PACC Committee Meeting

STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, October 4, 2001

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[English]

The Chair (Mr. John Williams (St. Albert, Canadian Alliance)): Good afternoon, ladies and gentlemen. We're back in business. We have lots of topics to deal with over the next few months.

Our order of the day, pursuant to Standing Order 108(3)(e), is consideration of chapter 18, on governance of crown corporations, of the December 2000 Report of the Auditor General of Canada.

Our witnesses this afternoon from the Office of the Auditor General are Ms. Sheila Fraser, the Auditor General of Canada; John Wiersema, Assistant Auditor General, Audit Operations Branch; and Rona Shaffran, Director, Audit Operations.

Is this the first time you've been here, Ms. Shaffran?

Ms. Rona Shaffran (Director, Audit Operations, Office of the Auditor General of Canada): Yes, this is my first visit, Mr. Chair.

The Chair: That's what I thought. Welcome.

Ms. Rona Shaffran: Thank you very much.

The Chair: From the Privy Council Office we have Mr. Ronald Bilodeau, Associate Secretary to the Cabinet and Deputy Clerk of the Privy Council.

From the Treasury Board we have Mr. Ralph Heintzman, Assistant Secretary, Service and Innovation Sector. I understand we also have Ms. Helen Hardy, who is Director of Crown Corporation Policy and Information Division.

Welcome to you all.

We will start with the opening statement of the Auditor General, Ms. Fraser.

Ms. Sheila Fraser (Auditor General of Canada): Thank you, Mr. Chair.

We are pleased to be here today to discuss the governance of crown corporations, chapter 18 in our report of December 2000.

As you mentioned, Assistant Auditor General John Wiersema and audit director Rona Shaffran accompany me today. They were responsible for this audit.

Crown corporations form a significant part of the government. They play a key role in achieving federal public policy. There are 41 crown corporations employing some 70,000 people. Excluding the Bank of Canada, they manage over $65 billion in assets and over $55 billion in liabilities.

Good governance is essential to fulfilling their mandates. Our audit found that the governance of crown corporations is weak in key areas. First, in the skills and capabilities of boards. In 1977 the government stated “Crown corporations will operate at peak efficiency only when boards of directors operate at peak efficiency”. In this audit we found that boards of directors of crown corporations need to be strengthened. Boards lack key skills and capabilities they need to function effectively in their responsibilities for the affairs of the corporation. Crown corporations need to better define their requirements for director skills and capabilities and to communicate them to the government. The government needs to act on those requirements.

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The second issue is the selection of a CEO. The board of directors needs to be more engaged in selecting the corporation's chief executive officer. Without meaningful board involvement in this selection, the CEO's accountability to the board is weakened and corporate governance suffers. The government needs to move toward a model in which the board of directors leads the process of selecting the CEO, for approval by the Governor in Council. The government would need to work closely with the corporation at each stage of that process, contributing selection criteria and suggesting potential candidates. This model would reinforce the CEO's accountability to the board while preserving the appointment prerogative of the Governor in Council. A board that does not yet have the capability to carry out this approach may need a transition strategy.

The third issue is audit committees. An effective audit committee is crucial to a well-functioning board of directors, but only half the audit committees we examined were operating at an effective or a reasonably effective level.

The fourth issue deals with corporate plans. The corporate plan of a crown corporation sets out the strategic direction of the corporation and is the basis for holding it accountable. The government is required to review and approve these corporate plans. However, the government has a limited capacity to review and challenge them as a basis for approval, and the government has approved many deficient corporate plans. There is also a need for a more systematic and regular review of the relevance of the mandates of crown corporations.

[Translation]

Previous reports of the Auditor General have raised these issues, as have studies and reports by others, but they remain unresolved. Crown corporations themselves, through their CEOs and chairs, are calling for action, especially as other industrialized countries have moved ahead of Canada in these areas.

Our report has generated much interest from Crown corporations and many have undertaken actions in response to our recommendations. In the government's response to our report, we were very pleased that it stated that measures will be examined to address areas needing improvement. However, some time has now passed since our audit. We are encouraged that the government is taking some steps on our recommendations, but it has yet to produce a formal action plan.

A formal action plan is needed to address key questions. Does the government intend to act on the skill and capability requirements of a board when selecting directors to fill upcoming vacancies? Is the government prepared to give boards a greater role in selecting the corporation's CEO? How and when will the government improve its capacity for rigorous review and challenge of corporate plans? What roles will the government play in improving the orientation and training provided to newly appointed directors?

The Public Accounts Committee may wish to ask the government to provide an action plan, including a detailed response to each of the recommendations directed at it, whether or not it agreed with the recommendation, what actions is it prepared to take, and the time frames.

[English]

We very much welcome the public accounts committee's interest in these matters, and your support is key in advancing our recommendations.

