FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, 8 December, 1998

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone. We have an order of reference extracted from the journals of the House of Commons, Monday, December 7. By unanimous consent it was ordered that pursuant to Standing Order 73(1), Bill C-59, an act to amend the Insurance Companies Act, be referred to the Standing Committee on Finance forthwith and without debate. The order of the day is that we will be studying this bill.

We have the pleasure to have with us the Honourable Jim Peterson, Secretary of State, International Financial Institutions. Also we have witnesses from the Department of Finance: Charles Seeto, director of the financial sector division; Charles O'Hara, acting chief, financial sector division; Claude Gingras, special adviser, financial sector division; Kevin Shoom, tax policy officer, personal income tax division; and Rhoda Attwood, general counsel. From the Office of the Superintendent of Financial Institutions we have Michael Hale. Welcome, everyone.

You have a point of order.

[Translation]

Mr. Odina Desrochers (Lotbinière, BQ): Mr. Chairman, I have a point of order. I wish to present a motion.

[English]

The Chairman: Does the clerk have your motion?

Mr. Odina Desrochers: I have the text.

[Translation]

The Chairman: In French.

Mr. Odina Desrochers: Mr. Chairman, it concerns what we read in the newspapers this morning. I am presenting the following motion:

That the Standing Committee on Finance condemn the following members: Scott Brison (Kings—Hants) and Gary Pillitteri (Niagara Falls) for contempt of the Finance Committee.

It seems to me that the members of the committee made a solemn and official commitment yesterday, on their honour, not to divulge the report in whole or in part before the proposed official tabling on Thursday.

[English]

Mr. Paul Szabo (Mississauga South, Lib.): I am aware of what the issue is, because the point of order is going on in the House right now. Since two members of our committee are involved and only one is here, and since we have our witnesses before us and I don't know how long we have them for, I wonder if we could dispose of the bill and deal with this matter fully after we have dealt with the item presently before the committee.

The Chairman: I think that's quite fair.

[Translation]

Mr. Odina Desrochers: As long as we can discuss it before the end of the meeting.

The Chairman: Thank you.

[English]

We'll now hear from the Honourable Jim Peterson. Welcome.

Hon. Jim Peterson (Secretary of State (International Financial Institutions), Lib.): Thank you very much, Mr. Chairman and members. At the outset, I would like to thank you, Mr. Chair, and every member and all the parties involved in this, I think, the most important committee in Parliament. I would like to thank you for the consideration you have given to this very important bill. Without your cooperation I would not be here today.

[Translation]

Thank you for the opportunity to appear before this Committee to discuss Bill C-59. As you know, this legislation would alow all federally-regulated mutual life insurance companies to convert to stock companies—a process known as demutualization.

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The main reason for developing a framework for demutualization is to give mutual companies more flexibility to access capital. Let me explain.

Mutual life companies are owned by their policyholders, and therefore cannot issue common shares. This limits their ability to raise capital, compared to their stock company counterparts. We are proposing to remove this barrier to growth now, because access to capital is becoming increasingly important in light of the fundamental changes taking place in the financial sector worldwide. Looking ahead, we want to ensure that Canadian insurance companies have the necessary flexibility to seize growth opportunities and compete in a rapidly changing marketplace.

At the same time as allowing the companies to increase their competitiveness and efficiency, demutualization will allow policy holders to realize significant benefits in exchange for their ownership rights and interests in their companies. If all four of Canada's largest mutual life companies proceed to demutualize, their two million Canadian policyholders will receive some $10 billion, mainly in the form of shares. This would represent substantial benefits for policyholders, who generally never expect to realize any financial gain from their equity position. At the same time, it is important to remember that policyholders' entitlements under their insurance contracts will in no way be affected by demutualization.

[English]

The government's role in this demutualization process is to put in place the rules under which our mutual life companies can convert to stock companies. Once they're in place, it's then up to each company and its policyholders to decide whether it's in their best interests to demutualize. The proposed regime was developed in consultation with policyholder groups, industry participants, and other interested parties. It was based on three key principles: ensuring fair treatment for policyholders; enhancing the efficiency and competitiveness of converting companies; and maintaining the safety and soundness of those converted companies.

Our overriding objective is the protection of policyholders, so we're proposing many measures in this regard. For example, no company can be mutualized without the support of at least two-thirds of the votes cast by its eligible policyholders, that is, policyholders with voting rights, at a special meeting to consider demutualization.

In order to ensure that policyholders are well informed before voting, the companies would be required to send them a comprehensive information package that would be reviewed by the Office of the Superintendent of Financial Institutions.

The company's entire value would be allocated to voting policyholders. Management would be prevented from benefiting from the demutualization, and there would be a one-year prohibition against officers, directors, and employees of the company receiving shares or stock options issued by the company.

Independent expert opinions are going to be required on many aspects of the proposal, such as the future strength of the company, the security of the policyholders' policy benefits, and fairness in allocation of the benefits among the eligible policyholders.

It should be pointed out that OSFI is going to oversee absolutely every step of this process.

[Translation]

There has been some concern about the impact of demutualization on the ownership of Canadian life insurers—that it could lead to takeovers by banks or foreign financial institutions. Let me set the record straight once and for all: under the proposed regime, companies would be required to remain widely held, that is, no one person could own more than 10% of any class of shares of the company. A review of this restriction would take place two years after the demutualization regulations come in force.

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[English]

Most of the proposed regime is set out in the regulations. However, a few legislative amendments are necessary to carry out the framework. They would provide for a special meeting for policyholders to consider the proposal; allow for a relatively longer notice-of-meeting period to ensure that policyholders are well informed before voting on the proposal; ensure that only eligible policyholders vote on the proposal; allow the transfer of excess assets out of the participating accounts in order to increase the value of the company that would be allocated to policyholders upon demutualization; ensure that the superintendent has the appropriate authority to oversee the process; and prohibit officers, directors, and employees from benefiting from the demutualization itself, apart from those benefits they may own as policyholders themselves.

To conclude,

[Translation]

Bill C-59 and the proposed draft regulations would remove an unnecessary regulatory barrier, allowing mutual life companies to pursue a more flexible structure, while at the same time affording considerable protection to policyholders.

[English]

This is one of the few cases in my life in Parliament where I have seen a win-win situation. This is a win for the companies, as they will have the access to become bigger, raise more capital, and be subject to market scrutiny. There's the possibility for the policyholders themselves to receive an average of $5,000 each, with over $10 billion going to some two million Canadian policyholders.

Thank you.

[Translation]

I am ready to answer your questions.

[English]

The Chairman: Thank you, Minister.

We'll now go into the question and answer session, beginning with Mr. Harris.

Mr. Dick Harris (Prince George—Bulkley Valley, Ref.): Thank you, Mr. Chairman. I have a comment rather than a question.

I would first like to thank the departmental officials for the excellent briefing they gave to the members of this committee prior to this session. It was very informative. It satisfied all the questions we had.

I want to thank the minister for his diligence in getting this legislation this far in such a tidy fashion.

