“Much ado about nothing”- ‘Bolton Report’


This is a story about a government announcement in the early days of the Prentice administration that I took very seriously. (As it turns out I shouldn’t have.)  Since the Report arising from the announcement was never released, I undertook to bring it to the light of day through the access to information process. It took ten months.

The tale below summarizes the background to the announcement; the enjoyable and lengthy process to receive a copy of the Report; and summary of the report; and my comments on the contents of the Report and recommendations  An earlier column can be found at The Bolton Committee.


On 25 September 2014, the late Premier Jim Prentice issued a press statement that the government would begin a review of all agencies, boards, and commissions “to ensure they are performing for Albertans.”  Fifty-two agencies reporting directly to the government and 142 other agencies covered by the Alberta Public Agencies Governance Act were to be reviewed. The review’s terms of reference were the examination of: (1) governance; (2) director appointment processes; (3) president/CEO assessment processes and succession planning; (4) risk management strategies; and (5) conflict-of-interest policies. Prentice stressed his government was committed to “strong public agency board governance, accountability and transparency.”  The press release also included the observation that “Under my leadership, your government will ensure the best Albertan for the job is appointed. Political party affiliation is not a relevant consideration.

The then Premier announced that Hugh Bolton, Chair of Capital Power and erstwhile director of CNR and TD Financial group,  would chair a panel to examine the provincial government’s largest “financial institutions”: ATB Financial (ATB); the Alberta Investment Management Corporation (AIMCo); Agriculture Financial Services Corporation(AFSC); and the Alberta Capital Finance Authority (ACFA). The government expected the report within two months or by the end of 2015.  Also appointed to the panel was Linda Hohol, a director of Canadian Western Bank, a former director of ATB and Alberta Health Services, past President of the TSX Venture, and former Executive Vice-President at CIBC. The third member was Larry Pollock, the former President of Canadian Western Bank (CWB) and a director of EPCOR and Westjet. In selecting these three, Prentice had chosen persons with a deep knowledge of banking, finance and close ties to the Canadian and Alberta corporate establishments.    All three members of the panel accepted $1 for this significant assignment. Since Hobol and Pollock were conflicted on ATB, given their CWB ties, only Bolton conducted the review of ATB.

Based on brief conversations with the three panelists, I was able to determine a report was delivered at the end of February 2015. The report was never publicly released- until now.

Why the review?

The announcement came as a surprise to public sector watchers for two reasons.  Firstly, the question of provincial agency governance did not appear in the five priorities identified by Prentice during his 2014 leadership campaign. Secondly, a review of Board governance at provincial agencies, boards and commissions (ABCs), had been undertaken and completed in 2007. The final report was entitled At the Crossroads. (This was the same title chosen by the Royalty Review committee appointed in 2015 and led by Dave Mowat, President and CEO of ATB Financial.)     That committee was chaired by Neil McCrank, the former Deputy Attorney General, Allan Tupper, a respected political scientist from the University of British Columbia and Linda Hohol.  The final report, completed in October 2007, looked at inter alia: classification of ABCs; roles, responsibilities and accountability of ABCs; and appointment, evaluation and remuneration of CEOs and board members.  What was surprising is the overlap between the mandates of two committees appointed within a relatively short timeframe.

Evidently there had to be some concerns within Prentice’s inner circle about the quality of corporate governance in some of these ABCs.  Below we will see what the Bolton Committee found out about the four institutions they were asked to inquire into. The reason for asking the Committee to report within two months was also intriguing. These organizations- particularly ATB and AIMCo, are extraordinarily complex with very complex information technology systems managing over $100 billion in financial assets and liabilities.  These financial assets and liabilities (especially pension liabilities and deposits) must be “matched” to ensure that when depositors want their money back, they can access it or pensioners receive their monthly pensions on time.

Freedom of Information Request (FOIP) (or why did you put me through this process?)

On 9 March 2016, a request was initiated with the Executive Council’s FOIP Co-ordinator to obtain the Bolton Committee report. At the end of May the Executive Council rejected the request since section 24(1) of the Freedom of Information and Protection of Privacy Act gives the government discretion to not release information that is “advice, proposals, recommendations, analyses, or policy options developed by or for a public body or a member of the Executive Council.  No reason was given in the letter for the use of this discretion. 2016-G-0065 – Final Release PackageBolton Report. Therefore just the press release was provided.

On 14 July a request for review was initiated with the Office of the Information and Privacy Commissioner. On 20 September, in a letter to Bob Ascah and Premier Notley, Jill Clayton, the Information and Privacy Commissioner (OIPC) authorized an investigation into the matter. The Commissioner ordered Executive Council to submit redacted and unredacted copies of the record to their offices by 12 October 2016.  The date of the completion of the review was slated for 11 January 2017, or nearly 10 months after the initial FOIP request to Executive Council.  On 8 December, Executive Council again confirmed its earlier decision to withhold the records. A month after receipt of this second rejection, the OIPC advised that its review would take until 22 February to complete.

