CHER Committee Meeting

STANDING COMMITTEE ON CANADIAN HERITAGE

COMITÉ PERMANENT DU PATRIMOINE CANADIEN

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, February 3, 1999

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[English]

The Chairman (Mr. Clifford Lincoln (Lac-Saint-Louis, Lib.)): I'd like to open the meeting of the Standing Committee on Canadian Heritage.

[Translation]

I call to order the meeting of the Standing Committee on Canadian Heritage of Wednesday, February 3, 1999.

Today's meeting is being held as a result of the motion that was proposed on November 17, 1998, by Ms. Lill, a member of this committee, and that was unanimously adopted.

The motion reads as follows:

That this Committee call before it members of the Board of Directors of the National Arts Centre, and other interested parties as determined by the Committee, to discuss the centre's mandate, resources, management and operations; and

That, these witnesses be scheduled in at the earliest convenience, as determined by the Committee Chairperson provided that the meetings be not held during a period of labour strife at the National Arts Centre.

That was the case at that point.

In French, the motion reads as follows:

[English]

That this Committee call before it members of the Board of Directors of the National Arts Centre, and other interested parties as determined by the Committee, to discuss the centre's mandate, resources, management and operations; and

That these witnesses be scheduled in at the earliest convenience, as determined by the Committee Chairperson provided that the meetings be not held during a period of labour strife at the National Arts Centre.

The purpose of the meeting is, as the motion states, to examine the mandate, the resources, the management, and the operations of the centre. On June 29, 1998, the Auditor General of Canada presented to the board of trustees of the centre his special examination report of the financial and management control and information systems, as well as the management practices maintained by the National Arts Centre Corporation.

The committee felt that before we heard the board of trustees of the centre, it would be essential for us to get a picture of the substance of his report and to ask questions of him to be able to enjoy the presence of the Auditor General.

So I would like to welcome this afternoon the Auditor General of Canada,

[Translation]

Mr. Denis Desautels, the Assistant Auditor General, Mr. Richard Flageole, and the Arts and Culture Principal, Canadian Heritage, Ms. Ginette Moreau.

Tomorrow, we will hear evidence from the Chair and members of the Board of Trustees of the National Arts Centre. This meeting will be held in Room 237-C of the Centre Block.

[English]

I remind members that the first round consists of five minutes of questions per party, and the subsequent rounds are five minutes per member, as agreed in our rules.

We decided, first of all, that the meeting would close at 4.30 p.m. This is because there might have been a clash of timing for reasons you know of. But yesterday, when we decided on the details of the meeting—we've now found that we have time, so if necessary, we'll carry on beyond 4.30 p.m., until 5 p.m. We want to take all the time necessary with the Auditor General.

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[Translation]

I would like to give the floor to Mr. Desautels and thank him for coming today.

Mr. L. Denis Desautels (Auditor General of Canada): Thank you, Mr. Chairman, for giving us the opportunity to present to the members of your Committee the findings of the special examination we carried out during the period of 1 November 1997 to 31 May 1998. The report we presented to the Board of Trustees last June was made public by the National Arts Centre in October 1998.

I would like to begin by explaining that my mandate in a special examination consists of presenting to the Board of Trustees an opinion that provides reasonable assurance that: the Corporation's assets are safeguarded and controlled; the financial, human and physical resources of the Corporation are managed economically and efficiently; and the operations are carried out effectively.

The opinion we express in the report is based on an examination of the Corporation's systems and practices that are essential for managing the key risks associated with achievement of expected results.

In the case of the National Arts Centre, it was at the request of the Board of Trustees that we carried out this examination. The Centre is not subject to part X of the Financial Administration Act, which requires many Crown corporations to undergo a special examination at least every five years.

When we carried out our special examination, the Centre was emerging from a lengthy period of instability, the main causes of which were related to changes in management, budget reductions, greater competition, and changing audience profiles, tastes and preferences. This instability had led to a decline in attendance in all areas, and had affected staff morale and the achievement of many of the Centre's objectives.

During our examination, we found that the Centre had taken several steps to deal with this situation: numerous initiatives had been launched to revitalize the Centre and give priority to programming. The initiatives and accomplishments of the last year had been significant and appeared to have reduced the instability of recent years. With the next millennium approaching, management was planning to undertake a number of large-scale projects in order to continue the revitalization of the Centre, increase its credibility and properly fulfil its mandate.

In this context, we therefore believed it was important that the Centre, as a Crown corporation devote, the effort required to implement a management framework that would allow it to better evaluate the progress it had made in realizing its accomplishments as it strove toward its strategic vision. Such a framework would also enable it to make enlightened decisions, to account for its results and to use every opportunity to reduce its costs.

[English]

On completion of our work, we observed that the centre had significant deficiencies in the areas of strategic direction, performance information, and accountability.

We also expressed our concerns about the management of financial risk.

Moreover, in the areas of programming, marketing, human resources management, fundraising activities, management information systems, and building management, we concluded that the centre had not put in place some of the systems and practices required to enable it to manage effectively and achieve the desired results. More specifically, the centre had not clearly defined what it wanted to accomplish and how it planned to do so.

During our 1985 audit and our 1993 special examination, we emphasized to the board of trustees and management that it was important for the centre to set clear objectives and to equip itself with effective strategies for carrying out its mission. While a number of initiatives had been undertaken in this regard, they had not all yielded the desired results.

We were therefore very concerned to note, once again, the lack of strategic direction and the absence of a solid corporate plan that was understood and accepted by the board of trustees, management, and staff. We felt a corporate plan would give more rigour to the centre's decision-making process, particularly with respect to its artistic programming and resource allocation. For example, we noted that the centre had not clearly identified its objectives and its target audience for the summer festival before deciding to bring back this event. We expected to find a more thorough analysis of the costs and benefits of such an initiative.

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A corporate plan would also bring to the centre a certain stability in the conduct of its operations. In our view, a clearer and more structured direction would have helped the organization deal more effectively with the difficulties of recent years, or at least have helped to reduce the adverse effects.

As well, the centre had not really addressed the part of its mandate aimed at helping the Canada Council develop the performing arts elsewhere in Canada and the appropriate means to do so. We also noted that the centre's strategic direction disregarded relations with the Canada Council, and that in fact relations between the centre and the Canada Council had been very limited thus far.