I think this indeed is a win-win piece of legislation. I think it goes without saying that on the rare occasions that the government brings good, sensible legislation before the House, it's incumbent upon us members to recognize the value in it and cooperate on the quick passage of it. I intend to recommend to our caucus tomorrow that we support this in the quickest fashion possible so that it can pass.

Now, Mr. Chairman, it's a rare occasion to have the minister before us. I hope you will permit me one question, and only one question, on another subject within his jurisdiction.

While I congratulate you on the quick passage of this as a piece of legislation that has a lot of common sense, I would be interested in hearing your response to this question. If the government can act so quickly on a piece of legislation like this that makes so much sense, why is it taking so many years to act on the issue of foreign-branch banking?

Mr. Jim Peterson: That's a good question. We were ready to go ahead with foreign-branch banking legislation last spring. Quite frankly, we put it on hold because of the situation relating to the bank mergers. We felt it would cloud the issue and the debate. There was a possibility that if we allowed more competition in at that particular moment, some would say we were paving the way for bank mergers to counter the increased competition coming from foreign banks.

I don't believe that was necessarily logical, but there was some inkling that this was going to be the case. So in order to deal with the total of all the recommendations coming out of the task force, the House of Commons finance committee, and the Senate banking committee, we felt that we should make it one bundle of legislation.

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Having said that, Mr. Harris, we're anxious to proceed with it just as quickly as possible. The legislation is ready. We'll be happy to arrange briefings for members from all parties in the very near future. I very much welcome the support for that measure that you have provided us in abundance. I thank you very much for your very kind comments.

Mr. Dick Harris: Thank you, Mr. Chairman. That's all I have. I wish this piece of legislation quick success.

The Chairman: Thank you, Mr. Harris.

Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): Thank you, Mr. Chairman.

First of all, I welcome my old friend, the minister, to the committee.

Mr. Jim Peterson: I'm not that old. I'm no older than you, am I?

Mr. Lorne Nystrom: You told me you personally remembered the Great Depression.

Mr. Jim Peterson: I helped rescue you from it.

Mr. Lorne Nystrom: Of course, as a lot of people don't know, the minister's family background is from Saskatchewan. This goes back many years. He had a certain interest in the predecessor of the NDP at one time, going back to the 1930s.

Anyway, I want to welcome the minister here and ask him some questions. I think it's important for us to ask questions and get them on the record. I wouldn't want the other place, as we call it, the Senate, to be the only body to have a chance to go over this thing in detail in terms of asking questions. They're the unelected house. It's important, I think, for us to do this. It's too bad we have the time constraint. I know the minister himself is concerned about this thing because we have the adjournment of the House on Thursday staring us in the face.

I just want to ask a number of questions here that might be very useful. These are general questions, Mr. Chairman. Can the minister tell us a little bit about the consultation process? What was that process? Who did you consult? Can you give us an idea of how broad it was? How long did it take?

Mr. Jim Peterson: Yes. We announced in 1996 that we would be proceeding to build on the measures we had taken for demutualization in 1992, which applied only to the smaller mutual life insurance companies. Having announced that, we realized it was a formidable task to make sure we had the laws in place.

So we've really been consulting since 1996 on this. We've been working with the interests of the stakeholders and doing a lot of research internationally by looking at Australia, the U.K., and the United States, as they have entered into demutualization regimes.

We put out a policy paper about a year and a half back based on the representations we received. I don't know how many people we talked to and consulted with informally before this. But I certainly made it a point last summer to talk with all of the policyholder groups, as well as the industry groups and other interested people we could identify. This resulted in us bringing out a consultation paper at the end of August.

We waited for six weeks for comments on that. We received comments back from 28 individuals and groups. We took into consideration their concerns. We made a number of changes to the proposals that had been put forth in detail at the end of August. These have resulted in the regulations in the proposed legislation that you see before you, Mr. Nystrom.

Mr. Lorne Nystrom: I just noticed in some of the material I received that Jim Stretton, the CEO of Standard Life, has made a comment that mutual companies have consistently done better in terms of profits and so on. That's because a non-mutual company or shareholder company has to look at the interests of their policyholders and shareholders. Is that true? Do you have any information you can provide the committee? What's the difference historically in terms of the money the two of them do make? Some, of course, are stock companies, like Manulife and Crown Life, while others are mutuals.

Mr. Jim Peterson: I don't have the direct answer to your question. Do you know this, Charlie or Claude, in terms of the earnings of mutual companies versus stock companies?

Mr. Claude Gingras (Special Adviser, Financial Sector Division, Department of Finance): I don't have the detailed answer, except that in the past, the stock companies have been very competitive with the mutual ones or vice-versa. I know for a fact, having spent more than 30 years in the industry, that one of the best dividend-paying companies was a stock company for a long time. It was London Life, not to mention it.

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I don't know if the statement made by the president of Standard Life, a Scottish company operating worldwide, of course, would be applicable in Canada as well as it could be applicable over there. In Canada, the two types of companies have been very competitive in providing very competitive pricing to policyholders, due to the fact that they were mostly selling participating policies.

Mr. Lorne Nystrom: I wanted to ask you a little bit about the policyholders, if I may. There are quite a few people here who are going to be affected.

I understand there's an insurance consumers' group headed up by Mr. Bill Podmore. Maybe you're familiar with him. He's concerned about the fact that this thing will go ahead with the support of two-thirds of the votes cast by the policyholders, and he's making the argument that it should be 50% of the policyholders. Indeed, very few may show up at the meetings, Mr. Minister. You have a lot of blue-collar policyholders, farmers in Saskatchewan and so on, and great distances to drive. Where will these meetings be held? Is it really fair and democratic with two-thirds of the people in attendance? I wonder what thought you've given to that.

Mr. Jim Peterson: Actually, this is a very good point. Due to his representations, this is a change that we did make in the legislation. We have required that the companies report on the precise measures they have taken to contact their shareholders to make them aware of the meetings and to get them out to the meetings. The Superintendent of Financial Institutions will have the obligation to look at those measures to see if he considers those efforts adequate.

Having said that, we know of only one example in which a company was required to have a certain number of votes in order to demutualize, as opposed to having a percentage of those present or voting by proxy at this special meeting. This was the demutualization of Prudential in the States. They put forth that one million policyholders must vote. Now, it turned out that was only 10% of all their policyholders. We know of no other example.

You have said that if you have given the policyholders adequate information, you cannot demutualize without a certain minimum number of them voting. We take into consideration this concern that there might not be adequate notice. This is why we've extended the period of notice from voting to demutualization from 45 to 75 days. Under the current act, it's 21 to 50 days. I wouldn't want to presume that if policyholders are adequately informed—and we've bent over backwards to make sure they get the information—we have to insist that they show up.

Mr. Lorne Nystrom: What's the feedback in your office from policyholders concerned about the process?

Mr. Jim Peterson: Quite frankly, I have not had one concern expressed, other than the 20 representations we received, having published our consultation paper at the end of August. I haven't received any calls on the final legislation either.

Has the department received any particular calls since we came out with our final legislation on this?

A voice: I don't think so, no.

Mr. Jim Peterson: I have certainly not had one policyholder contact me as a member of Parliament.