After the OIPC reviewed the file, the Executive Council sent the draft report noting: “(A)fter conducting a secondary review, under the exercise of discretion, we have determined that additional information is suitable for release. ..However, some of the information in the records will remain subject to section 24 (Advice from Official) and will continue to be withheld under the original FOIP application. OIPC 003709 Mediation – Additional Records  Six pages continue to be withheld suggesting this material is the analysis to the Premier by Executive Council about the Bolton “draft” report. Given the uncontroversial nature of the content (discussed below), it is remarkable why Executive Council failed to release the material during the May-June period when originally asked.

The Draft Report of March 2015

The report on four of the most complex provincial agencies totaled 14 pages including a three page executive summary and a title page. The Report was marked “draft.” There were eight sections addressing:

  • (1) mandate and roles;
  • (2) board member recruitment;
  • (3) Board evaluation;
  • (4) President/CEO compensation, evaluation, and succession planning;
  • (5) risk management;
  • (6) code of conduct and conflict of interest policies and practices;
  • (7) strategic direction; and
  • (8) relationship with the minister.

Given the brevity of the report, there are no specific sections on these four agencies and so the reader is never sure whether recommendations apply to one or all of the agencies (with the exception of a few specific cases noted below). In the following sections, the discussion and recommendations in the Report are summarized followed by a commentary.

Mandate and Role 

The importance of a mandate and roles document, as required under the Alberta Provincial Agencies Governance Act (APAGA), was reviewed with the boards and AIMCo was to complete the document during 2015.  The Panel recommended that these ABCs should meet with the responsible minister on an annual basis to review the document to “ensure it is current and effective.” More significantly, the purpose of each financial mandate (e.g. financial services to farmers) should be reviewed “to determine if the financial services provided to Albertans should be delivered through an arms-length agency or directly by a department.”


The second recommendation is fascinating since it assumes that the financial services offered by these agencies should remain in the public sphere  rather than pursuing the question of whether the Alberta government should be in the deposit-taking business, for example.  Indeed, the announcement did not ask the members to review the mandate and roles document, although mandate could be considered under “board governance.”  Governments, including politicians and senior bureaucrats policy guard their policy mandates. This recommendation perhaps hints at moving the Agriculture Financial Services Corporation (AFSC) or Alberta Capital Finance Authority into a ministry operation or conceivably centralizing agricultural lending by the provincial government under ATB with its large branch network in rural Alberta. Given the AFSC board’s removal last June, it is possible the government may integrate its operations into Agriculture and Forestry or Treasury Board and Finance. ACFA could also be formally integrated into either Municipal Affairs or Treasury Board and Finance,  thereby abolishing the board, and eliminating any conflicts of interest with municipal representatives (discussed in a later section of the report).

Board Member Recruitment

The Report discussed the importance of qualified individuals, the desirability of a “skills matrix,” staggered board terms, and successions-planning. The recommendation which flow are the most prescriptive of the Report. The recommendations placed the onus on the board chair to lead the recruitment process with a ministerial sign-off. “Board appointments should be based on merit and reflect the diversity of Alberta’s population.”  Succession planning should mitigate the risks that board turnover may cause. Boards should be able to recommend only one candidate per vacancy and only provide the name of a second candidate if the minister does not approve the first name.


The authors seem to believe that except for ACFA where city and deputy ministers sit on the board, and are outside the control of a “skills matrix,” the incumbent boards are best suited to oversee the recruitment process because the board will best be able to protect the merit principle. Unfortunately, the panel did not address at all the partisanship question specifically raised in Prentice’s release. Thus the panel failed to complete a key part of its mandate. What has been the situation at AIMCo (2008) and ATB (1996)  over the past decades or two?

At ATB, except for Mike Percy, Paul Haggis, and Robert (Bob) Clark, all appointees with known political affiliations had political connections with the governing party. In the case of Percy and Clark, both individuals served under P.C.  governments:  Percy as Chief of Staff to Premier Jim Prentice, and Clark as Ethics Commissioner to Ralph Klein. In 2014, Haggis donated to Jim Prentice’s leadership campaign. For all intents and purposes all directors with known political affiliations can be said to share similar “conservative” values.

What is striking is that the initial board at ATB had few partisans. This was the result of a deliberate decision taken by then Treasurer Jim Dinning to appoint a committee led by Liberal Louis Desrochers and Dean Michael Maher of the University of Calgary’s business school to select the first board. Commencing in 1999, however, 12 of the next 16 appointments were known Progressive Conservative supporters. Of those four who had not donated money to the Progressive Conservative Association of Alberta, two had served, and would serve, on five or more other provincial agencies or committees. Those individuals, without documented partisan ties, clearly held the trust of the government (Al O’Brien, Art Froehlich).

There appear to be several factors at work to explain the predominance of PCs on ATB’s board. First of all, the process for vetting new directors was undertaken by a committee of the board who would then make recommendations to the Minister. This appears to have relied on the “old boys” network and shows up in a set of appointments of men with backgrounds in agriculture, including the third chair of the board, Robert Splane. Secondly, until term limits were legislated under the Alberta Public Agencies Governance Act, no limits were set and the expectation was that members would be re-appointed for another three-year term without any external, transparent review process other than by the Board Chair and the Governance Committee Chair.

