by Elaine Dewar
The resolution mentioned that a summary of the terms of the gift had been given to the Business Board the week before and approved. It also gave the Council’s permission for the University’s President to sign an undertaking with the federal government in order to close the deal. Specifically, this undertaking was to be given to “the Director of Investigations, Investment Canada” but there were no details about what it entailed.158
So, I looked up the Business Board’s minutes thinking the summary might be there. It was not. The terms of the gift had been discussed at an in camera portion of the meeting of June 22. The minutes of the next meeting of the Business Board, held the following October, referred to a question put to a university official, Michael Finlayson, then head of Human Resources. Would University of Toronto students be able to serve as interns at McClelland & Stewart, someone wanted to know. Finlayson had answered that the company was to be run as a business completely independent of the University. As I read those minutes, I found myself wondering: how could the University control a company run completely independently?
I turned to the university’s annual financial statements. I thought that the value of the gift—75% of the shares of a company that published about 100 books in 2000—would likely be recorded there, if only in a footnote. And I thought the same would be true for the sale of those shares in 2011.
There was nothing recorded regarding the value of the gift of M&S shares in the 2000 report. I looked at the report for 2011. There were several categories under which earnings from the sale of those shares to Random House might have been listed, but there was no specific reference to the transaction, no footnote, no endnote. Maybe it was included in 2010, I thought. Or 2012? No. Nothing in those reports either.
So I sent an email to David Curtin, the Director of Communications in the office of Meric Gertler, President of University of Toronto. I also called and left a voice mail. Curtin responded that he had no knowledge of these events and so my request had been handed to a person named Althea Blackburn-Evans.
While I waited for Blackburn-Evans to respond, I asked a few knowledgeable friends about how gifts of a private company’s shares are normally handled by charities such as the U of T’s Governing Council. (These were not formal interviews, so I am not entitled to give you their names.) One friend, a lawyer with extensive experience as a donor and a board member in the charitable sector, was surprised to hear that the gift of the shares of a private company had been accepted by University of Toronto back in 2000. Due to the difficulty of establishing the value of a private company’s shares, he didn’t think such a gift was allowed at that time.
Well it happened, I said to him, are you sure it wasn’t allowed?
He was sort of sure.
I called another lawyer who I’ve known for a great many years. He is very experienced in the ins and outs of donations made to charities, especially universities, having worked for over a decade at a large Canadian university to bring in large gifts.
He said that while it was definitely legal to donate the shares of a private company to a registered charity and get a tax receipt, it was rarely done. We almost never accepted gifts like that, he said. Too damned expensive, he said.
What do you mean, expensive?
Well you have to get one or two different opinions on share value from professional business evaluators, he replied. It can take months for them to go through the company with a fine tooth comb, and it costs a lot of money, and usually it just isn’t worth it.
You’re sure?
He was sure.
Oddly, the news stories about Bennett’s gift had not mentioned such concerns. Yet if these knowledgeable friends were correct, at minimum this gift of shares to the University was very unusual. Valuation seemed to be the big problem, so I thought I’d better focus on that. How had it been done? Surely there was some place where the value of the gift had been recorded.
Usually universities are happy to publish the names of their big donors and the size of their gifts because it encourages others to give more. The gift of M&S shares was not anonymous: Avie Bennett had participated in a press conference to announce it and explain it. Yet no matter how I searched, I could find nothing in writing in Governing Council documents or the financial statements on the value of the M&S shares. I did find resolutions of the Governing Council appointing people to the board of M&S, and resolutions regarding the University’s indemnification of these appointees against all manner of possible legal difficulties. I found a hint that the value of the shares was high in the minutes of the October 2, 2000 meeting of the Business Board. The total gifts and pledges to the University in sums greater than over $250,000 between May 1 and July 31, 2000, had been a great deal higher than normal. The man then in charge of big gifts, Jon Dellandrea, the University’s Vice-President and Chief Development Officer, explained to the Board that the average total of gifts per quarter was between $7 and $10 million, but between May and July 31, the total had soared to $83 million. Dr. Dellandrea had been duly congratulated.159
Had the value of the M&S shares pumped up that number? Or had there been a whole lot of big gifts to honour Robert Prichard as he took his leave from the Presidency? Prichard had presided over a massive increase in donations to the University’s endowment, raising a total of about $1.4 billion during the 10 years he was in office, a blistering track record.
Look up Dellandrea, I thought. He’ll know what happened. He was so successful at raising money for U of T that he had been hired in 2008 by Oxford University in the UK to launch their $2.5 billion fundraising campaign.160 I found him working his magic for Sunnybrook Foundation. I wrote an email, left a voice mail.
No response.