Mr. Lorne Nystrom: Have you considered the possibility of a mail-in ballot in addition to the meetings that are held in certain locations? Again, I ask that because I come from rural Saskatchewan originally, where there are great distances to travel between small towns. Policies are very widely held across the country, and we have great geography and great distance.

Mr. Jim Peterson: We are allowing proxies to be mailed in. We have opened up the process so that you just don't ask management to vote for you. We'll have a special proxy that goes to each policyholder who can't show up at the meeting to vote, to say whether they are in favour of the proposal or not. I think you make a good suggestion there.

Mr. Lorne Nystrom: So you take that under consideration then.

Mr. Jim Peterson: We will certainly allow the proxies. They'll be mailed out to every policyholder, and they will all be able to vote by proxy without the usual constraints that you see in some public companies. With those, usually you're requested by management to trust them and to turn your vote over to them.

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Mr. Lorne Nystrom: Can you tell us why the mutual companies are in a real rush to get this through before we adjourn? I know they report on a quarterly basis and so on, Mr. Minister, but does it really affect them? We all have our own agendas, but is this something that's really important in terms of their plans or their balance sheets?

Mr. Jim Peterson: It's not necessary to protect their balance sheets now, but they are anxious to get into the 21st century, to be able to compete globally in terms of the capacity to raise capital, and to use that extra capital and the shares they will now have as a medium for doing mergers. They're also anxious because their policyholders have been very supportive. The policyholders stand to gain a great deal here, so they're under that type of pressure.

If we were to delay it, we would be doing so by at least another three months. They'd then be into another quarter for reporting purposes, so they would be reporting at the end of March. And sure, we could delay it, but this has been the subject of public consultation, public view, and public scrutiny to the nth degree. I feel confident that with the help of all the stakeholders we've been able to address the issues and concerns. Having said that, since it's such a good-news story, why wait?

Mr. Lorne Nystrom: You say it's a good-news story and policyholders are in favour of it. Do you have any objective data that show it's really supported by the policyholders, or is it just what you'd call “hearsay” in court, because the ones you talked to are in favour of it? Has there been any survey done? Has there been any polling of policyholders?

Mr. Jim Peterson: I'll tell you what we have done—and my officials can help me here.

Two of the companies have already been holding information meetings. For example, Mutual Life has held eleven sessions across the country and Manulife has held seven sessions. The reports coming back from them are that the policyholders are overwhelmingly in favour of it, although there are some concerns that have been expressed. Some people say they just like the idea of being part of a mutual company, that it just feels good to be a policyholder and an owner at the same time. So I wouldn't say it's 100%, but it's overwhelmingly supportive.

I say to those other policyholders that they can be policyholders and owners at the same time, but their ownership will exist in a different form. It will exist in the form of shares that they can readily trade on a public market if they want. So they still have those advantages. They'll still be entitled to dividends, their policies will still be protected, and their premiums for their policies will still be the same. They're just being given something extra that they didn't actually have in a mutual company.

Mr. Lorne Nystrom: And the extra is actually having shares in the company?

Mr. Jim Peterson: The shares in the company, which they can realize on and on.

Mr. Lorne Nystrom: I think of a farmer in my riding. His name is George Pauliuk, from the little town of McLean. What's in it for him in addition to what you've said? Is it only that he'll become a part owner of the company in terms of shares on the TSE or whatever exchange it may list on? Is there something else in it for the George Pauliuks or the Paul Szabos of the world?

Mr. Jim Peterson: This goes back to the first question you raised, when I didn't have a definitive answer for you. It's the concept that if you do have publicly traded shares and you are subject to market discipline, you are probably going to be a more efficient company. There has been some literature to the effect that because the management of mutualized companies was not subject to this type of pressure of the marketplace and because company ownership through policyholders was effectively so dispersed, no one could mount an attack on the companies if they were not performing up to scratch. One would hope you'd see these efficiencies pass through the organization. One would hope this could result in more competitive pricing for product and services. Apart from that, I'm not sure I could help you much in answering Mr. Pauliuk.

Mr. Lorne Nystrom: I noticed in the MacKay report, Mr. Minister, that they're recommending that there be a three-year transition period, during which demutualized companies should not be taken over by someone else. In this bill you are reducing that to two. Why are you cutting one year off the time?

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Mr. Jim Peterson: Mr. Nystrom, that's a very good question. Any number we choose would be arbitrary. We think we're fairly close to Mr. MacKay in recommending that the 10% rule will remain in effect for two years, after which it will be considered.

Let me say to you and to all members of this committee that I think the ownership provisions for all our financial institutions are going to be one of the major issues we face together in the months and years ahead. I would very much welcome your ongoing input on this issue. I don't think we should wait for two years to start considering it. However, there will be a period of at least two years during which they cannot be taken over by other financial institutions, including foreigners.

Mr. Lorne Nystrom: So, more or less, it was just an arbitrary figure. Why not four, then, for example?

Mr. Jim Peterson: Well, you could flip a coin.

Mr. Lorne Nystrom: Flip-a-coin legislation?

Mr. Jim Peterson: We had some people who wanted five years, and we had some people who told us never. We think the whole financial services sector is changing. It's a very dynamic change. We have to be able to meet world challenges, so we don't want to put it on the back burner for too long. As a government—if we still are—we want to be under some type of obligation to have to consider this rule and bring it forward sooner rather than later. At that time, with your consent and the consent of Parliament, we could extend it to three years or we could extend it to five years. But this is going to be a very difficult issue.

Mr. Lorne Nystrom: Maybe one of your officials can answer this next question. I can't recall why Mr. MacKay recommended three years instead of two. Does anyone here know why that was done? Was it just an arbitrary thing as well?

Mr. Jim Peterson: It was slightly arbitrary. He admitted to me that there was no magic to the word “three”. It's somewhere between four and two.

Mr. Lorne Nystrom: Mr. Discepola said he probably flipped a coin too.

Why did that last question of mine make you so nervous?

Mr. Jim Peterson: All your questions make me nervous.

Mr. Lorne Nystrom: I wanted to ask you a question on the whole issue of executive options and bonuses, on CEOs wanting access to stock options and so on. In your opinion, is this a big issue in terms of their lobbying on this? They're obviously lobbying for this bill to go through, and we know what's happened to CEO stock options and bonuses in the past few years.

Mr. Jim Peterson: This was an important issue for us to consider. Let's be very clear about it. When we examined demutualizations that have taken place in other countries, we found that often, very soon after the IPO was done, share prices went up dramatically. We have adopted the fundamental premise here that we have to protect policyholders, that all the value that's allocated must go to them. We want to see them get maximum value at the time of the initial public offering for their shares. We want to see those shares as high as possible, and this is why we very specifically have precluded management, employees or directors from getting any benefits at all from demutualization.

On the other hand, we have a competing policy. In most companies, at some point, you want to align the interests of shareholders and management so that they're working in tandem. Again, a one-year period during which you can't have stock options or issue shares to them is certainly arbitrary, but we've looked at all of the other jurisdictions in the world where they've done this, and they range from zero to five-year prohibitions on stock options.