With the publication of the McCrank report and requirements for open advertising, and with a supposedly more rigorous appointments process involving outside expertise, one would expect subsequent appointments to be less partisan. Since 2008, eight of 15 directors have PC connections, including Mike Percy, have governing party credentials.  Joan Hertz, the first appointment under an “open process,” was a lawyer and consultant, who served as secretary to the PCAA. Wayne Wagner, a cement company executive who, or whose company, donated $10,000 to Premier Stelmach’s leadership campaign, was appointed in 2008. Collette Miller, appointed in 2009 from the then Premier’s Vegreville constituency donated $6,308 to the PCAA from 2007 to 2013, through her professional corporation. Bob Carwell, Premier Stelmach’s leadership campaign head, was appointed in 2011.Linda Hohol, a former executive vice-president of CIBC and President of the Alberta Stock Exchange and then the Venture Exchange has also given significant sums to the PCAA and to leadership candidates.

AIMCo’s Alberta board members too had close ties to the PCAA (see “Baby Steps for AIMCo’s board”).  It is therefore odd that the panel did not investigate the degree of partisanship at these agencies.

Board Evaluations

The Report recommends a formal annual evaluation led by the Board Chair and Chairman of the Governance Committee. In addition, an external evaluation should be carried out every three to five years.  Board attendance and remuneration should also be included in the annual reports of the agencies.


Such recommendations have been standard fares for many years and requirements of securities regulators for at least a decade. The report did not deal with disputes between directors nor did it address the question of poor performance of directors. The absence of any hint of problems at AFSC is suggestive of not enough time, mandate scope, or staff assistance to the panel to deliver in-depth, critical analysis, and recommendations.

President/CEO Compensation, Evaluation and Succession Planning

The Panel recommended a “total compensation approach.. using in-class, and similar or like comparators benchmarked against both the public and private sector.” Yearly performance evaluations should be undertaken against performance objectives put in place by the board and “in collaboration with the president/CEO.” The panel also recommended disclosure standards should be the same as private sector competitors and severance payments should be disclosed in the annual report.  In addition, the Human Resources committee of the board should oversee executive succession and compensation.


These recommendations, except for improved disclosure, are consistent with existing practices. The Panel accepted uncritically the arguments of the existing boards that pay must be comparable to private sector “competitors”.  The fact that these public financial institutions are granted a monopoly, as in the case of AIMCo to manage pension funds and the Heritage Fund, suggests more of a public sector wage should be sufficient to attract quality managers.  In the case of AFSC and ATB, these organizations enjoy the provincial credit rating and are given their capital by the government or earned through net income. The leaders of other equally complex organization like the Bank of Canada, the Export Development Corporation, or Business Development Bank are currently not drawing the level of salaries and benefits of executives at AFSC, AIMCo, and ATB.

The current government is partially addressing this imbalance by the introduction and passage of Bill 19 last year. On 24 February, Joe Ceci announced changes to compensation at 23 of Alberta’s ABCs. Such changes are designed to save $16 million and included the elimination of executive bonuses, executive market modifiers, retention bonuses”golf club memberships and housing allowance and benefits like private health care access. In other words the “total compensation approach” was rejected at agencies including AFSC, the Alberta Energy Regulator, and the Alberta Securities Commission.

New Leadership at embattled Alberta agriculture agency28-4-17 EJ

However,  ATB and AIMCo (and the Alberta Teachers Retirement Fund -ATRF) are regarded as a “special case” because, according to the release, the agencies “have direct private sector counterparts, such as banks and investment firms. Their compensation must be designed for the specialized financial market in which they operate, while demonstrating alignment with government’s compensation principles.”  Here again is the uncritical acceptance of the notion of “private competitors” which flies in the face of public ownership and stewardship of agencies granted monopoly status or that have access to the provincial government’s “credit card.” Evidently, golf memberships, retention bonuses, market modifiers, and access to private health care may be ok when “competing for ‘talent’ with the private sector.”  AIMCo, Alberta Health Services, ATRF, and the Alberta Electric System Operator will be required to submit executive compensation plans annually.

[The Bolton Report also inaccurately claimed that the base salary of the CEO of ATB is “set by legislation.”  When the Alberta Treasury Branches Act was proclaimed in October 1997, the salary was established through Order-in-Council and the appointment of the CEO by Order in Council as well on the recommendation of the Board. In 2007 when the current President of ATB was appointed, his base salary was set by Order in Council. However, in 2009, the ATB Board was given final say on base salary subject to any regulations under APAGA.]

Risk Management 

The panel undertook “a substantial review of the risk management practices of each institution.” The Report noted the important role to be played by a risk management committee of the board in establishing policies including “risk tolerance” and delegated authority for the corporation. The Panel members did recognize the backing of the provincial government and, given that support, “the risk management function should be a (sic) rigorous as those found in private institutions.”  Recommendations included: the creation of a Chief Risk Officer and Chief Compliance Officer, a risk committee of the board; an internal audit function that could meet in camera with the risk committee; and a “risk appetite statement.”


