperative.
The Chair: Now, we go on to Mr Owens.
Mr Owens: Just a minor correction in the terminology I used in my comment: I used the terminology "worker cooperative." Our amendment will be taking a look at an enabling process for federations and/or associations of cooperatives to sponsor an LSIF which currently they are not able to do at this point.
Perhaps I could just thank John Brouwer for coming to the committee this morning. We've worked long and hard on this process and I'm really pleased to be able to signal the government's intention this morning for yourself and your colleagues that are with you today.
Mrs Caplan: I'm very pleased to hear the commitment from Mr Owens on behalf of the government caucus and of the minister on an issue that we've raised and discussed for quite some time, and that was our concern that this program would only be made available to organized labour union participation. The expansion today and the commitment to have an amendment brought forward that would allow non-union, which would include worker co-op, is indeed very welcome and we look forward to that amendment and are pleased to hear that commitment today.
I would assume that the amendment, which I'm disappointed we couldn't have today or have had before this time when the committee began its hearing because the debate has been going on for quite some time and this issue was raised during second reading in the Legislature -- I would point out that there is a very good model in legislation existing in Saskatchewan which would resolve the problem that has been expressed by Mr Brouwer, and by others who I believe would like to have the opportunity of participating.
We've been concerned that there is a bias within the government, and particularly as witnessed by this legislation which would favour unduly union participation in government programs. I personally look forward to the amendment and will assume perhaps there could be a commitment today that it will be along the lines of the Saskatchewan legislation, which will be inclusive for unorganized or other non-union groups that would qualify, as well as worker co-ops.
Mr Owens: I'm not sure that I can make that commitment today. However, I will be pleased to bring the amendment forward to the committee. As I say, you will have it in your hands before we get to the process. The wording, at this point, is still being worked on. As we had the experience together of the health professions legislation, where things were constantly evolving, we are still in an evolutionary process with respect to the wording. So for me to give a commitment like that today would not be appropriate.
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Mrs Caplan: To be helpful, I would direct Mr Owens and the government to the wording in the Saskatchewan bill. Perhaps my colleague Mr Phillips could --
Mr Phillips: Yes.
Mr Owens: We thank you for your guidance.
Mrs Caplan: Just trying to be helpful.
Mr Phillips: I will follow up a little bit on that because -- I'm glad it isn't finally drafted, because we can have some influence on it. Actually, the very day the bill was introduced in the Legislature, we raised this issue. We said that we thought the Saskatchewan model was a good one. At the time, I think the argument was the federal government wouldn't permit or wouldn't allow their tax credits to apply. Obviously, now that we're recognizing co-ops, that's not the driving force. Now that's gone and fortunately we've gone beyond that stage so we can now, I think, look at that Saskatchewan model. The fact you haven't finally drafted it will be helpful so that we're not as restrictive and we can see more worker participation in the province. We also have talked with John and his group and are very supportive of the direction they want to have.
The Chair: Anyone else with any questions left? Okay, Mr Brouwer, thank you for coming before this committee and thank you again for your submission.
BESPOKE CO-OPERATIVE ENTERPRISES INC CO-OP HOUSING FEDERATION OF EASTERN ONTARIO
The Chair: We have two groups making the next presentation. It's the Bespoke Co-operative Enterprises Inc and Co-op Housing Federation of Eastern Ontario. Would you come forward, please? Could you identify yourselves for the purposes of Hansard? The same applies that you have one-half hour for your presentation and question period before the committee. Welcome here.
Ms Hazel Corcoran: Thank you. I'm Hazel Corcoran from Bespoke Co-operative.
Mr Mark Goldblatt: I'm Mark Goldblatt. It's true I am the current president of the Co-op Housing Federation of Eastern Ontario. I'm also a past vice-president of the National Co-op Housing Federation and also its previous executive director. I just want to point out to the committee that I'm here today in a voluntary capacity associated with the Bespoke Workers' Co-operative in Ottawa.
Ms Corcoran: I'd like to briefly begin by just giving a little bit of background about myself. I'm an articling student at the moment, the corporate secretary of the Canadian Worker Co-operative Federation. As you also know, I'm involved with the Bespoke workers' co-op in Ottawa. By the way, I should tell you that the word "bespoke" means "custom-made." Nobody ever knows what it means.