We had representations to us that we should never allow stock options. Having wrestled with it and having recognized our own inability to be able to be perfect in this area, it was our opinion that a one-year period was adequate to allow the new management to take over and to allow the stock market to reflect the true underlying value of that company. You would have at least two quarterly reports that would be out already, so the stock markets could reflect what the real value of that company was. That was our thinking, but I don't pretend it's perfect.

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Mr. Lorne Nystrom: I wonder if you can look in your crystal ball—and none of us have a perfect one; maybe Mr. Pillitteri has, but most of us don't—and tell us from the experience of other countries.

Mr. Gary Pillitteri (Niagara Falls, Lib.): I don't have crystal balls.

Mr. Jim Peterson: I'm glad this committee hasn't changed.

Mr. Lorne Nystrom: This will be my last question.

I'm certain you've studied other countries in other jurisdictions who have demutualized. After the IPO goes out, the initial public offering, what is likely to happen to the value of the stocks in this case?

As I say, it's something you can't predict for sure; it's just not a fine science. But if something has happened in the past, we can maybe learn from history what has happened to the stocks, and also what has happened in terms of CEO salaries and bonuses and stock options and so on a little way down the road.

Mr. Jim Peterson: I can answer the first part of your question.

History has shown us that generally the price of the shares goes up.

What steps are we taking and what new steps have we taken to try to deal with that particular issue? What we have said is you have to have a large number of outside experts advising you on these particular issues. We are going to have outside experts in at least five different areas. We'll have the company actuary and an independent actuary hired by the company, and we will also have OSFI's actuary and another independent actuary hired by OSFI. They will be looking at the benefits and whether the policyholders are getting their fair share.

OSFI is hiring a valuation expert to look at the company value and how it's established. We will be hiring an independent investment dealer to advise us on whether the IPO is being conducted in the best possible way. So we are bending over backwards at company expense to bring in independent experts, professionals who will be advising us on this whole process, and if we don't like it, of course, it won't go through.

The Superintendent of Financial Institutions has to give us his approval that the whole process was open and above board and meets his specifications, and then the minister will be in a position of having to rule on it. If after all of these demutualization procedures have been approved the minister gets all sorts of concerns being expressed through members of Parliament or by policyholders that they have not been treated fairly, he will be in a position to say no to that particular demutualization.

Mr. Lorne Nystrom: The last part of the last question would be, to go full circle, what will likely happen to the shares that are owned by the policyholders five or ten years down the road, the George Pauliuks of the world, and so on? In other jurisdictions, do they sell them off very quickly, do they maintain them, or do they buy more shares in the company? Is it a mixed bag, or does the company become very concentrated very quickly in a few hands—institutional investors?

Mr. Jim Peterson: I'll ask Claude to respond to that.

Mr. Claude Gingras: The experience in the other countries is that about 20% to 25% of the policyholders receiving those shares will sell them quite rapidly. It may be because they have a small number of shares or they did not buy their insurance really to be investors, and they will sell those shares quite rapidly. So you can expect that maybe up to 30% in the first year would be put back on the market.

As to the experience, in the long run, it is always very difficult to predict what the value of the shares will be. Some companies in the United States have been very successful. The first one that demutualized was Union Mutual, back in 1986. The shares went up a bit, then went down for six months, and now I think they are about ten times what they were when they were issued—or maybe not that high, but they went up substantially. It's difficult to say what will happen to the shares after a period of time.

As you know, we have a requirement that a large company would have to be widely held, so you are not thinking about a takeover premium or anything of that sort. If ever the rules were changed, of course, that would have an effect on certain companies, but that would be up to you, I suppose, or the government, to change the rule about widely held.

Mr. Lorne Nystrom: So about 26% got rid of their shares. Is it 26%?

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Mr. Claude Gingras: Approximately 26%. Between 28% and 30% would sell their shares soon after having received them. They would not be long-term investors.

Mr. Lorne Nystrom: Within a few months, yes.

Mr. Claude Gingras: Within a few months or a year.

Mr. Lorne Nystrom: What about over a five-year period?

Mr. Claude Gingras: I don't think there are any statistics to trace the policyholders to see who still has their shares.

Mr. Lorne Nystrom: I think Mr. Seeto was going to say something there.

Mr. Charles Seeto (Director, Financial Sector Division, Department of Finance): No, I don't think so, because I think a lot of them have not been demutualized for much longer than five years.

Mr. Lorne Nystrom: Yes.

Mr. Charles Seeto: I don't think you would encounter that experience.

Mr. Lorne Nystrom: I'll come back a bit later, Mr. Chairman.

The Chairman: Go ahead.

Mr. Jim Peterson: My guess is after a period of time they would track the other stock insurance companies as an industry. But we think it will take a few years for them to get used to this new culture that will be created by being publicly traded.

Mr. Lorne Nystrom: What has been the reaction, if any, of the other insurance companies, the ones that are not mutuals?

Mr. Jim Peterson: They've been fully supportive of these efforts.

Mr. Lorne Nystrom: I think Mr. Brison wants to ask a question now.

The Chairman: Go ahead, Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): I have a fairly extensive list of questions, but your staff did such a terrific job at answering them, it's been reduced significantly. I want to commend your staff, including Mr. O'Hara—

Mr. Jim Peterson: They are there to protect me.

Mr. Scott Brison: They did a great job.

The question I have is relative to the MacKay task force recommendation that insurance companies, among others, have access to the payment system. Do you see this demutualization as part of the process that may enhance the flexibility and ability for insurance companies to participate, or to compete, for instance, against other financial entities, access to the payment system being part of that process domestically?

Mr. Jim Peterson: I think that's a very good question. I think one of the main reasons the companies want to demutualize is so they can have share capital, which will enable them to acquire other companies, other than with debt from having to borrow, or by just doing a simple merger. It gives them a great deal more flexibility to be competitive, to grow. Of course, it's one of my great desires to see our companies in the financial services sector not fighting over 30 million customers here in Canada in an already mature market, but setting their sights outward to tackle the incredible potential that exists in the rest of the world, where people are so underserviced in terms of financial services.

In terms of access to the payment system, it's certainly supported strongly by MacKay and others. The government, I can assure you, is looking forward to the report of this committee on what type of access to the payment system and what terms and conditions you would like to see for these companies. That will be a very important part of our decision-making process as we move ahead.

Mr. Scott Brison: In the U.S. example, I understand—and you can confirm—the mutuals were not as strong initially, and in fact the benefits for shareholders from demutualization were ultimately not as certain in the U.S. as they are in Canada. That's probably an understatement, because there are some fairly dubious demutualization deals in the U.S. Could you explain for the benefit of the committee some of the difficulties encountered in the U.S. with some of those deals, and why it is different in Canada?

Mr. Jim Peterson: I'll just start off very briefly with two of those issues and then turn it over to Mr. Gingras.

One point is they were using mutual holding companies, and these are under attack in the courts right now. Another was that rather than giving actual shares in the company to their policyholders, they just gave them subscription rights, that is, you will have the right to buy, at market price, x number of shares. They were not really distributing the surplus in the companies to the individual shareholders. On top of that, we've had the whole issue clouded by the whole question of vanishing premiums, both in the States and in Canada.