Since the Report was structured to speak generally about all four agencies, it is concerning that these very basic principles of risk management may not in place at all institutions. Annual reports disclose that most of these institutions, particularly AIMCo and ATB, have already these functions. A key consideration however, missed by the Panel, was the potential impact of executive compensation structures on risk officers, chief financial officers, and internal audit staff, particularly around the recognition of loan losses or revenue. In other words, is executive compensation for these “control” officers sufficiently different to allow these officers not to be influenced by large pay-days when more prudent provisioning or valuation of investments or loans, are professionally required?

Code of Conduct and Conflict of Interest Policies and Practices

The Report reviewed standard practices respecting the annual sign-off by employees and members of the board. The issue of ACFA board representatives from municipal government that borrow from the ACFA was raised. The report recommended that the ACFA simplify its Code of Conduct but it was unclear whether  current policy requires an affected member to recuse themselves. Other recommendations included that orientation programs for directors be included the Code of Conduct and Conflicts of Interest policies.  Another suggestion was that the Board Chair ask directors whether they have a real or perceived conflict on any agenda item at the beginning of every meeting.


It’s remarkable that orientation programs would not include such a module and unclear which agency is not stressing this aspect of board governance.

Strategic Direction 

The Report recommended that the Board should review and confirm the strategic direction annually and hold management “strictly accountable” for meeting goals set out in the plan.


Oddly, no mention is made whether the Minister should agree to the “strategic direction.” Strategic direction, insofar as it affects the policy mandate of the agency, is a closely guarded prerogative of the Minister.

Relationship with the Minister

According to the Report “(E)ach of the financial institutions made positive comments about its relationship with the minister” while noting the high level of turnover of ministers and deputy ministers. The Report recommended an annual meeting between the CEO, Board Chair and Minister/Deputy Minister or when the Minister of Deputy changes. In addition, a workshop should be held to allow ministers and delegates to “better understand their roles and responsibilities.” Finally the roles and mandate document should state the relationship, interaction and communication desired between board, chair, minister and deputy.


This final section (and the first section of the Report) covers material that was laid out with the passage of APAGA in 2009.  Section 3 of the Act reads:

3(1) Every public agency must, within 3 months of its
establishment or continuation, have a Mandate and Roles
Document that is jointly developed by the public agency and its
responsible Minister and that includes a description of each of the
(a) the public agency’s mandate;
(b) the roles and responsibilities of
(i) the public agency,
(ii) its members,
(iii) its chief executive officer, if any,
(iv) the responsible Minister,
(v) any departments or employees of the Government of
Alberta that provide support or services to the public
agency, and
(vi) any subsidiaries of the public agency,
including roles and responsibilities in respect of recruitment,
orientation and training of members, communication with
the public and evaluation of the public agency’s and its
members’ performance;
(c) the accountability relationships of the public agency,
including its duty to account to the responsible Minister;
(d) the process for administering the public agency’s code of
(e) the public agency’s and the responsible Minister’s mutual
expectations in respect of communication, collaboration and
consultation with each other;
(f) the committee structure of the public agency, if any;
(g) the financial, staffing and administrative arrangements for
the public agency;
(h) the public agency’s planning and reporting requirements;
(i) any other matters specified in the regulations.

(2) A Mandate and Roles Document may be amended at any time
by the public agency and the responsible Minister.

(3) A Mandate and Roles Document and any amendment made to
it must be signed on behalf of the public agency and by the
responsible Minister.
(4) A Mandate and Roles Document must be reviewed and
renewed, amended or replaced within 3 years after the day on
(a) the Mandate and Roles Document, or
(b) the most recent amendment to the Mandate and Roles
Document, was signed.


Governments typically do not make announcements without a reason. After reading the press release and then the Report, one has to ask the question- “what was the problem that Mr. Prentice was seeking advice on?” Apart from recommending processes that were standard corporate fare, already legislatively required, or already being done by these organizations, the only substantive recommendation was for improved disclosure on compensation. This measure for improved compensation disclosure had been previously recommended by the Auditor General in his 2008 and 2009 reports. Nor did the Committee seem interested in touching the partisanship aspects of appointments.

With the Report now in the public domain how should we view board governance, risk management, and executive compensation at these four important agencies? It would appear that apart from some tweaking things are fine. Still, one has to wonder whether the panel members had any inkling of the serious problems at AFSC’s board and executive management that came to light a year later. (See News Release and Report of Alberta’s Chief Internal Auditor .)

For a detailed, unpublished report on Executive Compensation and Board appointments at ATB, AIMCo, the Alberta Securities Commission, and the University of Alberta go to unpublished study at Albertarecessionwatch.com. (Note: Data on salaries and benefits subject to revision.)

Post-mortem on provincial budget

On Thursday 23 March, the Institute for Public Economics will again host a public forum on the provincial budget. This is the eight year that the Institute has invited guest panelists from business, labour, media, academe, and other groups to debate the fiscal policies of the provincial government.  The event will take place at the University of Alberta, H.M. Tory Building, Room B-87 this Thursday at 4:30 p.m. – 6 p.m.  After the panelists speak, there will be a question and answer period.