A reporter working on a story doesn’t proceed sequentially, waiting for one set of questions to produce answers before proceeding to the next. We cast out our lines in various directions all at once. As I delved into the University’s records, I also asked for information from both the federal and provincial governments about the grants they give to Canadian publishers. I started with the Department of Canadian Heritage and the Canada Council. Both the Department and the Canada Council make various kinds of grants to publishers, everything from support for interns, to grants for nominated authors to attend the Governor General’s Awards, to export and translation grants. The Department hands out $39.5 million a year to 235 Canadian publishers, and the Council gives about $19 million.161 Oddly, the Canada Council has a softer definition of Canadian ownership and control for grant-making purposes than the Department of Canadian Heritage. Heritage requires that recipients of its publishing support and publishing business support grants must be 75% Canadian owned and 75% controlled. To get Canada Council grants, a Canadian publisher must only “have its head office in Canada, maintain editorial control in Canada and be at least 75% Canadian owned.” Editorial control is not the same as control as defined in the Investment Canada Act. When I asked a Council official what editorial control means, I was told it means that “acquisition decisions and editorial processes are controlled by the publisher.”162 I could see from the list of grantees on the Canada Council website that McClelland & Stewart, Tundra, and Macfarlane, Walter & Ross, had all received annual Block Grants, as well as grants for author promotion tours, etc. Macfarlane, Walter & Ross was closed down in 2003. But M&S and Tundra continued to be awarded grants until the University sold its shares to Random House in 2011.
I also asked for information about grants from the Ontario government. In 2005, Ontario began to issue Book Fund grants to publishers. It also certifies tax credits (with a cap of $30,000 per eligible book, only Canadian authored books eligible) through the Ontario Media Development Corporation. As well, it gives small grants to publishers through its Arts Council. Only Canadian-owned and controlled publishers qualify. However, the OMDC definition of control is rooted in section 26 of the Investment Canada Act which assumes that control lies with ownership of
the majority of voting shares, though it also requires “control in fact,” not just control on paper. Yet an Ontario publisher applying for a tax credit is also defined as Canadian according to the rules of the Income Tax Act—to be a Canadian publisher hoping for a tax credit, only 51% of the company’s shares must be owned by Canadians.
I did a rough total of grants given to M&S and Tundra from the Canada Council’s Block Grant and the OMDC Book Fund between 2001 and 2011. The Canada Council gave Block Grants to M&S and Tundra that totalled $1 million between 2001 and 2006, and $1,595,300 more for the period 2006 through 2011, for a grand total of $2,635,000. I had to appeal to an information officer at the OMDC to find out how much each Book Fund recipient was given as these figures are not available on the website. Ontario’s Book Fund gave $547,046 to M&S and Tundra from 2006 to the end of 2011. Combined, the Canada Council Block Grants and the OMDC Book Fund grants came to well over $3 million. A rough total of author promotion grants to M&S and Tundra from the Canada Council came to another $100,000. I didn’t bother with the Ontario Arts Council because its grants are tiny by comparison. It took a while, but eventually I got a list of Heritage Canada’s grants to M&S and Tundra (with the help of an official and a new policy requiring it to make public its grants and contracts over $25,000). I wanted the totals for each year beginning in 2000. What I got was the amount given to M&S and Tundra between the third quarter of 2006 and the third quarter of 2011: in that period, Canadian Heritage gave M&S and Tundra $3,519,537.163 Remember: Canadian Heritage has the strictest requirement for eligibility, grantees must be 75% Canadian owned and controlled. The grand total from both levels of government came to close to $7 million and that did not include tax credits, which are secret.
So my informant had been correct: M&S had garnered millions in grants after Random House began to manage it. M&S was entitled to the grants it got from the Canada Council, regardless of whether or not Random House controlled it. But when it came to the OMDC’s grants and tax credit certificates, the entitlement was less clear. As for the Heritage Canada grants, the largest by far, if Random House had control-in-fact, M&S’s entitlement was not clear at all.
Though press stories at the time of the gift mentioned that Bennett had received approval for the transaction from Ottawa, I could find nothing on the Canadian Heritage website to show that the Canadian Heritage Minister, Sheila Copps, had reviewed the gift/sale and approved it. I did find notice of Heritage Minister James Moore’s decision to allow the sale of the University’s shares to Random House in 2011.164 But I could find no mention of the undertakings given by Random House which caused the Minister to conclude the sale was of net benefit to Canada.
So I inquired about those undertakings. I was informed by Harold Boies, the official in the Department of Canadian Heritage who presides over these matters, that undertakings are confidential—unless the company making the acquisition chooses to publish them. This confidentiality requirement means it is not possible for anyone outside government to track whether or not foreign investors are living up to the promises they’ve made, or, if the government enforces them.
So my informant was right about that, too.