Claude, did you want to add to that?

Mr. Claude Gingras: You have covered the field pretty well. With these two forms of demutualization, the mutual holding company structure is still a mutual, but it allows the demutualized company, of course, to issue shares, creating a minority interest in shares.

• 1615

The Insurance Act in Canada was changed last year to allow a mutual company to issue minority shares without having to demutualize.

As for the subscription right method, it has been under attack in court in the United States, because in fact if the policy holders receiving subscription rights don't have the money to buy those shares of the company that is demutualizing, they completely lose their interest. It's a kind of expropriation, in a way, and that's why it's being attacked in court.

This phenomenon exists only in the United States. It doesn't exist in Australia or England, for example.

As you have pointed out, there are a lot of small mutual companies in the United States in great need of money. That's why they came to those forums. We are not talking about the healthy companies, the strong, big companies, but rather small companies that really don't have much to allocate. That's why they are trying to use those methods.

Mr. Jim Peterson: Just on that point, we are allowing holding companies in Canada, but in order to ensure that the prudential aspects are preserved, they must be incorporated under the Insurance Companies Act so that the superintendent will have full access to that holding company. This way we get the best of prudence and flexibility in terms of corporate structure.

Mr. Scott Brison: One last question, Mr. Chair.

On OSFI and the increasing level of burden on OSFI, we're dealing with the increasingly complex financial industry, the increasingly global nature of the industry, even the financial instruments that are being used, things like derivatives, which are very difficult to track. I know this doesn't tie in directly to the legislation, but I would be interested in your views on it.

Does OSFI not really have the resources to pursue the task or to do what it really has to do in very difficult circumstances right now? Don't we need to be pushing for a global approach and more cooperation to ensure the prudential requirements are met, not just by Canadian participants in the financial services sector but by any of our trading partners as well?

When I hear about the size of OSFI, the number of people there, and the complexity and the challenges in what they have to do, I can't help but think that we really should be re-evaluating whether or not we have committed enough resources to that very important agency.

Mr. Jim Peterson: I think these are excellent questions, Mr. Brison.

Would you like to comment, Michael, on whether you're underpaid and understaffed?

Some hon. members: Oh, oh!

Mr. Michael Hale (Director, Actuarial, Office of the Superintendent of Financial Institutions): Actually, as one of the people who feels a certain amount of the strain of what you're talking about, I think the proposition is fundamentally correct.

We are working very hard to increase our expertise, particularly on the demutualization front, and to augment our resources with the outside experts we're engaging.

On the broader question, we recognize that we do have to keep upgrading our resources and our knowledge base, and that's been a main driver in the recent OSFI reorganization. But we'll be more than happy to accept any additional resources you care to send our way.

Mr. Jim Peterson: If I could just add to that, I think this committee can play a valuable role when you have Mr. Palmer before you and are talking to him about his staffing requirements. I know he has had difficulty at certain salary levels, hiring people to do the jobs and having the type of sophistication he needs. We did have a reorganization about six months ago where he was able to get out of some of the constraints and become a little more competitive.

I feel my most important job is to ensure that the safety and soundness of every one of these financial institutions is protected before anything else.

We have had a really good run in terms of the economy. We haven't had the failures. What happens when we hit a downturn? We're trying to prepare for that right now.

• 1620

On the issue of the global situation, absolutely. This is why Mr. Martin proposed a new international architecture for the IMF in working with central banks and regulators of financial sectors in every country in the world. Secondly, Mr. Palmer has been working on this too, with much greater cooperation with foreign regulators when we are looking at the safety and soundness of an institution that is coming into Canada from outside.

These are areas where I think every one of the things you mentioned.... We're not there yet; we're in transition, and they're very important. Thank you for asking that.

Mr. Scott Brison: Thank you.

The Chairman: Final two questions, Ms. Redman followed by Mr. Discepola.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman. I actually started out with three questions, and Mr. Nystrom asked two of mine. So pick out the two you liked best that he asked, and those are the two I was going to ask.

One of the issues that came up when we were dealing with McKay, besides the time we should not allow takeovers in demutualized insurance situations, was the fact that as more companies demutualize, there may be a lack of stability in the marketplace. I believe it was characterized as a feeding frenzy. Perhaps it would be more shareholder-friendly to have more companies come to the marketplace at the same time.

I was just wondering if you wanted to comment on that.

Mr. Jim Peterson: I don't know what the market conditions are going to be at the time they're ready to do their IPO. This is one of the reasons we wanted to do it fairly quickly, so that if there is a vibrant market for equities next spring when they go, they'll be able to do it at that time and we won't be the reason for holding them back.

I don't know what that market is going to be like. We know there's a credit crunch for many companies right now, and what the equity market is going to be like then, I'm just not sure. My guess is that we will not see every company going at the same time, so we won't have the problem of whether the Canadian markets are adequate to deal with a $10-billion issue, which would be the amount, estimated right now, if all four companies went at once. We're probably looking at a quarter to 30% of that for each individual company.

Claude, do you have any details on what that market is going to look like when the first one hits, which we think will be Mutual Life, which wants to be fully demutualized by June 30?

Mr. Claude Gingras: The way the company has announced it, and of course it's up to them, they are going to have probably two next year, in 1999, and maybe the other two will go in the year 2000. So it will be spread out somewhat.

Mrs. Karen Redman: If I can just make a comment, I happened to be at an annual general meeting for a mutual company and I heard the policyholders ask questions. I know that's one of the requirements in the bill, and it was excellent. The questions were wonderful and the answers were very illuminating. So I think that's a very worthwhile piece of this whole process.

Mr. Jim Peterson: Which company was that? Was it Mutual or Manulife?

Mrs. Karen Redman: It was Mutual.

Mr. Jim Peterson: Good. I'm glad to hear that, because we've been monitoring them too. It's a new thing, and we want to make sure the policyholders are fully informed. I know the companies are bending over backwards to try to meet these concerns. If they're not, we'd want to know about it. So if members of Parliament hear stories to the opposite effect, it's just as important for us to find out as well, because we can rectify that. We have the power, if this bill goes through, to make sure we can intervene.

Mrs. Karen Redman: I was really struck by the level of questions the policyholders did ask. They were very thoughtful.

Mr. Jim Peterson: I'm never astonished to find intelligent constituents.

The Chairman: They must be very similar to the questions you ask, Ms. Redman.

Mrs. Karen Redman: Thank you, Mr. Chairman.

The Chairman: Mr. Discepola.

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Thank you, Chairman.

Minister, you mentioned that the policyholders are going to be protected. I'd like you to elaborate on how they would be protected, please.

Also, if for whatever reason the widely held rule is changed to 20% or 30%, would you still view that the two years is a sufficient transition period? Would you also consider allowing less than two years in the event of a friendly takeover? You have two entities. Both shareholders of both entities agree. Would you consider letting them merge before the two-year process?