For a summary of the event click on the link:  Post-mortem 2017

Carbon tax won’t reduce competitiveness, but other policies might22-6-17 EJ

Province needs additional revenue streams-Dodge7-6-17 EJ

Wildrose demands minister’s resignation6-6-17 EJ

Gilt trip- Provinces raise billions by scouring world5-6-17 GM

Alberta outspends Ontario in recession30-5-17 EJ

Alberta needs HST to keep cash, jobs here25-5-17 EJ

Alberta school boards approve two-year deal with teachers25-5-17 EJ

Budget 2017- Opinion


Joe Ceci’s 2017 budget could be characterized as a “steady as she goes” budget. The citizens of Alberta will be paying for this budget, and many previous budgets, with higher taxes and higher debt service costs for years, if not decades, to come. There are many observers who feel the budget was “ok” since programs and capital spending are not disturbed. There are also many Albertans who do not believe using the credit card to support spending is the right way forward.

One half of Mr. Ceci’s address spoke of the capital spending and repair and maintenance undertaken by the Government. Virtually no corner of the province escaped mention:

  • a courthouse for Red Deer
  • a new hospital for South Edmonton
  • Highway construction for Fort Saskatchewan
  • Deerfoot Trail in Calgary and the new Cancer Centre
  • Safe drinking in First Nations’ communities
  • A new bridge for Peace River
  • Affordable seniors homes and lodging in Leduc and Barrhead, Calgary and Londonderry, “from Clairmont to Fort Macleod, from Cold Lake to Canmore.”

Much of the blame for this capital spending on critical infrastructure is due to the previous government, according to the speech. For example.+

“Right now, we are dealing with issues of overcrowding and buildings that have been allowed to fall into disrepair. In some schools, there’s water damage and obsolete heating systems. In others, roofs sag and the cold winter’s wind seeps through aging window frames. When we took office, glaring infrastructure issues in health care needed fixing. …Here’s an example. There’s a bus in Lac La Biche where people have been forced for years to get their dialysis treatment. The bus doesn’t move, which is odd for a bus.The reason this dialysis bus doesn’t move – the wheels have literally come off.”

From an economic point of view, this will provide continuing comfort to the construction sector. But , the Budget speech did not address concerns found in the Economic Outlook portion of the Budget predicting construction to slow over the next couple of years reflecting the completion of major private sector projects (Ice District). To be sure, petrochemical investments subsidized by royalty holidays will support private investment but the halcyon days of oilsands’ megaprojects are gone- and possibly forever.

Reaction to Klein Cuts 

“Some said – and still say – that government should make deep cuts to public services, such as health care and education.Some wanted to implement a health-care tax that would have hurt families who could least afford it. Families would have been forced to pay more and get less, with longer health-care wait lists, overcrowded emergency rooms, much bigger class sizes, and lost jobs.That’s why our government made a different choice.”

As I have written previously, much of the core base of the NDP endured several years of expenditure cuts, including reductions in wages. This experience is deep-seated and informs fiscal policy-making in many ways. The language above is deeply emotive and conjures up a Dickensian decade of  great human tragedy. First, Klein cut salaries by five per cent. Today while management salaries, and political staff salaries are frozen, open collective bargaining continues. Normally when governments are running deficits of the current magnitude, wages are frozen or, in exceptional cases, cut. The budget highlights salary reductions for executives at provincial agencies saving $16 million and a deal with physicians saving $400 million in 2017. That is a good start and may leaven the demands of teachers and nurses.

Secondly, another legacy of the Klein cuts was a reduction in capital spending leading to an “infrastructure deficit.” In spite of the huge ramp up in capital spending during the Stelmach-Redford-Prentice years, there appears to be no shortage of needs in the infrastructure arena. The government was helped in making the case by David Dodge in his September 2015 report. Third, as the Klein government’s fiscal position rapidly changed through improved budgeting, a lower cost base, and rising non-renewable resource revenue, social democrats concluded that the cuts were unnecessary or revenue could have been raised to fill the budget gap. Across the border in Saskatchewan, the NDP government of Roy Romanow had inherited an even worse budgetary position than Klein was bequeathed. The Saskatchewan NDP approach was more balanced however with increased taxes but also tough choices on expenditures,  including the closing of 52 rural hospitals.


In a throwback to PC times, the tax section trumpets the glorious refrain from the Klein as  Alberta’s Tax Advantage.  The famous chart, circa 2017,  is reproduced below.


Most of the difference is the absence of a sales tax in Alberta. Much was made of the fact that low-income Albertans and families pay virtually no tax.  This is justifiably so as social cohesion is strengthened when those who can best afford do pay more in taxes. On the other hand, investor and investment tax credits are being provided to individuals who likely do not need government support to invest or likely would be making these investments anyway.

Happily for smokers and drinkers no increase to sin taxes was added. Nor was the government willing to examine increases in wealth taxes such as probate fees, which are amongst the lowest in the country. As far as the much hated carbon tax is concerned, except for Saskatchewan and Manitoba, gasoline and diesel fuel remain near the bottom of the taxation pole.


Of course underlying apparent desirability of  being the lowest taxed jurisdiction is the fear of touching the Voldemort of Alberta politics- a consumption tax.  If this budget confirms anything, it’s that the three main political parties (NDP, Wildrose, and the PC’s) are not willing to talk about how to replace the oil gusher.