I found Sheila Copps thanks to Google. She has a website. When I sent her an email she answered quickly. She was the Minister of Canadian Heritage from 1997 until she decided to run for the Liberal leadership in 2003. She published her second memoir with McClelland & Stewart in 2004. As an M&S author, I thought she’d surely remember if permission had been sought from her to do this gift/sale, not that I could figure out why anyone would have needed her permission. Besides, as Minister of Canadian Heritage in 2000, she had just acquired the responsibility for cultural industries applications under the Investment Canada Act along with a new power to determine whether a company is Canadian for the purposes of the Act.165 If something had come before her, I was sure she’d remember it.
I asked Copps if I could talk to her about the M&S gift/sale to the University of Toronto and Random House of Canada.
“I don’t think it happened under my watch,” she wrote back. “What year?”
The summer of 2000, I said.
She suggested I speak to the man then in charge of book publishing policy in the Department, Allan Clarke. She thought he would know if the Department had made a decision about it. So I contacted Clarke, by then Director General in the Policy wing of the Department of Aboriginal Affairs and Northern Development. He remembered nothing about the M&S gift/sale either, but pointed out there is what is called a Chinese wall between the officials in the Department who handle the Investment Canada Act issues, and everybody else. In other words, secrets were kept even within the Department.
The fact that neither Clarke nor Copps remembered the transaction, though the University’s Governing Council resolution had referred to an undertaking, puzzled me. So I re-read the resolution. It said that the President and/or the Secretary of the Governing Council had been authorized to execute instruments to affect the transaction, including “an undertaking by the University of Toronto in favour of the Director of Investigations, Investment Canada.” (italics mine)
Aha! I thought, the University of Toronto, not Bennett, had made some sort of pilgrimage to Investment Canada. But why? Responsibility for vetting foreign investments in Canadian publishing companies resided with Heritage Canada, and this transaction involved a Canadian publishing company being handed to a Canadian institution. Why would the University have to give any sort of undertaking to Investment Canada to accept the gift?
I contacted Investment Canada (whose name had changed by then to Industry Canada) for an explanation. I was told, to my amazement, that there is no such person as the Director of Investigations, Investment Canada and there had been no such official in 2000. Further, there was no undertaking by the University of Toronto relating to the gift of McClelland & Stewart shares found in the records of the Department. And yes, they double checked.166
Finally, Althea Blackburn-Evans, Director, Media Relations at the University of Toronto, got in touch. I explained that I had tried but failed to find a record of the sale of the M&S shares to Random House of Canada in the University’s financial reports. Could she tell me where to look?
You won’t find it in the annual report, she said. It was just a transfer of the shares. I only have the Random House [press] release, she said.
A transfer of shares? What does that mean? I asked.
She said there were huge financial issues.
Well okay, but what did you sell the shares for? Isn’t every asset sale included in the University’s annual report?
You won’t find anything in the annual report, she reiterated.
She asked me to write her an email describing what I wanted to know. As I explained what I was interested in, she began to complain about how much time it would take to answer my questions. It was all in archives, people involved had left the University years ago, could I please specify who I am, and who I’m writing for.
So I wrote an email to her explaining I intended to publish what I learned on my blog or in a magazine, that I have been a journalist and non-fiction author for many years and she could look me up if she was worried about wasting the University’s time. Then I asked the obvious questions. How did U of T value the M&S shares when they were first received by the Governing Council? What was the size of the tax credit receipt issued by University of Toronto? What voting rights were attached to University of Toronto’s shares of M&S? I asked for a complete list of those who’d served on the board of M&S representing the University. I also asked again for the price paid for the University’s shares by Random House in 2011.
But even as I typed the email, I remembered she’d said the shares were “transferred.” That implied that no money had changed hands when the U of T’s shares became Random House’s. But how could that be? Surely a company with a backlist like M&S’s must have been worth a considerable amount
of money even if it had fallen on hard times.
It took almost a month before a short reply from Blackburn-Evans appeared in my inbox:
Apologies for the delay.
The University of Toronto is proud to have acted as a steward of McLelland [sic] & Stewart during a difficult time for the publishing industry as a whole.
We can confirm that we accepted 75% of McClelland & Stewart on July 1, 2000, and transferred our shares to Random House on January 10, 2012.
The University did not receive any financial compensation when the shares were transferred to Random House, given that Random House provided all of the financial support for period during which we held the shares.
As the shares were in a privately-held company, the university is not offering any specific details about them. The university used its ownership position to ensure the stewardship of the cultural heritage, but did not provide any financial support.
That was a stunning piece of news. “The Canadian Publishers” had passed from the hands of its steward to Random House for nothing! I couldn’t understand it. The backlist would surely have been worth millions even if the company carried a load of debt, if that’s what she meant by “financial support.” And why was it under a load of debt when at minimum $7 million in grants and goodness knows how much in tax credits had flowed into M&S’s coffers?