While at law school, I did a major research paper on various models of worker ownership with an emphasis on legislation in various Canadian provinces, including Ontario and several European countries. First of all, I'd like to say I prepared my topic before I knew the amendment was going to be made. I want to thank you very much for listening to us and amending the bill in terms of the labour-sponsored venture capital corporations side of the bill. However, the second issue, I believe, is still out there. The employee ownership part of the bill, from my understanding, would still exclude worker co-ops, so I'm going to go through with the rest of my remarks on the assumption that's still the case.
The reason I've been lobbying the government on this bill for several months is I believe it would achieve merely a half-way point to true worker ownership. I'm advocating that you include worker co-ops because they are a more complete type of worker ownership and democracy. What Bill 150 proposed at its outset was a different type of structure, somewhat similar to worker co-ops in the short term, but with a tendency to revert back to non-worker ownership structures.
I would simply like worker co-ops to also be included, because I believe that worker co-ops are an approach which has a similar effect to the one side on this bill, but on a lasting basis.
I guess I would revise those remarks to say that whereas we have been asking you to take a full step towards worker ownership, you are taking a half step. Now it's more like three quarters of the way, and we'd still like to see changes to the other side of the bill.
I take this position because I have discovered that worker co-ops represent the very best and most stable type of worker ownership, as John Brouwer also explained. Thus I and the other members of Bespoke were very disappointed and surprised when we discovered that you had excluded them from any part of the worker ownership bill; this still applies to the employee ownership part of it. When you exclude worker co-ops, you're actually discouraging the best form of worker ownership because they're at a disadvantage relative to other types of employee-owned companies.
There are going to be two small parts to the rest of my remarks. First, I'll try to explain why I think this move is so important, both the one you've already made and the one I'm still trying to convince you to. Also, I'm going to try to explain the difference between worker co-ops and employee-owned organizations of other types like the ones in this bill.
In terms of the importance of the move, all over the world and acutely here in Ontario workers are feeling the effects of globalization of the economy and deep recession. Politicians are often heard giving a litany of our economy's problems, but none of them seems to come up with good solutions, and I believe that's for a good reason.
The real economic decisions are now difficult, and in some cases impossible, to influence any more by provincial and national laws. The real decisions are being made by people who control capital, and capital owes loyalty to no community. It owes allegiance only to maximizing profit for investors, who are often outside of Ontario and even Canada.
As this government realizes all too painfully, the old solutions to the problems of workers do not work in a world where capital has no borders. Aggressive labour organizing and tough labour laws cannot stop capital from closing plants, even profitable ones. In fact, the opposite is sometimes closer to the truth: Where government attempts to strengthen labour and environmental laws, they may actually speed up the process of capital flight to places where workers have fewer protections. The free trade agreement has accelerated this problem for Canada.
But worker co-ops are a solution that works under the present conditions. Therefore, an option governments have is to encourage the re-employment of capital generated in Ontario to fuel Ontario businesses with the lasting commitment to their community, through encouraging worker co-ops. Unfortunately, the worker co-op sector, although it represents an extraordinarily powerful idea, always has difficulty getting established in any given place unless it gets a so-called kickstart from governments or some other partner, such as labour unions or churches. But once the sector is kickstarted, there is virtually no limit on what it can accomplish. The reason the worker co-op sector seems unable to kickstart itself is that it simply does not create a sufficient concentration of power or capital to attract capital investors; instead, the economic benefits of worker co-ops are broadly distributed. So I'm asking that the government take steps towards making worker co-ops eligible for all parts of this act.
Now I'll go to the difference between worker co-ops and other employee-owned corporations. The two are often confused because in both cases the employees have the votes and get the profits, but the two types of companies are based on very different principles. A worker co-op is a form of incorporated business owned by the collectivity of the workers and which each worker-member controls democratically and equally, on the basis of one-worker/one-vote, instead of on the basis of one-share/one-vote. Thus the roles of shareholder and employee are merged. They represent the only corporate form in which both characteristics of ownership -- control and right to share in profits -- are vested in the workers because of their status as workers, and not as shareholders due solely to infusion of capital. The workers in a worker co-op do invest their own capital but it's not on this basis alone that they own it. Rather, each worker has ownership and an equal vote because she or he is a worker in that company.
The other forms of employee ownership besides worker co-ops may be seen to be on a spectrum of democracy, with worker co-ops as the most democratic form. A very common form is the employee stock ownership plan or ESOP. In ESOPs, employees typically own a limited percentage of the shares, which does not allow them to control the company. Thus they serve mainly as a financing device for conventional corporations but do not significantly change the direction or management of such corporations.
