Smith’s pension fund bailed out firm he chairs
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.