We also stressed that developing a corporate plan requires a more detailed examination of the environment, more particularly the factors and risks that could affect the centre's abilities to achieve its objectives.

We further observed that over the past several years the centre had been able to balance its expenses against the parliamentary appropriations it receives and the other revenues it generates, and had managed its cashflows according to its financial needs. However, the many renewal initiatives that were underway within the centre could have a major impact on its financial health. We expected that the centre would be more vigilant in identifying, analysing, and managing the financial risks related to its strategies. As we now know, last August, at the end of its fiscal year, the centre unfortunately had a $3 million deficit.

In our examination of the five-year budget plan, we drew attention to a number of points. We observed that the centre was counting on a significant increase in the annual revenue from its artistic programs. We felt that these revenue projections were overly optimistic for both the current year and the subsequent three years. Given the weaknesses we had found in programming and marketing, it was important that the centre thoroughly analyse the risks associated with the realization of its projected revenues and consider alternative solutions in the event of serious shortfalls.

The centre was also counting heavily on its fundraising activities to fund a large portion of the new initiatives proposed in its budget forecasts. However, given the inherent risks in this type of activity and the weaknesses noted in the planning of these activities, the centre needed to be careful about committing funds to these new initiatives. In our view, the centre would have benefited from having a contingency plan in the event these revenue objectives were not met.

In fact, the centre's total fundraising goal for the period 1998-99 to 2002-03 was $29.5 million, and it estimated that it would spend $10 million, or $2 million per year, for this purpose. In our view, however, the centre still had much to do to be able to stay within its cost objectives with respect to these fundraising activities. We would have expected the centre to have assessed its existing fundraising programs and their results. This would have helped in developing a comprehensive three-year plan for its fundraising activities.

Mr. Chairman, as we have just described, once the centre had clearly defined its strategic direction, it was essential for the centre to use a solid performance management framework that would enable it to measure and account for progress in implementing the plan.

[Translation]

Indeed, we observed that there was a need to clearly state performance expectations and to ensure that performance was monitored.

Responsibility for implementing the corporate plan and managing operations needed to be clear. We believe that the Centre ought to clarify the roles and responsibilities of the Board of Trustees and the members of management. Our examination revealed that responsibilities were not always clear, and that this situation was sometimes a source of tension between the Board of Trustees and management. We believed that the Centre would benefit if the Board of Trustees and management would jointly examine their respective roles and responsibilities. Managers also needed to have a clear idea of what they were responsible for and the results that were expected of them. We noted that the accountability mechanisms in place at the Centre did not allow managers to be made fully responsible for results.

We were also concerned that the Centre's management information was not presented in a way that facilitated decision making. As stated earlier, the many renewal initiatives that were underway at the Centre brought significant financial risks. It was essential that the Board of Trustees and management have the information needed to jointly manage those risks, and that they agree on the nature of the information needed to measure progress in implementing new strategies. Clearly, a key success factor for the organization during this period of change was the ability to make timely and informed decisions.

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In the area of human resources management practices, we observed that the Centre's staffing policy and procedures had been clearly signed to ensure that the organization had a competent workforce. A clearly defined staffing policy and mechanisms were in place. However, our examination revealed that, too often, the staffing practices were not consistent with the policy. This could lead the Centre to make poor staffing decisions and thus the risk of not having some of the competencies required.

We also noted that management accountability mechanisms needed to be strengthened to enable the Centre to manage staff and senior management performance. We also pointed out that, in a corporation of the Centre's size, the organization of work could be simplified and made less costly.

All these observations, Mr. Chairman, were discussed on numerous occasions with members of management and the Board of Trustees, who accepted them. When we presented our report, we stressed not only the importance of taking action but also the urgency of doing so. We believed that all this was possible, provided the Board of Trustees and management brought to the task the same determination and energy that they had showed in the artistic renewal exercise.

[English]

In conclusion, therefore, Mr. Chairman, let me say that the centre has undertaken to act on our report, and we have closely monitored the progress made. We've learned of several initiatives that have been launched to correct the situation we reported on. Unfortunately, as we can all see today, in recent months the centre has once again been faced with difficult situations that are not entirely unrelated to some of the weaknesses we raised and the risks the centre needed to manage.

Mr. Chairman, this concludes my opening statement. My colleagues and I would be happy to answer questions that you and the members of the committee may have.

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

[Translation]

Before we go to the question period, I would like to point out that the Auditor General has informed me that, in keeping with tradition, he must respect the confidential nature of the individuals' salaries as well as their identity.

[English]

He told me that certain information relating to personnel, especially individuals and their names, would have to be respected. So if these questions arise, I might intervene to signify accordingly.

We are open for questions. Mr. Mark.

Mr. Inky Mark (Dauphin—Swan River, Ref.): Thank you, Mr. Chairman.

First let me thank you for being here. I know your report and your comments will be a great help to this committee over the next while.

I've had the chance to read your report of June 29, and I'm astounded. There are four full pages of deficiencies or recommendations. For an organization that has played a large part not only in this community but in this country...to come across this in 1999 is really surprising, considering the quality of the people who sit on the board.

This is not the first audit on the National Arts Centre. Where does the buck stop when the Auditor General makes recommendations and they're not carried out?

Mr. Denis Desautels: Mr. Chairman, the ultimate responsibility, of course, to implement any of the recommendations we would have made in this special examination and previous ones rests with the board. Since they were basically in agreement with what we've said, not only now but on previous occasions, why have things not changed? It's not that easy a question to answer, but I think one of the problems I might underline is that there has been a lot of turnover of direction, of leadership, at the National Arts Centre. In the time that I've been familiar with it, in the last seven-plus years, I've dealt with five different CEOs, and at other times there were also vacancies on the board. So there have been problems of both turnover and vacancies in the leadership of the organization, which obviously make it difficult for any organization to trace a path and execute a particular program.

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Mr. Inky Mark: What you bring up is certainly true, and it surprises me that this organization over the last five years has replaced three of its artistic directors. So the question I ask is, is this current board really capable of carrying out the recommendations you have put in this report, or is it time to strike and create an interim watchdog of some sort to make sure these recommendations are carried out?

Mr. Denis Desautels: Mr. Chairman, it's hard for me to answer that particular question. We haven't carried out an analysis of the profile of the board.

