St. Joe’s CEO Smith had shares worth $1.6M in Home Cap­i­tal

Is­sue of con­flict of in­ter­est by ex­ec­u­tives be­ing high­lighted in case; raised in On­tario leg­is­la­ture

The Hamilton Spectator - - FRONT PAGE - JOANNA FRKETICH

Hospi­tal CEO Kevin Smith had shares worth nearly $1.6 mil­lion in the mort­gage com­pany he chairs be­fore stocks plum­meted in April amid al­le­ga­tions se­nior ex­ec­u­tives mis­led in­vestors.

The value of his Home Cap­i­tal shares had dropped to roughly $360,000 when a health pen­sion fund he was on the board of bailed out the strug­gling com­pany with a $2 bil­lion line of credit. The cash in­fu­sion from the Health­care of On­tario Pen­sion Plan (HOOPP) came with a 22.5 per cent in­ter­est rate on the first $1 bil­lion bor­rowed.

“He should not have been on both boards,” said Richard Le­blanc, as­so­ci­ate pro­fes­sor of law, gov­er­nance and ethics, at York Univer­sity. “It’s a clear con­flict.”

Smith re­signed from the HOOPP board af­ter the deal was an­nounced Thurs­day.

He re­mains chair of Home Cap­i­tal’s board, mak­ing $357,500 in 2016 which was paid en­tirely in de­ferred share units.

His $1.6 mil­lion worth of shares in De­cem­ber was at least three times higher than other board mem­bers who had stock rang­ing from $76,000 to $454,681.

“When you start hit­ting $1.5 mil­lion then it is en­tirely ap­pro­pri­ate to raise the ques­tion of whether your in­vest­ment is com­pro­mis­ing your fidu­ciary duty,” said Le­blanc. “That is a large amount of money for any di­rec­tor … It’s not nec­es­sar­ily a con­flict but cer­tainly ques­tions should be asked.”

McMaster Univer­sity busi­ness as­sis­tant pro­fes­sor Marvin Ry­der dis­agrees, say­ing Smith’s 50,260 shares are small com­pared to Home Cap­i­tal’s worth.

Pre­mier Kath­leen Wynne was ques­tioned Mon­day on the ethics of the bail out by Con­ser­va­tive Fi­nance critic MPP Vic­tor Fedeli in the leg­is­la­ture.

He asked if it is “right for the ex­ec­u­tives of a lender to also be mak­ing de­ci­sions as a bor­rower?”

Smith de­clined com­ment Mon­day said Home Cap­i­tal spokesper­son Boyd Er­man. He says the CEO of St. Joseph’s Health Sys­tem and the Ni­a­gara Health Sys­tem did not vote on the cash in­fu­sion at Home Cap­i­tal.

Smith also did not vote at HOOPP’s end as the board was not in­volved in the in­vest­ment de­ci­sion, said pen­sion plan CEO Jim Keo­hane.

Keo­hane him­self was a Home Cap­i­tal di­rec­tor at the time of the deal, mak­ing just over $64,000 in 2016 which was paid in de­ferred share units. His to­tal shares were worth nearly $76,000 in De­cem­ber.

He says he did not vote on the deal and re­signed from the Home Cap­i­tal board af­ter the bailout was an­nounced.

“That cer­tainly doesn’t give good op­tics,” said Hari Pan­day, ad­junct pro­fes­sor of cor­po­rate gov­er­nance at York Univer­sity and CEO of in­vest­ment bank­ing firm PanVest Cap­i­tal. “When you have these cross mem­ber­ships in boards you have to ques­tion what is hap­pen­ing there. It’s not very com­mon.”

Pan­day says even if both Keo­hane and Smith didn’t vote on the deal there is still con­cern about “soft in­flu­ence.”

“The CEO of HOOPP claims he walled him­self off from the deal but I query whether the deal would have oc­curred had these two in­ter­locks not ex­isted,” said Le­blanc. “If you are Home Cap­i­tal Group did you shop this deal around? Did you have other con­sor­tiums that were bid­ding on it?”

Both Pan­day and Le­blanc ques­tion what they see as a po­ten­tially high risk deal.

“HOOPP now has loaned $2 bil­lion to a fi­nan­cial in­sti­tu­tion that is de­clin­ing by the hour,” said Le­Blanc. “It’s a 10 to 20 per cent in­ter­est rate. Is that some­thing that is good for Home Cap­i­tal?”

Smith has been a di­rec­tor at the mort­gage com­pany since 2007. St. Joseph’s Health Sys­tem said in a state­ment that it was aware and sup­port­ive of the po­si­tion.

“It’s stan­dard prac­tice for CEOs to take up lead­er­ship roles in other or­ga­ni­za­tions,” said the state­ment. “In the case of Home Cap­i­tal, the days re­quired to do this were taken as va­ca­tion days.”

Ni­a­gara Health Sys­tem says it has a man­age­ment ser­vices agree­ment with St. Joseph’s, so its ap­proval is not re­quired for Smith to sit on other boards.

“We have been very pleased with the per­for­mance out­comes re­sult­ing from this agree­ment,” says the state­ment.

Smith was paid $726,315 in salary and tax­able ben­e­fits in 2016 as CEO of the hospi­tals.

He is also cur­rently chair of the board of the Canada Foun­da­tion for In­no­va­tion. The mort­gage com­pany is not his first ex­pe­ri­ence with pri­vate busi­ness. He was di­rec­tor of Glen­dale In­ter­na­tional Corp., which man­u­fac­tured and sold recre­ational ve­hi­cles. Smith re­signed from the board in April 2009 and the com­pany filed for bank­ruptcy in Jan­uary, 2010.

Hospi­tal CEO Kevin Smith

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