Bill Morneau is an easy guy to distrust. Hell, I suspect it’s easy to just plain hate him, no matter your political leanings. He’s rich. Too rich, even. He’s worth north of $50 million from his days as corporate bigwig—most notably, as president of Morneau Shepell, his family firm, now worth a cool $1 billion. And then there’s his wife, Nancy McCain, and her vast french-fry wealth. He and his kin are the upper crust, the landed elite, the 0.1 percent.
All of which makes Morneau, the finance minister, an easy target. For weeks, the Opposition has gone for the jugular: accusing him of hiding numbered companies, of improperly failing to disclose his, ample, corporate assets, of off-loading shares at the most opportune moment, and of telling family members how to make money off the back of the government’s decisions. Conservative leader Andrew Scheer tried to sum up these attacks in a single question in question period last week: “How is it that the prime minister is able to blindly trust someone who has demonstrated such ethical lapses?” The Conservatives have demanded Morneau’s resignation. They have even dragged out the C-word: corruption.
Morneau, regardless of what the opposition parties would have you believe, does not appear to be guilty of insider trading, tax fraud, or any of the other charges levelled against him in recent weeks. Select slivers of those accusations are true. Many are completely unproven. Several are outright false. Nevertheless, endless speculation about the finance minister’s future, including open musing about his impending dismissal, has become the biggest story in Ottawa for weeks. But honestly, there are more important stories happening in Ottawa: a will-they-or-won’t-they trade negotiation with China, a massive overhaul over at Indigenous Affairs, a new housing strategy. So let’s separate fact from fiction, improper from regular, and rule-breaking greed from regular old-fashioned capitalist greed.
The curious case of the French manor
On September 25 of this year, Morneau added just twenty-one words to the conflict-of-interest disclosure he filed with the ethics commissioner in early 2016. It read, simply, that Morneau is: “Director of SCI MAS DES Morneau, a real estate holding company located in Avignon, France, which is of a non-commercial character.” That corporation didn’t appear on Morneau’s first filings with the ethics commissioner, the filings where he was supposed to disclose all of his commercial holdings so that the commissioner can keep tabs on shady payments, suspicious investments, or financial issues that could divide the minister’s loyalties.
Morneau’s corporation owns a property in the south of France—a family vacation home that the minister did report to the commissioner. But he did not report the corporation which, on paper, owns the villa. For that omission, he was fined $200. His office blamed “confusion” in the early days of the minister’s tenure..
This is, in fact, bad. He should have disclosed that corporation. He was required to disclose all of his registered companies, after all, and only reported the one that owns the French villa once the CBC started asking questions. But it’s hard to infer any kind of maliciousness behind failing to do so, especially considering the corporation wasn’t making any money. The logical explanation seems to be that Morneau—a guy with no fewer than seven numbered corporations, likely managed by an accountant, registered to himself and his wife—simply made a mistake. The kind of mistake that, seemingly, only the very wealthy can make. Unless one were prepared to conclude that Morneau est un espion.
The secret of the blind trust
One of Morneau’s biggest headaches is caused by his decision not to put his assets into a blind trust. Lots of wealthy would-be politicians have to wrestle with their corporate ownership when they run for office. Some, rather than deal with the headache, just sell everything off. But that’s not always a reasonable thing to ask of someone who may be back out on the streets in five years, so some set up a blind trust—basically, they turn over responsibility for their financial holdings to a third-party manager. The manager can run the politician’s company, or buy and sell their stocks, in their absence but cannot check with the politician regarding any decision made about those business affairs.
There is another option. It’s the least onerous, but not necessarily the least rigorous: it’s called a conflict-of-interest screen. It allows the politician to keep their corporate holdings but sets up a process whereby, if a file may contain a conflict of interest, it simply doesn’t arrive at their desk. So if a rail baron gets appointed as industry minister, their staff would submit a plan to the ethics commissioner to ensure any piece of legislation to regulate the railways would go to another minister to be implemented.