We tabled a report only last June, I believe, and a lot of things have happened since then. I think it would be quite proper for this committee to seek some kind of assurance from the board that they are in fact capable of taking charge of the recommendations that have been made and accepted and of the other decisions they've already made on their own to change certain things.

Mr. Inky Mark: I'd like to ask a short question, if I may. Would you characterize the board that currently exists as an administrative board, a policy-oriented board, or a management-administrative-type board?

Mr. Denis Desautels: Mr. Chairman, a board has to be more a group that worries about policy as opposed to day-to-day management and operations. That's quite obvious. But when I look at different crown corporations that we audit, we find a variety of relationships between the board and management, and that's the kind of situation that has to be sorted out within each crown corporation so that the roles and responsibilities of each are quite clearly laid out, the communication between board and management is also always clear, the issues that should come to the board are quite clearly identified, and there's a good tradition of what should come to the board or need not come to the board. In the case of the National Arts Centre, we pointed out in our special examination report that some of those arrangements between board and management needed to be clarified, and they still have to do that.

Mr. Inky Mark: Thank you.

[Translation]

The Chairman: Ms. Tremblay.

Ms. Suzanne Tremblay (Rimouski—Mitis, BQ): Good afternoon, Mr. Desautels. I would like to thank you for participating in this exercise in democracy.

I clearly understand why we were told that we could not ask you questions about salaries. I do not plan to do so, but I would like to know if the question that I am going to ask you falls into the same category or pigeonhole.

When the National Arts Centre decides to hire a CEO, does it hire head hunters to try to find the most qualified person? Is that part of its policy? Are you in a position to shed some light on that for us?

Mr. Denis Desautels: As far as I know, there is nothing that forces the Centre or any other crown corporation to use head hunters when recruiting a CEO. In this case, the decision to hire a CEO is one of the responsibilities of the Board of Trustees, and it is perhaps the most important. When such a situation arises, it is up to the Board to determine how to proceed. But nothing forces the Board to use the services of a head hunter.

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Ms. Suzanne Tremblay: Yes, but in conducting your audit, did you find any indication that the NAC had used head hunters to hire the CEOs who have since left? Is that part of what you can or cannot tell us?

Mr. Denis Desautels: I could tell you if I knew,—

Ms. Suzanne Tremblay: Okay.

Mr. Denis Desautels: —but in that case, we did not really examine how each of the CEOs was hired at the time. In all honesty, we did not audit that.

Ms. Suzanne Tremblay: In the audit, were you in a position to determine, for each departure, if the NAC had to pay out huge severance packages to thank the people it had hired for their services?

Mr. Denis Desautels: Each CEO is hired on contract.

Ms. Suzanne Tremblay: For a definite period of time.

Mr. Denis Desautels: That type of contract does in fact include compensation if the CEO's mandate is terminated.

Ms. Suzanne Tremblay: Before it ended. So they did have to spend money to have three CEOs in five years. Perhaps several received a pay-out, if I understand correctly, because each of them had a contract. It undoubtedly cost something, but we cannot find out how much. Will we be able to put that question to the Board of Trustees tomorrow?

Mr. Denis Desautels: Yes, if you want to, but I do not have that information.

Ms. Suzanne Tremblay: You started by talking about the period from November 1997 to May 1998. So the Yashin case fell within that period. Were you able to examine that? To the best of your knowledge, did a contract with Yashin actually exist? Did Tatiana Entertainment receive a contract? Is there a contract between the NAC and that company in the Yashin case?

Mr. Denis Desautels: Mr. Chairman, there are two contracts here. An agreement between Mr. Yashin and the NAC for the donation of $1 million was signed. It is a relatively short agreement, that only specifies a few points. So there is in fact a contract, and we examined it when we audited the Centre's financial statements. Bear in mind that in addition to the special examination, we audit the Centre's financial statements each year. The Centre's fiscal year ends August 31. So we conducted an audit for the fiscal year ending August 31, 1998, during which we examined the contract whereby Mr. Yashin donated $1 million to the NAC.

I want to give you a complete answer. Ms. Tremblay, you raised the question of a second contract. The second contract was never disclosed during our special examination or our audit. It was brought to our attention for the first time in November 1998.

Ms. Suzanne Tremblay: So in November you were asked to examine the second contract?

Mr. Denis Desautels: As we have already explained on other occasions, when management at the NAC learned of a second contract, they contacted us to ask us our opinion of the second contract.

Ms. Suzanne Tremblay: In your opinion, is it possible that this contract could have been hidden away and that the only person who was aware of the contract was the person who signed it?

Mr. Denis Desautels: Yes, it is plausible that the person in charge of the fund raising kept the contract in his files.

Ms. Suzanne Tremblay: I will come back to that later.

The Chairman: You may ask another very short question, if you want. You will pass. You will have more time later, Ms. Tremblay.

Ms. Suzanne Tremblay: I will come back in the second round. Oh, no! I have one last question to wrap up this matter for me.

You may have answered my question elsewhere, but I would like you to repeat your answer for the record. In your opinion, was the second contract legal, or was it illegal to enter into that kind of contract?

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Mr. Denis Desautels: When we learned that a second contract existed, and when we received some additional information, we concluded quite quickly that the second contract posed a problem and that the NAC needed to obtain a legal opinion immediately and even to consult the ethics commissioner before making any payments under the second contract.

We had two concerns. First of all, we could not identify any services rendered under the contract in question. It is clear that if no services had been rendered, no payments should have been made. Secondly, there seemed to be a link between the second contract and the first one, which also posed a problem under the provision of the Income Tax Act which governs donations that can be made.

The Chairman: Thank you.

[English]

Ms. Lill.

Ms. Wendy Lill (Dartmouth, NDP): Thank you very much for coming before us today. I think I speak for many people in this room, and probably many people in this country, who have themselves sat on boards. I sat on an arts board. I sat on a theatre board for three years, and I must say we spent an inordinate amount of time trying to clarify roles and responsibilities between the board members and the artistic staff, and hours and hours on marketing sessions, looking at pie graphs about demographics of our audience and stuff. It seemed to me to be a requirement of non-profit theatre organizations and arts organizations that that exercise go on continuously.