Mr. Chair, this concludes my opening comments. We would be pleased to answer any questions the committee may have.

The Chair: Thank you, Ms. Fraser.

Now we'll turn to Mr. Bilodeau for his opening remarks.

Mr. Ronald Bilodeau (Associate Secretary to the Cabinet and Deputy Clerk, Privy Council Office): Mr. Chairman,

[Translation]

distinguished members of the committee,

[English]

I would like to flag that I am accompanied by three officials from the Privy Council Office: Mrs. Fiona Spencer, Mr. Wayne McCutcheon, and Mrs. Tamara Ford, who are respectively director general, director, and assistant director in the management priorities and senior personnel secretariat.

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I'm very pleased to have the opportunity to meet with you today to discuss the findings in the Auditor General's report of December 2000 on the governance of crown corporations and to provide you with information on measures the government has taken and is taking to continue to improve governance in Canada's crown corporations.

In the report the Auditor General states that crown corporations are distinct legal entities and says:

Good corporate governance is important to maximize performance, prevent financial losses and help to achieve the corporate mandate.

In achieving this successful governance, the Auditor General says:

Given the pivotal role of the board of directors in governing a Crown corporation, we looked for timely appointments of qualified directors who met the requirements of both the government and the corporation.

On this basis much of chapter 18 is devoted to findings and recommendations with regard to the appointment of directors, chairs, and chief executive officers and to the importance of developing skills profiles, maintaining continuity and experience of directors, and providing appropriate orientation and training.

[Translation]

While the majority of these appointments are approved by the Governor in Council on the recommendation of the responsible minister, boards of directors play an essential role in informing their minister as to the skills their board requires.

The government has been actively seeking the views of boards as to their appointment requirements. The Privy Council Office supports the government and the corporations in this initiative.

I would like to provide you with some examples of how the Privy Council Office provides this support.

The Privy Council Office writes to newly appointed chairs and CEOs of Crown corporations to provide them with information on their roles and responsibilities and to encourage chairs to meet with their responsible minister to discuss the appointment needs of their boards.

[English]

Last December the Privy Council Office wrote to the chairs of crown corporations to ask them to update or to complete the development of profiles of the skills required by their boards of directors. These profiles assist ministers' offices in identifying suitable candidates when filling vacancies on boards.

On June 14 of this year the PCO and the Treasury Board Secretariat held a one-day information session for chairs of crown corporations to discuss a variety of governance issues, including the development of profiles of the skills required by each board of directors, and to encourage the chairs to work with their ministers in identifying the appointment needs and the competencies required.

The Privy Council Office has published a guide for the development of a skills profile entitled Building a Crown Corporation Director Profile. This has been provided to all the chairs of the crown corporations. The guide is available on the Privy Council Office website.

With regard to the selection and appointment of CEOs, professional human resource selection techniques are employed. Positions may be advertised in the Canada Gazette or in the national newspapers, and executive search firms are often hired to provide an initial selection.

[Translation]

Generally, there is collaboration between the government and the board of directors in conducting the selection process. The board of directors is consulted and is normally represented on the search committee by the chair of the board or a representative of the board.

The circumstances of each corporation vary and will be a determining factor in developing a selection process that is in the best interests of the shareholder and the corporation.

The Government of Canada is the sole shareholder of each Crown corporation, and it is the government through the responsible minister that is ultimately accountable to Parliament and to the Canadian public for the Crown corporations' successful achievement of their mandates and objectives.

It is incumbent upon the government to ensure that the CEOs who are appointed meet the needs of the shareholder, and by extension, the Canadian public, as well as the needs of the board of directors.

[English]

With regard to the orientation and training of directors, which was noted in the report and by the Auditor General in her comments, Privy Council Office in cooperation with Treasury Board has prepared a guide book for chairs, directors, and chief executive officers of crown corporations to help them with operations, structures, and responsibilities in their role in the federal government. This guide is being circulated and is being commented upon by crown corporations as a background document to the management and governance issues of crown corporations. In addition the Privy Council and the Treasury Board attend board orientation sessions, which are organized by the crown corporations themselves, to discuss governance issues and problems of management.

I hope that these examples of initiatives being undertaken to enhance the corporate governance of crown corporations have been helpful in demonstrating that the government takes the views of the Auditor General seriously and is committed to long-term improvement in the management of crown corporations.

Thank you, Mr. Chairman.

[Translation]

The Chair: Thank you very much.

[English]

Mr. Mayfield, you have eight minutes.

Oh, Mr. Heintzman also has an opening statement. Mr. Heintzman, please go ahead. My apologies.

[Translation]

Mr. Ralph Heintzman (Assistant Secretary, Service and Innovation Sector, Treasury Board of Canada Secretariat): Thank you very much, Mr. Chairman.