Morneau was a shareholder in Morneau Shepell, the company his father founded. The company manages both human resources for big firms and pension savings for Canadian workers. When he was elected, Morneau owned roughly 2 million of the company’s 48 million shares, or about 4 percent. Morneau disclosed that ownership to the ethics commissioner. As is required, he set up a conflict-of-interest screen, but he did not choose to do the blind trust. This, by the way, is the exact course of action the ethics commissioner suggested in a February 2016 letter to the minister.
Throughout the election and into his tenure as finance minister, there were no red flags that Morneau’s work with his former company would be a conflict. But in October 2016, he introduced Bill C-27, a piece of legislation that, if passed, would loosen up pension rules for federally regulated companies. It’s a change that has nothing to do with Morneau Shepell directly. The Opposition has argued, however, that the change could mean more business for Morneau’s former company. That’s generally true. Whenever you change how pensions get administered, pension consulting firms will likely see some more business.
Imagine that Morneau had been the president of an ice-cream company and that he stepped aside from that dairy confectionery, but kept his shares, in order to become minister of the environment. As minister, he forbade Canadians from setting their air conditioners below sixteen degrees. In turn, people bought more ice cream. Evidently, that decision benefits him: but it is also a move that benefits just about every ice-cream producer in the country, and one that might be wise all on its own, apart from any potential conflict. In order to conclude that Morneau advanced pension rules to benefit his own bottom line, you would have to assume that he had made a significant alteration to pension benefits for the entire country in order to achieve a (potentially minor) improvement in his company’s share price.
That assumption is out there but not entirely outlandish. It is more about the appearance of a conflict, even if it is not necessarily a conflict itself. In order to address the allegations of improper dealines, Morneau pledged to off-load the remaining Morneau Shepell shares he owned, put all of his remaining assets into a blind trust, and keep his conflict-of-interest screen, meaning someone else will administer his remaining financial holdings, but he’ll also be kept away from files that could benefit his bottom line. Belt and suspenders, as the minister himself keeps saying. He also pledged that any profit he would have made by the increase in share price—that, hypothetically, would come as a result of C-27—would go right into charity.
And it’s worth noting that the ethics commissioner never said a word about this, even though she has a role to play in overseeing how the conflict-of-interest screen works. She has since launched a review of the decision to introduce the legislation, but it is just that: a review.
Okay, so, at the end of all of this, we have a finance minister who initially set up a screen when perhaps he should have set up a blind trust. Raising questions about how the rich deal with their business holdings once in public office is good, for sure. But there is no actual evidence of impropriety here, just carelessness.
The mystery of the sold shares
The most serious topic for aspersion casting from the opposition benches is the exact fate of Morneau’s common shares in Morneau Shepell: When did he sell them? How many did he sell? How much money did he make? While the Opposition has squawked that the government has refused to answer these questions, the answers aren’t quite so straightforward.
According to Morneau’s office, with some corroboration from securities and insider-trading disclosure reports, the timeline starts in late November 2015—a few weeks after Morneau was sworn in as a minister. Around then, Morneau told his broker to off-load a million of his shares in his family company, roughly half of the 2 million shares he owns.
When pressed about it repeatedly in a scrum last week, Morneau offered perhaps the most plainly worded defence of his position to date: “When I came into office, I decided to sell shares in my family company, and I gave direction to do that around the time I came into office. I can tell you right now I don’t know the exact date that I gave direction for that to happen. I didn’t follow the date that they actually sold. They were sold.”
It seems that about 700,000 of those shares were sold off in the final days of November 2015, while the remaining 300,000-odd shares were sold later in December, with those proceeds, some $5 million, going to charity. Many of Morneau’s critics—including, incredibly, the opposition finance critic—seem to think that once you yell “sell!” all of your shares are instantly sold. In fact, trying to off-load millions of dollars worth of financial assets can take some time. So there were weeks of lag between his order to sell and the sale itself. There are no exact dates for these transactions because those two transactions weren’t logged by Canada’s securities regulator, as Morneau had stepped down as a director of the company. (Only directors are required to report their stock holdings to the publicly available insider trading registry.)
What we do know, if we do the math, is that Morneau pocketed somewhere in the neighbourhood north of $10 million from selling the first batch of shares and donated nearly $5 million from selling the second tranche.