Mayes carton17-3-17 EJ


On the expenditure front, spending continues to creep upwards. Since the debt is growing  faster than other spending ($15.2 billion is to be borrowed this year or 46.5 per cent of the total quantum of debt at the end of March 2017!). Over time debt service costs which  consume more and more of revenue collected. Debt servicing will total $1.4 billion in fiscal 2017-18, rising to about $2.3 billion in 2019-20. By then, this line item will be the fifth largest expense after Health, Education, Advanced Education, and Community and Social Services.

On total public sector compensation, the budget shows an increase of $456 million from current levels or a 1.8 per cent rise. This figure includes compensation for physicians. The salary creep will undoubtedly draw protests from the Opposition who will argue that the Alberta public sector workforce is one of the highest paid in the country and therefore should not be sheltered from the general economic downturn.

Capital spending, on a consolidated basis, will be $9.2 billion including $8.2 billion in core government spending and $1 billion for schools, universities, colleges. and hospitals.Capital spending will remain high at between $7.5 billion to $8 billion in 2018-20.  Included in the Budget for the first time is a long list of unfunded projects.

It’s the Debt, Stupid

By 31 March 2020, the provincial government is estimated to have $42 billion in “liabilities for capital projects.”  As well, another $29 billion in liabilities relating to the Teachers’ Pension Plan funding and “direct borrowing for the fiscal plan” will be added for a total of $71 billion. From an estimated  financial asset position of $3.9 billion at 31 March 2017, the province is expected to have net financial liabilities of nearly -$45 billion by 31 March 2020.  This astounding reversal is similar to the 1985- 1993 period when a $1.2 billion surplus turned into a series of eight straight deficits ranging from a low of $761 million  to a high of $4 billion in 1986-87. Net assets fell from $7.2 billion to a negative $13.4 billion by 1994. The continued over-reliance on non-renewable resource revenue, the inability of past governments to save oil and gas revenue, to restrain spending, combined with an unwillingness to find alternative revenue sources, is reminiscent of this province’s fiscal history in the 1920s and 1930s.

Mayes cartoon24-3-17 EJ


As more citizens become aware of the string of deficits, we might expect them to ask questions about the provincial government’s finances. This is ultimately a good  thing.  The current government is convinced no cutting and no tax increases are the right way to run or stabilize an economy.  In Alberta there seems to be a fiscal pendulum that occurs every generatio or so. The Klein revolution was a reaction to the Lougheed-Getty legacy of province-building and the Notley “revolution” is a reaction to Klein’s decision to attack spending rather than take a more nuanced approach on both revenue and expenditure. Now we have arguably the worse of all possible worlds- no tax increases, no expenditure restraint, and inexorably high deficits. Expect credit downgrades in the next few months.

Below are some of the newspapers’ coverage from the Edmonton Journal and The Globe and Mail on 17 March 2017 and subsequent articles on the Alberta budget..

Teachers vote 78% in favour of deal16-5-17 EJ

Show us the plan to balance the budget13-5-17 EJ

‘Me too’ clause in teachers’ deal28-4-17 EJ

Tax credits would boost digital media sector27-4-17 EJ

Study gives Albert A+ for fiscal reporting27-3-17 EJ

Carbon tax requires trust in government11-4-17 EJ

NDP faces crush of contract talks6-4-17 EJ

Alberta to borrow $2B to cover electricity losses1-4-17 EJ

Notley defends budget as Wall snipes on Twitter28-3-17 EJ

The real price of oil25-3-17 GM

Pick your Poison24-3-17 EJ

Notley blasts Wall- and Wildrose23-3-17 EJ

Can Alberta handle the truth22-3-17 GM

Alberta NDP’s budget has business crowd seeing red21-3-17 GM

Chamber president criticizes budget21-3-17 EJ

Kenney owes a debt of gratitude to Notley18-3-17 GM

Alberta’s growing debt ‘absolutely manageable,’ according to the premier18-3-17 EJ

Union boss calls on Alberta to boost funding for ambulance services18-3-17 EJ

Alberta budget projects six years of deficit17-3-17 GM

Budget pushes Alberta’s debt to $45B17-3-17 EJ

Calgary gets 200-bed long-term care facility, rehab support housing17-3-17 EJ

city’s hospitals get $1B boost17-3-17 EJ

How do we get back to balance17-3-17 EJ

NDP injects $14.5 M into court system to break logjam17-3-17 EJ

NDP leaning heavily on oil and gas recovery17-3-17 EJ

NDP struggles to make ends meet17-3-17 GM

NDP waters down its promises as economy fizzles17-3-17 EJ

Notley’s grand budget gambles17-3-17 GM

Opposition fears rating downgrade as province’s finances deteriorate17-3-17 EJ

Province to roll out grant program for craft distillers17-3-17 EJ

Universities win funding for construction projects17-3-17 EJ

Baby steps at AIMCo board

Three weeks ago an inconspicuous Order-in Council 39/2017 was quietly passed to repeal two sections of the Alberta Investment Management Corporation Regulation. The deletion of sections 5 and 6 are highly significant as the sections assured a measure of independence for the corporation’s management and board from the government. The government’s decision is positive and courageous for the reasons explored below.