The question is, what is it about this organization that seems to make it not able to happen? I think we're all trying to get at what those deficiencies are in the relationships between the board and management that don't seem to ever get any better. You continue to say that the problems have to do with strategic plans and reporting, and yet they don't get any better. Did you find any clues to that? Could you give us some specific ideas about why these things seem so much more difficult for the National Arts Centre than for a lot of other organizations?

Mr. Denis Desautels: Well, it could be a long story, and it's related to a certain extent to the lack of continuity in leadership at the centre. It seems we're quite often starting over again with a new CEO and perhaps new board members. So it's been difficult to pin down a relationship and a good understanding in terms of communications, a good understanding in terms of levels of authority for making decisions, and also a good understanding of performance expectations. What is the board expecting of both the CEO in terms of real results and in terms of the other main members of the executive?

These are all elements that I think you would normally find in a corporation, particularly a not-for-profit corporation, and which have been difficult to pin down in a consistent fashion at the centre. Why is that? I think that's your question. I would attribute that mostly, I think, to the turnover and therefore the difficulty of establishing a tradition, but I guess it could also be more than that at different times. We've had different personalities and so on, both on the board and in terms of the CEO.

Some of my colleagues may want to expand on that.

[Translation]

Ginette, can you add to that?

[English]

Ms. Ginette Moreau (Canadian Heritage, Arts and Culture Principal, Office of the Auditor General of Canada): I would like to answer in French. I'm sure my answer will be clearer.

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[Translation]

We must put in perspective the numerous changes that management at the National Arts Centre was undergoing. For example, in the absence of a CEO, the Board of Trustees had to get more involved in decisions of an operational nature. Traditionally speaking, that practice does not help.

Moreover, I will also say that at the Centre, the management information that was available made good decision-making difficult. The nature of the information provided to the Board did not help it make strategic decisions. So in terms of efficient operations at the Board level, that did not help matters.

So then responsibilities, as well as the nature of the information and performance expectations needed to be clarified. So the general framework needed to be reinforced.

[English]

The Chairman: Ms. Lill.

Ms. Wendy Lill: I would just like to ask you a couple of questions about the stakeholders of the National Arts Centre. I wonder if you are aware of any attempts, either as policy or as a business practice, to consult the stakeholders at the National Arts Centre in the business of the place. Has your office ever looked into how the National Arts Centre is reflecting that, how it is basically reflecting its national mandate and its local mandate to the national capital?

Ms. Ginette Moreau: During our special examination, I'm not aware of any process of consultation about their mandate at that time.

[Translation]

They consulted and established much stronger partnerships with stakeholders, both in the federal government and in the community, but at that point there had not been any consultations on how they could meet the expectations of their national mandate, which did not prevent some managers, within the Centre, from having discussions or working with organizations throughout Canada on what they wanted to achieve at the Centre.

[English]

The Chairman: Do you have one last question?

Ms. Wendy Lill: One last question. It has been suggested that your 1998 report necessitated the removal of the CEO by the board, and I want to know whether you believe your report leads to that conclusion.

Mr. Denis Desautels: Our report does not lead to that conclusion. We often have critical reports when we look at different government organizations. If it led to that conclusion every time, there would be a lot more turnover. But no, our report doesn't lead to that conclusion.

The Chairman: Mr. Muise.

Mr. Mark Muise (West Nova, PC): Welcome to our guests.

If I could, I'd like to continue with the board. Can you tell me a little bit about the make-up of the board? The members of the board are from across the country, are they not? For example, if you have someone from Vancouver who works very diligently on the board but has arts or cultural interests in Vancouver, would they be more apt to try to do some fundraising and that type of activity in their hometown versus the national capital? Am I making myself clear? I'm wondering if that may detract from the ability of the board to be as effective as it could be. It's a question.

Mr. Denis Desautels: Mr. Chairman, I want to be careful here. I don't want to pass judgment on the board, either collectively or individually, because it's not really my role to do so.

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What I would say, though, in response to the question, is that we have over time made comments and recommendations to the government in terms of how it deals with boards of crown corporations generally. One of the things we did recommend was that the government should obtain from each crown corporation, or the crown corporation should provide to government, some kind of list of requirements for board members.

Each crown corporation operates in a different field and has a need for people with different competencies and different backgrounds to fill out the board properly. So we think crown corporations should be proactive and identify the needs they have in terms of membership of the board and provide that to the government to make sure you end up with a board that has the right balance in terms of background and in terms of technical competence in one field or another.

Mr. Mark Muise: That was where my next question was going. I was thinking, yes, it's an arts centre, but there is a business aspect to it as well, and both need to happen in order for the place to function properly.

My question was more about the geographic diversification of the people who sit on that board. If I am from Nova Scotia and I work in the community there—and I'm not stating this, I'm asking—would my local interest perhaps slow me down in working towards my national interest and take away from...? I don't know. You've been there.

Mr. Denis Desautels: Mr. Chairman, I would hope not, because I believe this board needs national representation. After all, this is a national arts centre. It's not just the Ottawa arts centre; it's the National Arts Centre. So there's a need for some form of representation of constituents from outside this region. I guess it's up to, again, the government or the existing board to identify people who can think broadly, who can think nationally, and therefore do a proper job as board members. I think there is a need to go outside to the rest of the country to recruit some board members.

Mr. Mark Muise: Does the NAC have an endowment fund?

Mr. Denis Desautels: No, they don't.

Mr. Mark Muise: There's not a fund there that helps finance their ongoing operation?

Mr. Denis Desautels: No. They're financed on an annual basis by an appropriation from the Government of Canada to the tune of I think about $17 million in the last fiscal year. They raise their own revenues over and above that from ticket sales, of course, and other services and rentals and so on. All told, they have a budget of about $40 million.

Mr. Mark Muise: Prior to last year, did the NAC more or less break even? We saw in our documentation that there was about a three—

Mr. Denis Desautels: Yes, that is correct, sir.

Mr. Mark Muise: That's fine in the normal course of things, but I'm wondering what provisions are there, or is the board thinking of, for capital renovations or upkeep and that type of thing. What we're looking at here is basically operations on a year-to-year basis. Is that not correct?

Mr. Richard Flageole (Assistant Auditor General, Office of the Auditor General of Canada): Mr. Chair, the appropriation received from the government covers both operating and capital expenditures for the centre.

Mr. Mark Muise: So they do have a separate capital fund that they—

Mr. Richard Flageole: It's one single appropriation, but there's a portion that is used for capital expenditures.

