Smith’s pen­sion fund bailed out firm he chairs

The Hamilton Spectator - - FRONT PAGE - JOANNA FRKETICH The Hamil­ton Spec­ta­tor

Hospi­tal CEO Kevin Smith is a mem­ber of the pen­sion fund that gave a $2bil­lion high-in­ter­est bailout to the strug­gling mort­gage com­pany he chairs.

Smith re­signed as a direc­tor of the board at the Health­care of On­tario Pen­sion Plan (HOOPP) af­ter it was an­nounced the fund would give Home Cap­i­tal a line of credit with a 22.5 per cent in­ter­est rate on the first $1 bil­lion bor­rowed. But Smith, as the CEO of St. Joseph’s Health Sys­tem and Ni­a­gara Health Sys­tem, has a HOOPP pen­sion. Last year, Smith earned $726,315 in salary and tax­able ben­e­fits.

“It adds to the bucket list of po­ten­tial con­flicts,” said Richard Leblanc, as­so­ciate pro­fes­sor of law, gov­er­nance and ethics at York Univer­sity.

“It raises the very le­git­i­mate ques­tion of self-in­ter­est and a po­ten­tial con­flict of in­ter­est.”

On the Home Cap­i­tal side, Smith is chair of the board of Canada’s largest al­ter­na­tive mort­gage lender, mak­ing $357,500 in 2016, an amount that was paid in de­ferred share units.

Smith’s stocks were val­ued at nearly $1.6 mil­lion in De­cem­ber be­fore the On­tario Se­cu­ri­ties Com­mis­sion al­leged in April that three ex­ec­u­tives mis­led in­vestors. Smith has not been ac­cused of any wrong­do­ing.

The in­ves­ti­ga­tion trig­gered a run on the bank with $1 bil­lion in with­drawals in one week alone. Stock plum­meted and Smith’s shares are now worth just over $300,000.

“When I took on the role of Home chair, the com­pany was in nor­mal course op­er­a­tions and the de­mands of be­ing on the Home board, ful­fill­ing my role as CEO of St. Joseph’s and other re­spon­si­bil­i­ties were very man­age­able,” Smith in a state­ment to The Spec­ta­tor.

“To­day, clearly, things are dif­fer­ent at Home, given the sit­u­a­tion, and as an elected rep­re­sen­ta­tive of the share­hold­ers it’s my re­spon­si­bil­ity to be part of the so­lu­tion. How­ever in so do­ing, at all times I have fulfilled my re­spon­si­bil­i­ties as CEO of St. Joseph’s, and worked very hard to prop­erly bal­ance the de­mands on my time.”

Smith did not ad­dress ques­tions about po­ten­tial con­flicts.

“My gut feel­ing is that he’s not get­ting any per­sonal gains out of this whole ar­range­ment,” said Hari Pan­day, ad­junct pro­fes­sor of cor­po­rate gov­er­nance at York and CEO of in­vest­ment bank­ing firm PanVest Cap­i­tal. “His pen­sion is part of a big group pen­sion plan that HOOPP is man­ag­ing.”

McMaster Univer­sity business ex­pert Marvin Ry­der says the shares are more of an is­sue than the pen­sion.

“I think the ‘big­ger’ con­flict is the ben­e­fit of the loan to Home Cap­i­tal and thus main­tain­ing the value of his shares,” Ry­der said.

“The re­verse — the loan gen­er­at­ing rev­enue, which could better al­low HOOPP to pay pen­sion ben­e­fits — is a smaller con­flict of in­ter­est.”

The pen­sion fund has about $70 bil­lion in as­sets al­ready.

“Kevin will not get a big­ger pen­sion if the plan be­comes ‘over full’ of cash,” said Ry­der.

Both HOOPP and Home Cap­i­tal have said Smith wasn’t in­volved in de­ci­sions to give or re­ceive the cash.

He was one of the eight trustees on the HOOPP board ap­pointed by the On­tario Hospi­tal As­so­ci­a­tion be­fore re­sign­ing.

The other eight are hospi­tal union lead­ers and ne­go­tia­tors. The On­tario Nurses’ As­so­ci­a­tion, the Cana­dian Union of Pub­lic Em­ploy­ees, the On­tario Pub­lic Ser­vice Em­ploy­ees Union and the Ser­vice Em­ploy­ees International Union each get two spots on the board.

Pen­sion plan CEO Jim Keo­hane said the board was not con­sulted about the line of credit de­spite “the in­vest­ment and man­age­ment of the as­sets of the fund” be­ing listed as its pri­mary duty.

“The sit­u­a­tion with Home Cap­i­tal group is quite dire,” said Leblanc. “A de­ci­sion like this should have had board ap­proval.”

Keo­hane him­self was on the Home Cap­i­tal board and re­signed af­ter the deal was made, say­ing he didn’t take part in the dis­cus­sions.

“It’s a re­ally grey space,” said Jo­hanna West­star, as­so­ciate pro­fes­sor of in­dus­trial re­la­tions at Western Univer­sity. “I think that lots of peo­ple know each other and they try to keep their var­i­ous roles as sep­a­rate as they need to be.”

Con­ser­va­tive fi­nance critic Vic Fedeli brought up the deal in the On­tario leg­is­la­ture for the fourth day in a row.

“Where’s the over­sight?” he asked Thurs­day. “Is an in­ves­ti­ga­tion into this per­ceived con­flict of in­ter­est un­der­way?”

Fedeli has taken aim at Smith, ask­ing how he has the time to chair the board of the floun­der­ing mort­gage com­pany.

Smith’s state­ment said: “It is im­por­tant to note that be­ing an in­de­pen­dent direc­tor is not a ‘job.’ As an in­de­pen­dent, one serves to gov­ern and pro­vide over­sight, keep­ing ap­pro­pri­ate dis­tance from the op­er­a­tions of the com­pany.”

Min­is­ter of Health Dr. Eric Hoskins says it’s up to St. Joseph’s to de­cide if Smith can chair the Home Cap­i­tal Board.

“Hos­pi­tals are in­de­pen­dent cor­po­ra­tions run by their own boards of di­rec­tors,” said Hoskins in a state­ment to The Spec­ta­tor.

“I’m con­fi­dent that our hos­pi­tals, in­clud­ing St. Joseph’s Health Sys­tem in Hamil­ton, are run by ded­i­cated teams who are com­mit­ted to achiev­ing the best pos­si­ble health out­comes for the mem­bers of their com­mu­ni­ties.”

St. Joseph’s said in a state­ment Mon­day its board sup­ports Smith’s role at the Toronto-based lender and the work is done dur­ing his six weeks of hol­i­days a year.

The On­tario Se­cu­ri­ties Com­mis­sion’s hear­ing into Home Cap­i­tal has been put over to June 2.

Kevin Smith: ‘Worked very hard to prop­erly bal­ance de­mands’ on his time.

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