What is AIMCo?

AIMCo’s (Alberta Investment Management Corporation) success is very important to Albertans for several reasons. First as the investment or asset manager for the Alberta government, the corporation  manages about $90 billion in financial assets for public sector pension plans, the Heritage Fund, short-term funds of the Government of Alberta, and various provincial agencies. The success of AIMCo has a direct impact on the provincial budget since investment income (mainly Heritage Fund income) may account for between two and six per cent of total revenue. Pension fund trustees of various public pension funds such as the $37.2 billion Local Authorities Pension Plan (September 30, 2016) set broad investment policies, it is AIMCo that is responsible for administering and executing these policies.  AIMCo and its associated pension plan trustees are responsible for overseeing investments for over 300,000 current and retired employees in the health, police, and Alberta public service.

Investment Returns before and after corporatization

So when the provincial Cabinet decides to expand the qualifications for directors, this suggests that there is a question as to the quality of the board’s oversight. Last April, the Institute for Public Economics at the University of Alberta published my analysis of AIMCo’s performance since it was established in 2008 (AIMCo paper). The analysis compared the performance of AIMCo with its predecessor organization, the Investment Management Division of Alberta Finance.  The tentative conclusion was subject to a number of caveats.   The study found that AIMCo’s performance was no better than its predecessor organizations when relevant benchmarks set by the public sector funds were considered. AIMCo’s performance relative to other “competitors” such as the Caisse de depot, Ontario Teachers, the CPP Investment Boards, the Ontario Municipal Employees Retirement System (OMERS), and the B.C. Investment Management Corporation was generally middle of the road.  A key concern raised was the creeping upward of expenditures which reduced net returns to the pensioners.

The sections repealed under the Order read as follows:

5 Individuals appointed to the board must have proven and
demonstrable experience and expertise in investment management,
finance, accounting or law or experience as an executive or a
director in a senior publicly traded issuer.

Nominating committee
6(1) The Minister shall establish a nominating committee to advise
the Minister regarding the appointment of any individual to the
(2) The nominating committee must be comprised of at least 3
individuals, each of whom must have proven and demonstrable
experience and expertise in investment management, finance,
accounting or law or experience as an executive or a director in a
senior publicly traded issuer.
(3) The chair is, if the office is not vacant, a member of the
nominating committee.
(4) The nominating committee shall provide the Minister with a
short list of qualified candidates comprised of at least double the
number of positions to be filled, excluding any positions to be
filled by reappointment.
(5) In determining the short list referred to in subsection (4), the
nominating committee must take into account section 2(4).
(6) The Minister shall recommend to the Lieutenant Governor in
Council only candidates for appointment to the board who have
been provided by the nominating committee.
(7) This section does not apply with respect to the reappointment
of a director.
(8) This section applies in respect of persons to be appointed to the
board after January 1, 2008.

Section 2(4) of the Regulation reads:

2 (4) In making an appointment, the Lieutenant Governor in Council
shall have regard to the desirability of having a board that is
comprised of individuals who, in the aggregate, have the full range
of skills, knowledge and experience necessary to be able to
effectively lead the Corporation in achieving its objects.

What the Regulation did was to narrow the selection of the board to “blue-chip” directors- in other words members of the Canadian corporate establishment. From the perspective of the government of the day (Finance Minister Lyle Oberg), this nomination process would provide “safe hands” for the oversight of this critical institution. The safe hands appointed were individuals near the end of their corporate careers in Alberta, Canada and abroad. At the time of the appointments, I was impressed by the roster of blue chip directors which included the former Chairman of TD Bank, Charlie Baillie who was appointed chair of the board and Andrea Rosen also a former Vice-Chair of TD Bank.

Partisanship and Directorships

However, the Alberta directors, who met the narrow qualification test were and are major contributors to the former government party’s coffers. My unpublished research into the backgrounds of the Alberta directors indicates that virtually all the appointees were contributors to the Progressive Conservative Party Association of Alberta (PCAA) and, most notably, leadership campaigns. The most celebrated case was Daryl Katz whose last minute funding of the PCAA in the 23 April 2012 election made headlines in Alberta. Katz left the board in 2015. The Table below probably does not reflect the full extent of contributions from the Katz group and the Katz Group’s senior executives. (The sources of this information were accessed about one year ago at Alberta Elections website.  The information on leadership campaign contributions were made released  by the various leadership candidates.)  It should also be noted that two Alberta directors, Cathy Williams and Richard Bird did not personally donate to the PCAA. Their employers, Shell Canada and Enbridge, respectively did however contribute relatively small amounts to the PCAA.