Mr. Mark Muise: So it should mean that in the budget, on a year-to-year basis, a certain percentage should go towards that capital upkeep and repair.

Mr. Richard Flageole: Yes, that's exact.

The Chairman: We'll come back to you, Mr. Muise.

Ms. Bulte.

Ms. Sarmite Bulte (Parkdale—High Park, Lib.): Thank you, Mr. Chairman. Thank you very much for coming and speaking to us today.

My question is going to be a little bit similar to Ms. Lill's. I too come from a background of having sat on an arts board for almost ten years, and I have participated in many others.

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My first question to you is, is there any other crown corporation like the National Arts Centre?

Mr. Denis Desautels: Mr. Chairman, there are other crown corporations in the cultural field, such as the museums, for instance, and the National Gallery.

Ms. Sarmite Bulte: No, but the same as the National Arts Centre, an arts organization and an arts centre. Do we have anything to compare that with in Canada?

Mr. Denis Desautels: Exactly that? It would be hard. In fact, in carrying out the special examination, we talked to a lot of other organizations that might have comparable operations.

Ms. Sarmite Bulte: That's where I'm leading.

Mr. Denis Desautels: Yes.

Ms. Sarmite Bulte: Did you speak to other arts organizations in Canada in the process of your auditing? Did you speak to the arts community, the artists, and the stakeholders who are a part of this arts centre in the conduct of your audit?

Mr. Denis Desautels: When we carry out these special examinations we do a fairly wide consultation and we interview people in comparable organizations. In this case we did that.

Maybe Madame Moreau could tell us the extent to which we've done that in this case.

Ms. Sarmite Bulte: I think it would be interesting to know, please, if you don't mind.

Ms. Ginette Moreau: Yes, you're right. There's no similar or equivalent organization to the National Arts Centre in Canada.

[Translation]

The National Arts Centre is the only organization in Canada with its own orchestra and theatres and that is also involved in coproduction, dance production, etc.

We met people who work in the same field as we do, including the representatives from the Orchestre symphonique de Montréal, the Théâtre du nouveau monde in Montreal and the Canadian Stage Company, as well as the people at Opera Lyra and the Canadian Conference of the Arts, here in Ottawa. We hold direct discussions with industry specialists with a view to learning their point of view and examining what their relationships are with the National Arts Centre.

[English]

Ms. Sarmite Bulte: The reason I asked is I had to smile when you said there was a source of tension between the board of trustees and management, which again is a very common thing in arts organizations. The whole conflict between artistic direction and even management and the board is not abnormal in arts organizations. So, to me, reading this is no different from any other arts organization I've known or ever belonged to.

I guess my question is falling off on what Mr. Muise said. Yes, this year there's a $3 million deficit. Other arts organizations, which you looked at, can also go through a cyclical period, where if you have a bad artistic year and your audiences don't come, you may have a tremendous loss. Organizations like the ballet and opera have endowment funds that they can actually draw upon to reduce their deficit. Why is this different from any of those organizations?

Mr. Denis Desautels: I think the National Arts Centre, as far as I can tell, from my handling of the audit in the last few years, has a pretty unique track record. I know some of those other organizations, but it seems to me they don't all suffer necessarily from the same problem. The problems we've identified here, or that we've talked about today, in terms of the difficulties between the board and management and the turnover in terms of direction of the organization I don't think are ideal at all, or normal even. I think there's more of it here.

The $3.5 million loss—I agree with you, we've seen worse in other places, and that in itself would not necessarily be cause for shutting a place down. It can happen when you undertake certain business risks, and this is a risky business. I acknowledge that. But I think it goes beyond that. I think there have been difficulties in terms of how the whole place has been managed in the last half-dozen years, and the level of dissatisfaction and uncertainty and insecurity seems to be fairly pervasive. So I think it has its own problems beyond the $3.5 million.

• 1625

Ms. Sarmite Bulte: If I could, just to follow up, you've said “managed”. Define manage for me. What do you mean by managed? Someone said that many changes of management have happened. How do you define “manage”?

Having a board involved in operational decisions is a common curse of arts organizations. General managers or management as I know it in an arts organization would say that the board is micro-managing or they're getting involved in areas they shouldn't be in. So it's not unusual.

What do you mean exactly by management? Are we talking about the relationship between the board and the CEO? Are we talking about...? What do you mean by management? It could mean many things. What is it you specifically mean by management?

Mr. Denis Desautels: Let me try to boil it down to two levels of issues. I think there are, in our special examination report, some broader issues in terms of having a strategic plan to work to in order to achieve the objectives that jointly the board and management have given themselves. How do we operationalize those particular objectives? It has to find itself into some kind of plan, some kind of business plan to get from A to B.

That's a certain level of management that we found deficient in the case of the National Arts Centre. We also found deficient what we call here the performance information and accountability. I think there should be some kind of reporting system within an organization to know whether you're making progress toward your objective and so on. We found problems at that level.

We also found, as I mentioned a few moments ago, within the organization more specific management problems. We talked about hiring, for instance, about work organization, about the maintenance of the facilities, and so on. So if you want management issues, these are another level of management issues.

Ms. Sarmite Bulte: Who would you feel was responsible for putting into place that hiring policy? Would it have been the board? Would it have been senior management? Would it have been a combination of both? Or is this something that would evolve from the strategic plan?

Mr. Denis Desautels: On the question of the hiring policy, there's no problem with the policy. The policy is okay.

Ms. Sarmite Bulte: It's the practice, the monitoring.

Mr. Denis Desautels: It wasn't followed in some cases.

Ms. Sarmite Bulte: Okay.

I have one last question, again with respect to management and performance accountability. Did the board not have employment contracts with their key employees?

Mr. Denis Desautels: Yes, there is a contract with the CO, of course.

Ms. Sarmite Bulte: And did those contracts themselves not set the performance targets? Did they not set annual performance reviews?

Ms. Ginette Moreau: I don't think the performance itself was included in the contract. It was the general terms of the commission.

Ms. Sarmite Bulte: Thank you very much.

The Chairman: I have five questioners in the second round so far, starting with Mr. Godfrey, Mr. Bélanger, Mr. Dumas, Madame Lill, and Mr. Muise—and Madame Tremblay, so there are six. Mr. Godfrey.