The problem with the worker ownership proposal is that it basically establishes two types of labour-sponsored venture capital corporations for ESOP organizations -- and now you're adding worker co-ops into one half, I recognize -- but it stops short of allowing worker co-ops from benefiting from these provisions. If your goal is to encourage worker ownership, it is difficult to understand why you are in fact discouraging the best form of worker ownership in any way.
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I've been asking since December why worker co-ops have been excluded in any part. As I said, I'm glad to see that they're no longer excluded in one part, but I would like, if it's possible, to have someone explain to me what the technical issues are. I can't seem to find any. Once we get a definition of a worker co-op, what's the technical reason that worker co-ops can't fit into the employee ownership side? Barring any technical issues, I request that the committee amend the bill to include worker co-ops in all parts.
Mr Goldblatt: My name is Mark Goldblatt. I welcome the opportunity to comment on the Ontario investment and employee ownership program, Bill 150, because we feel it's an innovative and progressive piece of legislation that will contribute to strengthening Ontario's economy.
I want to make my points about Bill 150 by going a bit into my personal background. I've been involved in the co-op movement both as a volunteer and full-time employee for the past 18 1/2 years, most of the time focused on non-profit co-op housing. I got involved in co-op housing in September 1973 by forming a community co-op in the neighbourhood where I lived, and then teaming up with another community activist, Noreen Dunphy, to cofound the Cooperative Housing Federation of Toronto, where I worked for the next 11 years.
However, the breakthrough in public policy that allowed me to become involved in co-op housing took place not in September 1973, but several months earlier, in June 1973, when the National Housing Act was amended to insert non-profit housing cooperatives as an eligible vehicle for financing under National Housing Act programs. This breakthrough was accomplished at a time of a minority federal government, where the Trudeau-led Liberals were in a working relationship with the David Lewis-led NDP. The NHA was amended to permit housing co-ops to benefit from its financing programs after lobbying pressure from the very young Co-op Housing Federation of Canada.
On the co-op housing side, there were just a handful of people with vision and not much else. At that time there were fewer than 10 family housing cooperatives existing in the country. Today there are nearly 2,000 housing cooperatives with 72,000 units, and the housing co-op phenomenon has definitely not peaked.
The worker co-op situation today is in very much the same place as the co-op housing movement was in 1973. There are few worker co-ops in English Canada, and no high-powered lobby of parliamentarians is possible. To begin realizing the potential of worker co-ops, some politicians will have to show leadership, some vision, to introduce mechanisms where the government acts as a catalyst opening the door to working people to get involved in generating and maintaining their own jobs using the worker co-op method.
One favourable part of the current environment, as has already been mentioned today, is that amendments to the Co-operative Corporations Act to provide a statutory definition of a worker co-op are imminent and should become law within this session of provincial Parliament. We're often in situations where we're faced with adopting legislation when the final implications are not completely known. However, if it's a priority, legislation is amended and the resources are brought to bear, action gets taken and we continue to work together to make adjustments as we go. This is the position with respect to worker cooperatives and Bill 150. Your decision, if in fact it's adopted, to amend Bill 150 to allow worker cooperatives to benefit from the act will be a key turning point in the history of the worker cooperative movement in Canada.
In closing, I had one question I wanted to direct towards Mr Owens. I think I've lost the attention of the Chair. Can I address a question to Mr Owens?
The Chair: It's usually in reverse, but go right ahead.
Mr Goldblatt: It's because of his earlier remarks that amendment was being considered, with the wording not exactly tabled at this time. Did I understand you to say that the amendment under consideration by the government is that associations or federations of cooperatives -- not specifically just worker co-ops but cooperatives -- would be defined as an eligible party to form a labour-sponsored venture capital corporation?
Mr Owens: Yes, your understanding is correct.
Mr Goldblatt: It is correct. Then I have an additional remark to make. In these 18 1/2 years, I've played a continuous role in the larger co-op movement in Canada. I am a past, founding director of the Canadian Co-operative Association, which is the umbrella for all the English-speaking cooperatives in Canada. That's all the wheat pools, the credit unions, the fishing co-ops, the retail co-ops, the housing co-ops, the funeral co-ops etc. I've been a director of that organization.
In Ontario, there's often not enough public profile of cooperatives; I would say it's the province which up till now has had the least public profile for cooperatives. I just point out that in fact the co-op movement in Canada has over $100 billion in assets and nearly 100,000 employees. The statistics from the federal co-op secretariat is that 43% of Canadian adults belong to at least one type of cooperative.