Table 2.2  AIMCo Directors’  Donations to PCAA
Names Donations Leadership Campaigns Company Donations 
George Gosbee (Vice-Chair 2008-2015) 21,680 $5000 (Redford- George & Karen) 9,400
Clive Beddoe (2008-2013) 2000 (Redford) 17,720
David A. Bissett (2008-2010) 6,995 $10-4999 (Dinning), $30000 (Prentice)
Darryl Katz (2008-2015) 30,000  $5000 to $30,000 (Rexall- Dinning)  , $5000-$30000 (Medicine Shoppe- Dinning)$10-$4,999 (WAM – Dinning) $101-500 (WAM- Hancock)) $10001-$15,000 (Medicine Shoppe Stelmach), $15,000 (Prentice- Katz Group), $10,000 (Redford-Medicine Shoppe) 227,275
Frank Layton (2008-2010) 4,438
Mac Van Wielingen (chair 2015-) 18,500 $5000-$30,000 (Dinning), $5000 (Prentice-ARC Financial); $10000 (Prentice) 90,180
Ross Grieve (2010-) 1,500 $5000 TO $30,000 (Dinning-PCL), $501-$1000 (Stelmach), $10000 (Prentice), $5000 (Redford-PCL) 185,471
Harold A. Roozen (2010-)  $1,001-$5000 (Stelmach) over $10,001 (Hancock) 5,750
John Ferguson (2014-2016) 3,550 $501-$1000 (Stelmach) 8,275
Totals 86,663 544,071

The fact that one individual contributes to the political party in power, especially a party that had been in power for 43 years, should not disqualify them from serving on these boards. Indeed, all these men have had distinguished careers in business. The concern is that modern investment management, in an uncertain world, requires a governance structure that constantly questions, inter alia, the premises of investment strategies and the mathematics underlying the complex financial structures AIMCo invests in.

While the goal of creating a highly functioning board, insulated from political interference, was the received  wisdom at the time, the difficulty was that the board lacked intellectual and gender diversity. Some “government” oversight was provided with the appointment of the Deputy Minister of Finance to AIMCo’s board. Section 4(1)(b) of the Alberta Investment Management Corporation Act legislated that the “Deputy Minister of the Minister” would serve on AIMCo’s board. But within two years, and under a new minister, this provision was repealed.  The Minister at the time, the Honourable Iris Evans, noted that the deputy’s presence on the board was to facilitate the transition to a new organization. During the debate over Bill 22, there was no mention whatsoever that the deputy’s appointment was temporary. In any event, the publication of the At the Crossroads report, which recommended deputy ministers not sit on provincial agency boards, was cited as a rationale for removing the deputy.

Institute of Corporate Directors and Disruption

It is interesting to note that the Government has apparently rejected the requirement that prospective board members hold a designation from the Institute of Corporate Directors (ICD). The ICD, which set up shop over a decade ago in the wake of corporate governance scandals like Nortel and WorldComm,  is a educational organization which has partnered with the Rotman Business School at the University of Toronto (and now many other business schools) to train directors in proper governance methods.The judgment not to give preference to the ICD.D. designation is a good decision since the designation is costly to obtain and its membership is mainly populated with members of existing boards.

In Edmonton over the past couple of months, the local ICD chapter has held events around the concept of “disruption” in corporate governance practice. The notion of disruption is now globally recognized as Ernst & Young, one of the Big Four accounting firms, has been promoting the utility of diversity in addressing the challenges of an intensely competitive corporate world facing legal and regulatory change. The ICD, to its credit, has too  been a promoter of greater diversity, including gender diversity, on corporate boards. Support for diversity confirms the requirement of not only international experience but also the capacity to “think outside the (corporate) sandbox.”

The repeal of the restrictive provisions under AIMCo will enable the government to cast its net more widely for capable directors who see the world differently from corporate executives.  Indeed, the board would likely benefit from persons with scientific degrees, such as physics or mathematics, given the complexity of risk management policies now undertaken at AIMCo. Other perspectives besides law, accounting and engineering might include medical scientists or individuals who have worked in the government or diplomatic sectors.

Another key recommendation of the  AIMCo paper was that consideration be given to the appointment of representatives from the various public pension plans.  Section 11 of the AIMCo Act defines the duty of a director in the conventional manner, that is, to: “(a) shall act honestly and in good faith and with a view to the best interests of the Corporation, and (b) shall exercise the care, diligence and skill that a reasonable and prudent person would exercise in comparable circumstances.” This provision is standard in Canadian corporate law but in some financial institutions statutes, the best interests of the corporation are defined to include the interests of depositors. Since the rise in investment management expenses has been a drag on returns to pensioners and employees, it would seem reasonable for the Alberta government to follow the example of British Columbia’s Public Sector Pension Plans Act.  That Act mandates the trustees of the four statutory pension plans (College Pension Plan, Public Service Pension Plan, Municipal Pension Plan and the Teachers Pension Plan) to be responsible for appointing one director out of seven- (four out of seven). These persons would represent members with economic interests at stake. Such individuals would likely be more vigilant in ensuring expense levels were scrupulously watched than directors who legislated duty does not take the beneficiaries interests directly into account.

This article should not be interpreted to mean that AIMCo needs to be “shaken up”. Before corporatization, the organization faced challenges in staffing positions and improving its IT systems -both critical to a cost-effective and prudently managed investment portfolio. AIMCo has attracted investment talent from all over the world and its historic returns should not be regarded with undue alarm by the general public. However, a more diverse board, perhaps with several corporate “outsiders,” including persons understanding the cost of running investment portfolios, would make good additions to the board.

Auditor urged to investigate political interference in AIMCo20-4-17 EJ