Mr. John Godfrey (Don Valley West, Lib.): Mr. Desautels, what I find interesting is that the special examination report you did in 1998 drew on one previous audit and on previous special examinations in 1985 and 1993. So we have a sort of history of the institution, which you actually draw on in your most current report. I assume that part of this moving picture of the National Arts Centre is that it allows you to make some observations you might not dare make if it were only one snapshot.

Given the fact that what seems to characterize all three audits or examinations is the same kinds of problems, would you say that there is basically...? Nothing seems to change in terms of the problems—they get worse, they get better, they get worse. There is something systemic and structural about the board-management situation that needs to be corrected. It has such a long history, or at least the results seem to be so consistent over history, or is there just something so sui generis about the National Arts Centre that even with a series of blows, such as bad luck, a reduction in government funding, changes in the audience environment, perhaps some bad institutional history, and some unique situations, we shouldn't despair of the existing structure or system, if you understand what I'm trying to get at? Would some kind of systemic or structural change address what seem to be long-term problems?

• 1630

Mr. Denis Desautels: Mr. Chairman, I think the structure of the NAC isn't that different from most other crown corporations. One of the differences we should note is that the NAC is one of the few crown corporations where the board appoints the CEO. In most other crown corporations, CEOs are appointed by an order in council. That's one variation on the general practice within the federal government.

What we've seen in other cultural organizations at the federal level is that the more successful organizations seem to be giving themselves what I would call some kind of dual leadership, in the sense that you would have a strong CEO, of course, who would provide, more than anything else, a lot of vision along with strategy to the organization. But in those cases that CEO would be supported by a very strong right-hand person, a strong manager who would really get things done. I think that way you can take care of the artistic direction and movement, but at the same time things get done properly and carried out more efficiently. There are some examples of that around town. That way, neither aspect gets neglected or one doesn't get neglected because of the other.

Mr. John Godfrey: This is my second and last question, Mr. Chair. I was fascinated by the notion that you are suggesting that crown corporations furnish to the government the kinds of specific qualities they would seek that would best suit their needs, such as technical competence and maybe fundraising.

Here's the situation currently, as I understand it. Fifty percent of the revenue, at most, comes from the federal government, and fifty percent comes from either ticket sales or fundraising, and the direction would seem to indicate that the government share will in the current form go down unless we radically alter it. Would a solution then be for the National Arts Centre to start defining openly that it needs board members who are going to be fundraisers? Is that an appropriate conclusion given the shortfall of money, the ambitious programming that has to be met, the risks they're undertaking to try to meet the mandate, and all the rest of it? Would that be a way out?

Mr. Denis Desautels: Mr. Chairman, I would say that this might be one of the talents you might seek to have on your board. But on a board you may need different kinds of talent in order to have a balanced board. If you take the example of some of the crown corporations that are involved in financial services, you may need people who can talk derivatives and other people who can talk about something else. So you need a balance of talents.

Mr. John Godfrey: Have any of the crowns actually done this?

• 1635

Mr. Denis Desautels: It's starting to happen, and we can see that in a couple of the crowns. I would imagine that the people on the government side would probably welcome that. It makes the appointment process a little easier, I think.

Mr. John Godfrey: That would be an element of the solution, possibly.

The Chairman: Thank you.

Mr. Bélanger.

[Translation]

Mr. Mauril Bélanger (Ottawa—Vanier, Lib.): First of all, I would like some information.

Appendix 2 of your June report contains a list of systems and practices that were not retained for a detailed examination. Who establishes that list?

Mr. Denis Desautels: We are the ones who make the final decision about the items we are going to look at in detail and the items we are going to drop because they are not as important. However, when we do this, we inform the Board of Trustees.

Mr. Mauril Bélanger: So who drew up the list of detailed examinations that you did? Does the opposite hold true? Are you also the ones who do that?

Mr. Denis Desautels: We are the ones who plan the special examination, and who determine what we are going to look at and what we're not going to look at. We also set a number of criteria that we use during the special examination and we share that information with the Board.

Mr. Mauril Bélanger: The Board agreed to the two lists: the items that you were going to look at in detail, and the items you were not going to look at in detail.

Mr. Denis Desautels: Yes. We have discussions, particularly with the Board's Audit Committee, and if there are objections, we listen to them and we can take them into account during our planning.

Mr. Mauril Bélanger: Unless I'm mistaken, you said, and it's mentioned elsewhere in your report, that you carried out this special examination at the institution's request.

Mr. Denis Desautels: That's right.

Mr. Mauril Bélanger: In your opinion, why did the Board ask for this examination?

Mr. Denis Desautels: Technically, Mr. Chairman, the NAC is not subject to part X of the Financial Administration Act which requires such reviews for other Crown corporations, but up until now, the NAC's practice has been to request one anyway. The NAC is not the only Crown corporation to do so. It's not the only exempted Crown corporation that asks for a special examination anyway. That's what happened in 1992 and 1993, as well as in 1998. So, the NAC has a tradition of requesting special examinations and making the report public. It did that also in 1993.

Mr. Mauril Bélanger: You have been the Auditor General for seven years now. During that time, you have seen five CEOs come and go. In your opinion, should the act be reviewed, be it in terms of the Centre's mandate, or certain other matters so as to correct any shortcomings that you may have identified in this report or in earlier ones? For example, my colleague Mr. Godfrey was asking who should appoint the CEO. Do you think that this is something that we members of Parliament should be looking at? If that's not the case, are there other things we should be looking at? In the final analysis, we have a legislative mandate. If we wish to make a positive contribution to this issue, that's pretty much how we have to do so.

Mr. Denis Desautels: Mr. Chairman, I believe that nearly all the problems that we raised can be solved without legislative changes. We were just talking about the selection or appointment of the CEO. In fact, this is the only thing that sets the NAC somewhat apart from all the other Crown corporations. However, some other Crown corporations would like their board to be able to do what the NAC does, namely, appointing their own CEO.

• 1640

This is a delicate policy issue that parliamentarians will have to debate. There are good arguments on either side. As I said, the organizations that currently do not have that power would like to have it.

Mr. Mauril Bélanger: You're being careful.

Thank you, Mr. Chairman.

The Chairman: Mr. Dumas.

Mr. Maurice Dumas (Argenteuil—Papineau, BQ): Ma'am, gentlemen, welcome to the committee.