• 1625

Mr. Jim Peterson: On the last question—all excellent questions, Mr. Discepola—we have announced that during the transition period, during which we will be considering what the ownership requirements should be and whether the 10% rule should be lifted, we have ruled out friendly mergers. The reason for this is that we don't have a perfect system. We have non-mutual companies and other financial institutions that would not be able to make a proposal for taking them over because they're not demutualized yet. So you would have an unlevel playing field. This unlevel playing field would probably ultimately result to the detriment of the policyholders. If you had only one or two possible acquirers, you might not realize maximum value.

This was one of the considerations. How do you create a level playing field in what is really a very mixed-up financial sector, the result of piecemeal legislation through the years and partial or entire disintegration of the four pillars in many cases? There was a concern that for at least two years we should not. Then, again, I reiterate to you that I will be looking, and the government will be looking, to you very closely for your suggestions as to what type of ownership regime we should ultimately end up with.

In terms of the measures to ensure protection of policyholders, our press release—which I could get a copy of for you—outlined twenty measures that we are introducing here in order to ensure that policyholders are protected, which is really our overwhelming objective. My own gut reaction is that where we've made the most progress in protecting policyholders is insisting on having outside, independent experts in at least five different areas to advise the government and policyholders on some of these difficult decisions. I think being able to supervise every aspect of the process, including right down to what information is sent out to the policyholders; being able to dictate every word that goes into that or approve it through OSFI; being able to insist that if there are dissenting shareholders who come forth they will have increased access to the voting process and to policyholders, to really open up the process to corporate democracy and shareholder democracy in a way that it hasn't been before, is going to probably be one of the biggest guarantees of protecting those interests.

Mr. Nick Discepola: Thank you very much.

The Chairman: Thank you very much, Mr. Discepola.

Do we have any further questions? Mr. Nystrom.

Mr. Lorne Nystrom: I'd like to go back to the two-year thing, Mr. Minister, if I can. I think Manulife is our largest company, and their CEO, Dominic D'Alessandro, was before our committee and he recommended five years rather than three. MacKay recommended three. He recommends five in the case of a hostile takeover, saying they need this time to adjust. And here's someone who certainly knows what he's talking about. He has a fine reputation in the insurance community.

Mr. Jim Peterson: There's no doubt about that. As I mentioned to you earlier, it's certainly one of the most difficult questions we've had to wrestle with. What do we, as members of Canada's Parliament, want to see our financial services sector look like, two years down the road, five years down the road, or ten years down the road? What is the role we see in the global marketplace for Canadian institutions? Do we want to see them bought up quickly by foreigners, i.e., get rid of all barriers, or do we want to see our banks bought up by foreign institutions? Would it be necessary to open our borders further to allow our companies to expand abroad?

I know I have very definite opinions on a lot of these things, but I think we're going to have to wrestle with them together, because there are no absolute right answers in the circumstances and the world is changing very quickly. What we've done with the two years is we have given Mr. D'Alessandro the opportunity to come before us and say whether he still wants those five years, and it will be up to us to decide whether we extend it to five years, whether we embed it in granite permanently.

• 1630

So we're going to be part of that process. It means we have the flexibility—

Mr. Lorne Nystrom: Doesn't “before us” mean before you as a minister?

Mr. Jim Peterson: No, this rule will have to be changed by Parliament, and we will need the input of all parties on this in designing the architecture for the future.

We've given him the possibility, but he'll have to make the case.

We've also given ourselves the flexibility, in case things dramatically change, to look at it. I know Parliament would have a very big say, even though the minister has the responsibility for making the decision. You've never hesitated to give him advice in many other areas of his portfolio.

Mr. Lorne Nystrom: I wish we had more time. It would be nice to have Mr. D'Alessandro here to explain why he wants five years. And you've said that you just literally flipped a coin on this.

Mr. Jim Peterson: Yes. I think he'll tell you that he wants the opportunity to bulk up in Canada and acquire assets of other institutions here in Canada so that he can then have the strength and bulk to tackle the foreign markets and acquire foreign institutions. I think this is a legitimate business strategy, but maybe I haven't done justice to him. We have the opportunity to make his vision of the future come true and to hear from him in the future.

Mr. Lorne Nystrom: There was a headline I was a bit concerned about in The Globe and Mail recently, “Michigan regulator sees danger in draft rules on demutualizing”, which said there might be some legal problems in terms of the United States. This was the Michigan Insurance Bureau, right?

Mr. Jim Peterson: Yes.

Mr. Lorne Nystrom: I wonder if Mr. Gingras or someone, or yourself, could respond to that.

Mr. Jim Peterson: I can assure you that this came like a shot out of the blue to us and couldn't have surprised us or the industry more. Since then there have been discussions. OSFI is carrying on discussions with them.

We understand they have backed off, that Michigan as the port or state of entry for most Canadian insurance companies in the United States going through that regulator has.... This was probably—putting it as pleasantly as I can—not normal practice for them to have reacted the way they did when they did, and we understand that the problem, while not resolved in writing, has verbally gone a long way to being resolved. We intend not to change our practices at all in order to get into Michigan and the United States.

Mr. Lorne Nystrom: And you think you can find a resolution to that problem in writing?

Mr. Jim Peterson: We think we're very close to it now, but it's a very good question. It was one dark cloud that came over the horizon and it's just about disappeared off the other end.

Mr. Lorne Nystrom: I want to backtrack here, Mr. Minister, for a minute. We've had to deal with this bill so quickly. Where is the reference to two years in the bill? Is there reference in the bill itself?

Mr. Jim Peterson: Did I lie?

Mr. Charles Seeto: No, there's no reference. That's why the 10% widely held rule is in legislation. If you want to change the widely held rule, you have to change the legislation. It's a two-year review. We were going to review it.

Mr. Lorne Nystrom: Yes, but that's not in the bill itself.

Mr. Charles Seeto: No, that's not in the bill.

Mr. Lorne Nystrom: Okay. Maybe I misunderstood what the minister said when he said he'd flipped a coin on that.

Mr. Jim Peterson: When I said “flip a coin”, it was about why is it two years as opposed to 18 months, three years, or whatever.

Mr. Lorne Nystrom: Okay. I have a couple more questions, Mr. Chair.

In terms of valuing mutual life companies, there are a lot of subjective criteria to use in terms of the evaluation of a company. How much are these companies really worth? How do you value them? How do you get a guesstimate as to the value of these companies, and how big is this deal going to be? I think we have six mutual companies in this country and we have four that are very large. Actuarial studies on these companies are obviously done. I did a little bit of stuff with Crown Life a couple of years ago, and I know a lot of these things are very subjective.

Mr. Charles Seeto: What you have to do is look at the market. That's why you're going to have to hire an investment dealer to do this evaluation. There are a number of techniques they go through, but one of them is to look at what they may consider to be comparables in the marketplace and see what they would be trading at and look at what assets the company has. So, yes, you're right, it would be very subjective. That's why you need experts to look at this.

Mr. Lorne Nystrom: Even using experts is still very subjective.

Mr. Charles Seeto: Yes.

Mr. Lorne Nystrom: It's not an exact science.

Mr. Jim Peterson: It's not a science; absolutely not.

