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
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.