Unfortunately I did not read your report from last year, since I'm just here replacing a colleague. So the only document I have is the one I looked at today.

At paragraph 26 of your opening remarks, you said: “...the organization of work could be simplified and made less costly.” Do you have any suggestions on how to make it less costly? Could that even mean personnel cuts at the National Arts Centre?

Mr. Denis Desautels: Mr. Chairman, in our examination report, we go somewhat further than the comment I made a few moments ago. Among other things, we mention the number of groups or collective agreements that exist at the NAC. The number of groups could be reduced, and the organization of work could be simplified, as has been done in other corporations. This is one example of possible savings or efficiency gains that could help the NAC.

Mr. Maurice Dumas: What did the National Arts Centre think of this recommendation?

Ms. Ginette Moreau: It was well received, like all our recommendations. Some initiatives are being taken in this regard. In fact, we wanted to suggest that they reduce the number of collective agreements. At present, the National Arts Centre has eight different collective agreements. So, we suggested that they look at the possibility of reducing the number and at obtaining more flexibility so that they can reduce overtime, which was very costly.

Mr. Maurice Dumas: Thank you.

The Chairman: Ms. Lill.

[English]

Ms. Wendy Lill: I have just a short question. Obviously, we are all very anxious to see public confidence in this institution restored. Do you believe a corporate plan, which you believe is necessary, can be developed that will involve the stakeholders and even the public in a way that would help to restore confidence? Is there some mechanism you've seen in your travels that you think would work here? We all know there is a real shadow hanging over this institution as to it being inaccessible and not open to public involvement and its problems as being insurmountable. How do you see that happening? Maybe you could answer that.

Mr. Denis Desautels: Mr. Chairman, I don't see why that could not happen. I sense that the current management and board of the National Arts Centre want to move on the issue of having a better business plan. Consulting outside the NAC to round out, if you wish, the general objectives and strategies and therefore the business plan would not be at all incompatible with the current plans they have to come up with a proper business plan within the next few months. They will have to speak for themselves, but I think your suggestion would be quite compatible with the current plans.

The Chairman: Mr. Muise.

Mr. Mark Muise: Thank you, Mr. Chairman.

Mr. Desautels, earlier you mentioned that on a board of a financial institution, for example, you might have people from different backgrounds or with different levels of competence, depending on what is happening there. This being a crown corporation, would you be willing to say that part of the problem is maybe because of political appointments and not because there is that list we discussed earlier? Could that lead to part of the problem that exists here?

• 1645

Mr. Denis Desautels: Mr. Chairman, I cannot say that. I would have to comment on individual board members, and there's nothing I can see that would lead me to that kind of conclusion. I do believe, however, it would be most useful for the NAC to indicate the kinds of profiles of different people it would need on its board before the government makes appointments. I think that would definitely help to ensure that you end up with the right balance on the board.

Mr. Mark Muise: I'm not pointing the finger, because I don't know any of the board members. I'm thinking just from a purely business and organizational point of view, if it makes sense.

Is there a correlation between when the government reduction in funding happened and when some of the trouble started happening at the NAC?

Mr. Denis Desautels: Mr. Chairman, I don't think there is, because in fact there have been similar problems in the past, even before the cutbacks started to happen.

Mr. Mark Muise: Okay. Thank you.

The Chairman: Madame Tremblay.

[Translation]

Ms. Suzanne Tremblay: Mr. Chairman, I have two short questions to ask.

There have been several resignations, not just the CEO, but also the Artistic Director and a number of other people. Over the past two years, there have been some 13 resignations. Unless I'm mistaken, you audit the books every year. Is there any cause and effect relationship between all these departures and something fishy with the books, or are the two things not linked? Did these people leave because there was something fishy with the NAC's accounts or for other reasons?

Mr. Denis Desautels: Mr. Chairman, if there had been any illegal deals in earlier years, we would have reported them. That's part of our mandate, part of our responsibility. If there had been any such transactions, it would have been our duty to report them. So, that is in no way the cause of the current problems.

Ms. Suzanne Tremblay: So it has nothing to do with the problem that is going on there.

Mr. Denis Desautels: That's right.

Ms. Suzanne Tremblay: So that's not what the problem is.

Now when the CEO leaves, is it normal for the Artistic Director to leave as well? There are two or three people who seem to work very closely together. Are these two departures a coincidence, or is there some kind of link between these two in the organization?

Mr. Denis Desautels: Well, it doesn't come as a surprise when some other key figures leave at the same time as the CEO, here or in other organizations. I suppose a certain loyalty develops, a number of affinities. People like to work together. If one person leaves, the other person's future is up in the air.

So, it doesn't come as a complete surprise when more than one person leaves sometimes when the leader of an organization goes. That's what happened here. Myself, I don't find that very surprising. It does hurt the organization, of course. There are more people to replace at the same time, which represents an additional challenge, but it's not very surprising.

[English]

The Chairman: Mr. McWhinney.

Mr. Ted McWhinney (Vancouver Quadra, Lib.): Your examination was conducted, as you noted, at the request of the National Arts Centre. During the course of your examination, did you give advice or was your advice sought as to continuing or future operations of the National Arts Centre? Would that have been within your mandate? Was your advice sought or did you offer it, for example, as to projects now under way or being considered in relation to financial costs or other criteria?

• 1650

Mr. Denis Desautels: Mr. Chairman, it's quite natural that in the course of carrying out a thorough examination like this there would be discussions between our people and the management of the organization as to various alternatives in terms of management systems or other types of controls and so on. But our advice in those situations would be limited more to areas where we have a particular expertise and would not be in terms of policies or future orientation of the organization. Those are policy decisions in which we would not be involved. For instance, if the NAC decided to embark on a fundraising campaign, that's a policy decision, and we would not be involved in providing advice on that kind of thing in any way.

Mr. Ted McWhinney: As a technical expert, of course you would primarily be directing yourself to the past record, the empirical record, and drawing your conclusions from that. But at a certain point you might have the issue, is this particular project realistic in relation to the community resources, and are they available for the next year? Was that raised at any stage?

Mr. Denis Desautels: Well, that can happen. In fact, it did happen in this special examination. As we pointed out in our report, we looked at some of the forecasts, for instance, both in terms of development projects and in terms of the summer festival, and based on our knowledge of past performances and so on, we were able to comment on the reasonableness of the forecast. In that aspect, there was a bit of future orientation in the work we were carrying out.