• 1635

Mr. Lorne Nystrom: One more thing. Going back to ordinary policyholders again, I know they are starting to get things in the mail from companies, and this is probably going to get more and more complicated for a lot of people who are just ordinary policyholders. Is there any way of simplifying that? Have you thought of a toll-free number or something of that sort that would simplify the process? I imagine if you do a survey now of policyholders and ask what demutualization is, a very small minority would be able to give even a general answer. How is it going to come about? Even a smaller number would be able to respond to that. How do they make an intelligent decision?

Mr. Jim Peterson: I think it is a very important decision, and we wrestled with this, recognizing they might not read that bundle of material, in which we have scrutinized every dot and comma, going out to them. This is why we have insisted they have other means of communication as well, such as toll-free telephone communications to the company; possibilities of linking into the company through the Internet; having the companies issue ads to alert people that they will send notices to policyholders in various areas and will hold these information meetings, which they've already held and which have helped them shape, through the feedback they're getting from their policyholders, the communications that will subsequently go out to make it more understandable.

Overall, if you, Mr. Nystrom, as a member of Parliament, were to have constituents come to you and say they don't understand this at all, this would be of concern. Has the company taken adequate steps to have an intelligent, informed decision made by its policyholders? We would welcome your views that perhaps we should require the companies to step up their communications.

On the other hand, if you drag the process out, if you play to the lowest common denominator, you're going to cost the company a lot of assets—a lot of assets that would otherwise go to the mutual policyholders. We're saying, let's do as much as we have to, let's bend over backwards to inform them, but let's not make it so stringent that we're going to deplete the assets and only the lawyers and the ad people will get the money.

Mr. Lorne Nystrom: I know exactly what you mean. I ask this question partly because of the conversation I had with Mr. Epp in Saskatoon. As a former educator he was talking about how difficult it is to communicate things, and how much people really read, hear, and listen when they're actually sitting there hearing words. I'm concerned that people understand what is happening here, Mr. Minister.

Mr. Jim Peterson: Since there are two million Canadian policyholders impacted—that's 15% of all your constituents—we could maybe give you a householder article, which you could put in your householder with the toll-free numbers they can call for the particular companies. Maybe that would be a—

Mr. Lorne Nystrom: In fact, that might be useful, and we could use that if the need arises.

Mr. Jim Peterson: Sure.

The Chairman: Thank you very much, Mr. Nystrom.

Minister, thank you very much for your excellent work.

Mr. Jim Peterson: Mr. Bevilacqua, could I just thank you and every individual member for your splendid cooperation on this? I couldn't be more grateful to you. Thank you.

The Chairman: Thank you. Also, thanks to the officials. As always, your input is very valuable to the committee.

We have some other items to deal with now. Of course, I will ask the permission of Mr. Desrochers if we can deal with another motion before we deal with his.

Mr. Odina Desrochers: Sure, no problem.

The Chairman: It is in reference, believe it or not, to the title page of the report. This is, of course, necessary to do.

It is moved that, notwithstanding the committee's decision of December 7, 1998, the name of the Standing Committee on Finance be printed on the cover page of the Twelfth Report.

I think that's self-explanatory. It's so people reading the report know which committee it's coming from.

(Motion agreed to)

• 1640

The Chairman: We are now going to deal with a motion that was introduced by Mr. Desrochers. I have the English translation here that basically says that the standing committee condemn the following members, Scott Brison, from the riding of Kings—Hants, and Gary Pillitteri, from the riding of Niagara Falls, for contempt of the finance committee. I believe, Mr. Desrochers, you have already spoken on this issue. The two members are here. We are going to give them an opportunity to respond to this, and thereafter we will do what we have to do as a committee.

Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you very much, Mr. Chairman.

As I understand it, this was brought forward in the House of Commons under a point of privilege, and because this committee is an extension of the House of Commons, I want to have the opportunity to respond to that in the House of Commons.

The Chairman: Yes, that's right, the point of privilege was, as a matter of fact, stated in the House of Commons, and I think it would be wise for the members to respond in the House of Commons.

Of course, Mr. Brison, you have a chance to make comments here as well.

Mr. Scott Brison: I fully intend to respond in the House of Commons.

But relative to this motion, I understand it was introduced—

The Chairman: By Mr. Desrochers.

Mr. Scott Brison: —in the committee, so I don't feel uncomfortable about responding to it in the committee.

Eric Beauchesne actually called me a few minutes ago before I came here and alerted me to what had happened in the House of Commons. Neither Mr. Desrochers or anybody else had contacted me previously to ask for my version of this. Mr. Desrochers, as a beacon of non-partisanship and integrity.... Did Mr. Desrochers raise this in the House or was it Yvan Loubier, that other beacon?

In any case, Eric Beauchesne told me some Liberal members had indicated there was a difference between the Liberal report and the House of Commons report. What I said in the quote is right here:

“...it basically indicates is they didn't know what they signed onto on the Liberal task force and they probably don't know what they're signing onto now,”....

It is up to members of the committee to determine whether or not I prejudged the process. I did not give more information on the.... I wish I had said no comment, but if it's misconstrued.... Eric Beauchesne called me a few minutes ago, and he said, you didn't tell me anything about what was in the report, and I didn't.

The Chairman: Mr. Desrochers, does that satisfy you?

[Translation]

Mr. Odina Desrochers: May I make some comments? I was there, this afternoon, when my colleague from Saint-Hyacinthe—Bagot tabled a question of privilege in support of this point of view. The point is not to support what my colleague did in the House of Commons. The issue is merely to inform the Standing Committee that we are rather annoyed to again see in the newspapers this morning comments on a report that should have remained confidential until it is tabled on Thursday. I just want to clarify the situation. I was wondering why we found in the newspaper this morning the names of two regular members of the Finance Committee, who had committed themselves yesterday.

This is what my colleague Mr. Loubier explained to me. In spite of all of that, this morning we see comments about the report. I know that these comments may not divulge a part or all of the report, but by looking at the comments and the headlines, people will have the impression that the Finance Committee is tending towards... It's clear: "MPs to OK bank mergers". What more do you want me to say? The fact that two MPs are mentioned in the article raises doubts about the committee's confidentiality. I will give Mr. Brison and Mr. Pillitteri the opportunity to explain why their names are in the media this morning. I am merely seeking clarification.

• 1645

[English]

The Chairman: Mr. Desrochers, I just want to clarify this, because I don't think the spirit in which you're speaking now reflects your motion. You're saying here that the standing committee condemn the following members, Scott Brison and Gary Pillitteri, for contempt of the finance committee. Do you believe these members are actually in contempt of the finance committee? Do you think they should be condemned? Is that what you're saying? If you're not saying that, then you ought to be withdrawing this motion.

Mr. Tony Valeri (Stoney Creek, Lib.): Mr. Chairman, what I understand Mr. Desrochers to be saying in his last statement is that he is asking for clarification. So I would tend to agree with you, Mr. Chairman, that if that were the case, he would withdraw the motion and perhaps engage in a dialogue in that spirit.

The Chairman: After hearing you speak, it appears that you want a clarification. After reading this motion, I think it says something quite different.