On the basis of what you've said today, Mr Owens, I would support definitely a wording that allowed cooperatives of all types to form labour-sponsored investment capital corporations, because I think there's an enormous amount of experience and expertise in the broadly defined movement, and that will be a benefit, among others, to the worker cooperative sector itself.
The Chair: Mr George Alkalay, could you come forward a little on the co-op review and give a little explanation?
Mr Alkalay: The Ministry of Financial Institutions is on an ongoing basis reviewing various legislation and regulations and programs as they affect cooperatives, so some of these broader issues will be addressed at that point. Did you want to ask more specific --
Mr Goldblatt: I had a comment about that. We're aware in the co-op movement that the Ministry of Financial Institutions is imminently expecting to set up an advisory committee on cooperatives, generally speaking. The strong feeling, though, of the Canadian Co-op Association's Ontario division is that it welcomes the chance to work with the government through an advisory committee but doesn't want it to become an excuse for referring off the table every co-op issue that comes up in the next months and years to some sort of black hole and will eventually come back. Because even if this advisory committee gets set up and goes to work on this specific piece of legislation, the most that will happen is that they recommend that worker co-ops are included as an eligible participant in the act, and we'll be right back to where we are today. With that one proviso, we're glad to hear about the advisory committee.
Mr Owens: Just a comment regarding the review, as I will be the person chairing, or whichever form the other review takes. We have made a commitment to CCA and other stakeholders in the process that this will be clearly an action-oriented review; that if issues are identified as the process moves on, those issues will be dealt with at the time of identification rather than at the point of the conclusion of the review. It'll be a dynamic and ongoing process.
Your comments with respect to how Ontario sees co-ops are quite correct. In terms of Ontario relative to other provinces, we are probably 10th out of 10 provinces in how we recognize our co-ops. Your description of the kind of involvement you've had with respect to womb-to-tomb co-ops -- I gather that's the phrase -- is quite instructive. It's certainly the intention of our government to review the legislative process to determine how we can enhance the role of co-ops so we can reach at least an equal footing with other provinces at this point in how they view co-ops and their excellent contribution to the life of people in the provinces they operate in.
The Chair: Mr Alkalay, do you have any remarks?
Mr Alkalay: I think Steve has said it all.
Mr Carr: Thank you very much for your presentation. I guess you are going to be successful in being included. As you probably heard earlier with Norm Sterling, his feeling is that we should include everybody, whether you're union, non-union, co-op or whatever. Is that your feeling, and if not, why not?
Mr Goldblatt: We're not holding out to be here today in front of you as representatives of anything except the cooperative movement, so you would have to direct that type of question to the government. From our point of view, cooperatives have a singular, distinct role in the economy in that they're the only form of ownership we have in Canada which is organized on a democratic basis: The basis for control of the firm, whatever type of business it's involved in, is based on the individual human being, on the one-member/one-vote basis, as opposed to being associations of capital or government-controlled or, for that matter, philanthropic, non-profit, society-controlled. It's the only one where the individual person is at the base of the control structure of the enterprise, as I said, on a one-member/one-vote basis.
Mr Carr: Did you want to comment on that?
Ms Corcoran: I would just add that in terms of the specific issue of unions, co-ops can either be unionized or not.
Mr Carr: I was thinking specifically of the non-unions. Everybody should be included, right?
Ms Corcoran: Co-ops can be non-unions, and as far as we are concerned, and I can only speak about co-ops, whether they're unionized or not we would want them to be included. I can't speak for any other type of enterprise.
Mr Carr: Basically you're saying, "We don't want to talk about other groups; we're specifically here for this." Our feeling is that no group should be excluded, whatever the reason, and you're saying you don't want to discuss that issue, you're only here to talk about the co-ops.
The Chair: I'd like to thank you for coming before this committee with your presentation.
Mr Goldblatt: Thanks for giving us the opportunity.
The Chair: I've been talking to the Minister of Revenue, and for any members of the committee here who would like more information, on Tuesday, May 26, at 3:30 in the boardroom on the fourth floor of the Hearst Block, if anyone has any questions on the amendments or any other questions on Bill 150, as we said before, these people are available on an ongoing basis, but they are willing to meet with this whole committee on any questions.
So this committee will be adjourned until May 28 at 10 o'clock. We'd like to start sharp because we have quite a few presentations, so if some members aren't here, we'd like to start at 10. Hansard will be available for people who miss the first three or four minutes of the beginning of the presentations.
The committee adjourned at 1124.