Mr. Ted McWhinney:

[Editor's Note: Inaudible] ...company might get, as to whether to mount seven opera productions a year with so many visiting singers, that sort of thing? Would that have come in at all, or is that well beyond your mandate?

Mr. Denis Desautels: That would be beyond our mandate. I think we would simply limit ourselves to questioning the basis for the revenue and expenditure projections made by management on certain scenarios. We would not necessarily offer advice. We would not offer advice such as “You're not doing the right kind of programming” or “You're doing too much of this or that”.

Mr. Ted McWhinney: On the issue Mr. Godfrey raised, the appointment of the directors, you perhaps have a suspicion that too much of a trust for salvation is placed on the present trustees. Would that be within your mandate, advising as to criteria for appointments?

Mr. Denis Desautels: I guess we could be of some assistance, but it's not within our prime responsibility.

Mr. Ted McWhinney: I understand that.

Mr. Denis Desautels: But it's a basic principle that we would encourage the board to pursue, that the chair and the board members would define in the crown corporation the profile that we wish the board members to—

Mr. Ted McWhinney: I have just one last question, which relates to all this. Would it be, for example, within your mandate, assuming your advice was sought on this basis, to maintain some sort of continuing relationship with a body like the National Arts Centre, giving advice while changes were being made up? It happens very often with people who are in more of a private function than you are, with regional opera companies or regional arts companies. Is that within your mandate?

Mr. Denis Desautels: Within reason, using our own judgment, we would of course be quite happy to provide a certain reaction, even advice, on particular things. But we have to make sure that with this organization or any organization we maintain a certain arm's-length relationship, that we don't become part of the management process of the organization.

Mr. Ted McWhinney: Yes, that's right.

Mr. Denis Desautels: We have to be sufficiently independent from the management of the organization in order to properly play our role as your auditor.

Mr. Ted McWhinney: At a certain point in the giving of advice a certain fiduciary relationship emerges. Even if it's not a legal fiduciary relationship, you recognize that.

Mr. Denis Desautels: We have a very good appreciation or understanding of this organization, having been involved in its audit for a number of years, and our people who have been involved in it have had good continuity. So it's easy for us to provide some quick advice on a systems change or on an accounting issue or whatever. Within reason, that can happen. That should go on on a regular basis.

• 1655

Mr. Ted McWhinney: It might be rather nice to have it continue.

Thank you.

[Translation]

The Chairman: Mr. Desautels, before you leave, I would like you to clear a few things up. I thought that the Financial Administration Act did not provide for you to take on special mandates, although you do carry out an annual audit of the National Arts Centre.

Mr. Denis Desautels: Mr. Chairman, of course we carry out an annual audit, and even though the act does not oblige the Centre to request one from us, it also asks us to carry out the special examination.

The Chairman: Yes, I understand. You have done that on three occasions.

Mr. Denis Desautels: We reported on that in June.

The Chairman: Fine. I understand.

Since you do the annual audit as well as the reports it asks you to carry out every five years, you have become very familiar with the centre.

Ms. Bulte wanted to know what sets the National Arts Centre apart from other organizations working in the arts, where there are always conflicts between the board and... Would you say that that goes much further? The NAC has had five CEOs in seven years. Is that a record among the institutions that you have reviewed?

Ms. Suzanne Tremblay: For the Guinness book of records?

The Chairman: No, not necessarily, but a record among the institutions that you audit regularly.

Mr. Denis Desautels: If I compare the NAC to other Crown corporations or the museums, yes, I must say that it is out of the ordinary.

The Chairman: Out of the ordinary.

Mr. Denis Desautels: Yes.

The Chairman: You have tried to identify many of the causes for this malaise, including a lack of strategic direction. In your report, you were saying that despite your recommendations, the Centre had not respected the mandate it was given by Parliament in terms of a much more active relationship with the Canada Council, which could have helped the Centre promote the performing arts throughout all of Canada.

When an institution does not follow your recommendations, which at the outset seem to me to be so logical, doesn't that show that it's being led by

[English]

the wrong CEOs, or the complete lack of understanding between the CEOs and the board, or micro-management by the board? Where is the problem, in reality, in the field? Let's say the relationship between the Canada Council and the arts, which you have recommended to them as part of the strategic direction, and the centre...and they just don't do it. Why don't they do it?

Mr. Denis Desautels: I think it boils down to two or three issues, as we've discussed today. I think lack of continuity in leadership has been an issue that makes it difficult for any organization to consistently move in a certain direction and fully carry out a particular plan. There have been in a sense too many false starts, and that has been detrimental.

The other fundamental issue has been the difficult communications and relationships between the board and CEOs, which has made it virtually...I guess it's made it difficult to be an effective organization.

On the more specific issue of the relationship with the Canada Council, I think that's another fundamental issue that needs to be pushed and explored, because I don't think over the years the heart of the National Arts Centre was really in that one. I don't think they really felt very enthusiastic about that part. I could be a little wrong, but that's an impression I offer quite candidly. It's in their act, and I think it needs to be reviewed or discussed seriously.

The Chairman: I have one last question. In reply to one of my colleagues—I think it was Mr. Bélanger—you suggested to us, in looking for constructive ideas, because tomorrow we've got to see the centre, so that we can see how we can perhaps make some kind of contribution to this, that maybe there should be better identification of the roles of board members ahead of time so that we can fit the right people into the right slots by identifying what kinds of slots there should be in the first place, and secondly, better relations with the Canada Council.

• 1700

Can you suggest anything else that we as legislators, as members of Parliament, as watchdogs, could suggest?

Mr. Denis Desautels: Another suggestion I think I alluded to earlier that could be passed onto the NAC would be this balance between the artistic direction and the management of the organization. I believe that can be achieved. It's a challenge, but I think it has to be kept in mind. How do you make sure they're in step, that one doesn't get neglected because of the other one? I think that would be another suggestion, another area that would be worth pursuing.

[Translation]

The Chairman: Mr. Desautels, Mr. Flageole and Ms. Moreau, thank you very much. Your remarks have been very helpful to us, and now we are well prepared for tomorrow's meeting. Thank you very much for coming and for making yourselves available to us.

The meeting is adjourned.