Mr. Scott Brison: Mr. Chairman, if I may, in reading Mr. Pillitteri's comments, he doesn't give information on the committee's report either. What Mr. Pillitteri says—do you mind if I—

Mr. Gary Pillitteri: It's an article.

Mr. Scott Brison: In Mr. Pillitteri's defence, he basically expresses his own opinion:

“I cannot tie the hands of business,” he said. “But as a representative of consumers I think that if (banks) need to merge, there have to be some conditions.”

He's saying how he feels. He is not expressing any view on behalf of the committee or on anything that's within the report.

Neither of us has prejudged the process in terms of what was said. In fact, if Mr. Desrochers or Mr. Loubier had been interested in getting to the bottom of this in a non-partisan way, they would have respectfully contacted my office or Mr. Pillitteri's office and asked that question. In retrospect, I should have said, and in future I will say, no comment. But in no way did we prejudge this process. In fact, I know I've protected the integrity of both this report and the pre-budget report.

The Chairman: Mr. Desrochers, is there a withdrawal of the motion?

[Translation]

Mr. Odina Desrochers: With the explanations that I have received from Mr. Brison and Mr. Pillitteri, and in view of the fact that they will have the opportunity to discuss this before the House of Commons... I merely wanted to make the Finance Committee members aware of the issue. In any case, the contempt does not appear to have been as flagrant as I thought. To be honest with my colleagues, I am withdrawing my motion. However, I insist that there will be no further leaks to the media and I want the message to get through.

[English]

The Chairman: Thank you.

As you know, our work is not yet done for this session.

Mr. Epp.

Mr. Ken Epp (Elk Island, Ref.): I have a further question on this. Somebody has been talking to the media. I haven't checked this, but it says here “Sources familiar with the 240-page draft report”. Now, if they know how many pages are in it—is that accurate, by the way? I haven't checked. But if it's 240 pages—

The Chairman: It's pretty close to 240.

Mr. Ken Epp: —somebody is talking. Who the dickens is it? These hon. members are saying, we had a little conversation, but we just told them what we thought. I'm not condemning them. But somebody somewhere is spilling the beans.

Mr. Scott Brison: Mr. Chairman, the only thing we have is what we said, which is quoted directly, and there's nothing in here.... It would have been great news if we had said, you will find in the report the following.

The Chairman: Mr. Brison, I think your point has been made, and I think Mr. Pillitteri's point has been made.

Mr. Ken Epp: Then who has talked to the media?

Mr. Scott Brison: If you received a call and you say, I can't help you—

The Chairman: Order, order, just one second.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Mr. Chairman, I think we're treading on very thin ice here.

First we have Mr. Desrochers, who fortunately has withdrawn this motion, stating that it's improper for people to have a personal opinion, a personal opinion that, from what I've heard, in no way reflects the content of the report. Now, if you're going to start condemning people for having an opinion on the weather, I'm afraid you're defeating the purpose of this place.

Secondly, we have Mr. Epp saying that because there's a press report that says it's 240 pages long, that in some way is a revelation that somebody knows what's in that report. It may very well be somebody in the printing plant who has said, we're printing the finance committee report and it's a big one; it's 240 pages long.

• 1650

So you're making accusations or you're suggesting that somebody in here is in fact revealing the contents of the report. The fact that a report is 240 pages long is hardly an indication of its contents. I think the fact that Mr. Pillitteri and Mr. Brison have an opinion on something greater than the weather is not a revelation as to the contents of this.

I think it's shameful that we're talking about this stuff here. I think it's an attempt to suppress opinion, and if we are not allowed to debate here and if people are not allowed to express an opinion without revealing the contents.... If I were to go outside this door and say I think the committee's report is a magnificent piece of work, is that in some way revealing the contents of this report?

For Mr. Brison to say—and clearly his comment is a political one—that Mr. Pillitteri didn't know what he was signing the first time and doesn't know what he's signing the second time is strictly.... Let's characterize it for what it is: it's a political statement made in a very highly charged atmosphere.

But for people to then twist that around and say, well, this is in some way revealing the contents of this report is absolutely bizarre. I think this is a very dangerous step being taken by Mr. Desrochers.

The Chairman: In fairness to Monsieur Desrochers, he has withdrawn the motion.

Mr. Odina Desrochers: That's it.

[Translation]

I have withdrawn it.

[English]

The Chairman: He has made his point. He's concerned about the leaks. He feels the leaks are hurting his privileges or rights. We need to deal with this particular issue, of course. It's happening quite often in all sorts of committees, to the point, quite frankly, where we have to start thinking about whether drafts of committee reports are automatically public or not.

We have to get our heads around how you build a better system, but this is the one we have, and so far nobody has come up with a better one. Until then, until you have some better ideas to deal with the issue...and the issue is not Mr. Pillitteri, Mr. Brison, Mr. Desrochers, Mr. Epp, or Mr. Harris, who from time to time—and all of us as politicians—will be quoted in the newspaper stating an opinion. If that opinion ever appears to reflect the content of a report, does that mean that person has leaked it? I submit to you that this is stretching the point—according to me, anyway.

Of course, I'm in the hands of the committee all the time, so you tell me later on if that reflects your opinion. But today we have other work to do and we need the cooperation, particularly on this one, because I've spoken to everyone else in reference to this, to deal with the issue of clause-by-clause.

Mr. Nystrom, if we can do that tomorrow at 12.15 p.m.—Mr. Harris can't do it tonight; otherwise we would move right now.

Mr. Nick Discepola: It will take us five or ten minutes.

The Chairman: Mr. Harris.

Mr. Dick Harris: Sorry, I wasn't thinking earlier when you said 9 a.m.

The Chairman: I was saying 12.15 p.m. tomorrow.

Mr. Dick Harris: You originally said 9 a.m., didn't you?

The Chairman: Tomorrow you have caucus, don't you? Tomorrow is caucus. So if we can move on this, that would be great.

An hon. member: Why don't we do it now?

Mr. Dick Harris: We can't do it now.

The Chairman: You can't do it now because I gather that Mr. Harris and Mr. Epp have to go to the Reform caucus on this to get approval. Then they'll come back. I'd like to get this done at 12.15 p.m. It won't take very long. You'll be finished by probably 12.17 p.m. or 12.20 p.m.

Mr. Odina Desrochers: You can't do it today?

The Chairman: We can't do it today, unless Mr. Harris changes his mind.

Mr. Dick Harris: Just a minute. Mr. Epp reminded me of something regarding tomorrow. I forgot that we can't come here straight from caucus.

The Chairman: Can you come here at 1 p.m.?

Mr. Ken Epp: Maybe 1.30 p.m.

The Chairman: Okay, 1.30 p.m. Is that all right?

Go ahead, Mr. Nystrom.

Mr. Lorne Nystrom: I have a 1.15 p.m. conference call, unfortunately. We will have problems and conflicts.

Mr. Ken Epp: You're not a man of many words.

The Chairman: Can we do it at 1.45 p.m.?

Mr. Ken Epp: Okay.

Some hon. members: Okay.

The Chairman: It will be at 1.45 p.m. tomorrow. The clerk will tell you the exact location.

• 1655

Thank you. The meeting is adjourned.