We also know, thanks to reports that were filed with regulators, Morneau’s father also sold 200,000 shares around that time. Half were sold on November 23, 2015, and another 100,000 on December 3. On those dates, Morneau Shepell stock was trading for a smidgen over $15. The opposition have made a very serious insinuation here: that Morneau tipped off his father about the tax bill that he introduced on December 7, 2015.
Morneau says he was just trying to off-load a significant chunk of his ownership in his former firm, regardless of price. But that’s not how the Opposition sees it. Because, over that span of a few weeks, the finance minister introduced legislation to hike taxes on the rich—a core campaign promise that became one of the government’s first actions in power. The Opposition says Morneau’s sales of his shares was timed to coincide with that legislation, which went into effect January 1, 2017.
If you were conspiracy minded, there are many happenings that you could drag out to attribute dark reason to Morneau’s stock sell-off. Maybe it’s because Morneau knew that, on December 1, the State Department was about to release a batch of Hillary Clinton’s emails and he worried he would be implicated. Or maybe he’s a secret numerologist who predicted the end of the world would come on January 1, 2017, and wanted to get a jump on the apocalypse. The opposition Conservatives say Morneau sold his shares when he did because of the tax bill.
Scheer and Conservative MP Pierre Poilievre have contended that the bill, which raised taxes on those who make over $200,000 but lowered them for those in the middle-income tax bracket, actually sank the Toronto Stock Exchange and thus the value of Morneau Shepell shares. Therefore, Morneau opted to off-load his stocks before the economy dropped. Journalists in the press gallery have been happy to advance this narrative.
Unfortunately, it doesn’t make any sense.
Unless the Oposition is suggesting that Morneau shorted his position on the Morneau Shepell stock (which we’d need some proof of), Morneau didn’t make any money in this scenario. If anything, he made less profit because he sold when he did. The Opposition is contending that Morneau was about to do something that he knew would hurt the whole Canadian economy and opted to divest himself of roughly half of his own shares in order to avoid taking a haircut when that happened. It’s complete nonsense. For starters, whenever the government introduces legislation it believes will move markets, it introduces the legislation after the Toronto Stock Exchange closes. Morneau introduced his tax bill midafternoon.
Looking at the ticker tape from the time shows, yes, the index of the Toronto Stock Exchange dropped a little over 2 percent from its opening price on the day the tax changes were introduced, with Morneau Shepell taking a similar hit.
But zooming in to that one day is also an incredibly disingenuous idea. The exchange had been suffering since the summer, rocketing up and down, mostly due to low oil prices, often falling and rising by more than two points in any given day. Stocks rebounded in early 2016. By October 2016, Morneau Shepell shares were worth around $20, a quarter more than what they were worth when Morneau sold his million. Morneau’s tax changes didn’t hurt the economy, so the very premise of the allegation doesn’t make sense. (Poilievre’s office didn’t did not respond to a request for comment.)
Morneau can’t answer when, exactly, his shares were sold. That looks bad. But, honestly, it doesn’t matter. Assuming any sort of nefarious purpose requires such crazy leaps that nobody should be entertaining this kind of political gamesmanship. Same goes for the allegation that Morneau tipped off his father about the tax bill—a tax bill, by the way, that merely followed through on the Liberals most-repeated campaign promise.
The finance minister hasn’t done himself many favours. He’s tried to tap dance around the scandal with familiar refrains from his campaign hymn book—this government is fighting for the middle class—but he has come off looking evasive.
And yet Scheer and Poilievre have completely distorted the story of Morneau’s vagueness and put an awful lot of political capital into demanding the finance minister resign over a trumped-up scandal. The present occupant of the White House has a dizzying array of business interests worldwide that have raised the possibility of ethical conflict at every turn—he, more than anyone, is an illustration of why electing captains of industry to high public office can be challenging. But, in this case, by projecting monsters, Scheer and Poilievre have chucked out all regard for facts, logic, and even their own, supposed, high ground when it comes to economic matters. “We are what we pretend to be,” Kurt Vonnegut once wrote, “so we must be careful about what we pretend to be.” The Opposition should be very careful indeed.