I am also very pleased to be here today to discuss the Treasury Board Secretariat's response to the Auditor General's examination of the governance of Crown corporations. As you already mentioned, with me today is Ms. Helen Hardy, who is the Director of Crown Corporation Policy and Information Division.

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Mr. Chairman, I would like to start by saying that the Treasury Board Secretariat believes that the Crown corporation governance and accountability regime has generally worked well since Parliament introduced Part X of the Financial Administration Act in 1984. I think this is reflected in the generally positive reports by the Auditor General on the application of Part X over the past 15 years.

[English]

Chapter 18 in the December 2000 report largely centred on the responsibilities of the Governor in Council. However, the Auditor General drew certain conclusions and made suggestions for improvement about how the Treasury Board Secretariat reviews the corporate plans of crown corporations.

To begin with, it might be helpful to outline exactly how the Treasury Board Secretariat fits into this picture. As you are aware, a crown corporation submits their corporate plan to their responsible minister for review. Assuming that the minister agrees with the plan, he or she submits it to the Treasury Board for recommendation to the Governor in Council. Treasury Board then looks at the strategic direction of each crown corporation and the related financial decisions or recommendations.

The Auditor General's main conclusions related to the secretariat are that the secretariat's analysts sometimes pay too little attention to major strategic issues and too much attention to minor issues related to funding. Furthermore, the Auditor General found that some lacked an understanding of the crown corporation and its business environment, and some did not have a solid grasp of how to read financial statements.

The Auditor General concluded that the government needed to strengthen the process by which corporations' mandates were challenged and reviewed. We agree it is important that the government have this kind of challenge and review, with respect to corporate plans. In the secretariat we have taken a number of steps to strengthen this process.

Like any organization, the secretariat employs professional staff with a range of experience and skill levels, and at all times experienced staff and their directors are available to provide support and guidance to less experienced staff members.

We are ensuring that analysts with responsibility for crown corporations are being provided with specific training related to their responsibilities. A small professional support group coordinates knowledge management and appropriate training for the program analysts. We've established a network of Treasury Board Secretariat program analysts responsible for crown corporations, in order that they can be in a better position to share their knowledge and experience.

We are working closely with our colleagues in the Department of Finance, with regard to issues related to crown corporations' corporate plans. In addition, the secretariat's crown corporation policy staff is available to support and advise program analysts, as needed.

We've also recently created a website devoted solely to providing information policies and guidelines on crown corporations. I'd invite committee members to visit the site. The address is in the text of my remarks.

[Translation]

A second issue raised by the Auditor General which could relate to the Treasury Board is the systematic review of the Crown corporations' mandates.

The government has conducted, and will continue to undertake, mandate reviews in a timely fashion when it is deemed to be appropriate to do so. The majority of Crown corporations have had their mandates reviewed in the last ten years - and even though not all reviews have led to legislative changes, the reviews are occurring. As well, the constituent acts of the Export Development Corporation and the Business Development Bank of Canada require reviews periodically.

[English]

In conclusion, the secretariat recognizes and appreciates the contribution made by the Auditor General in providing an objective and knowledgeable view on crown corporations. We have made some changes that we believe will improve the secretariat's responsibilities related to the approval of crown corporations' corporate plans. We will continue our efforts to ensure that the governance and accountability regime related to crown corporations continues to operate in a satisfactory manner.

I would also be very pleased to respond to questions from the committee.

The Chair: Thank you, Mr. Heintzman.

Mr. Mayfield is next, for eight minutes, please.

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Mr. Philip Mayfield (Cariboo—Chilcotin, Canadian Alliance): Thank you very much, Mr. Chairman.

I find it interesting that the Auditor General of Canada would ask very specific questions, and in my mind, questions that should be raised with the committee and our witnesses here today. I guess in the spirit of non-partisan participation, I would like to put those questions to the witnesses.

The Chair: In a non-partisan way, of course.

Mr. Philip Mayfield: In a non-partisan way, of course.

I guess the Auditor General is asking the following questions. Is the government going to provide an action plan, including a detailed response, to each of the recommendations directed at it? Does it agree with the recommendations? What actions, if any, is it prepared to take and in what timeframes?

Could you answer that, please?

Mr. Ronald Bilodeau: The government welcomes the recommendations that were made, has indeed put in place many of the mechanisms discussed in the report, and is continuing to do so.

The responsibilities for the management of crown corporations, as pointed out in madam's report, rest with ministers, the Governor in Council, boards of directors, and political offices. It's a network of responsibilities. Several of these responsibilities must be coordinated and brought to bear, so the system is improved over time. We believe the steps taken so far, which could be further documented in writing, if necessary, are an initial response that has brought results.

The boards of governors and boards of directors of crown corporations of Canada are more representative of the Canadian population, as is noted in the report. The balance between men and women is better, the multicultural balance is better, and the minority representation is better. So there has been significant change in the makeup of the boards.

Over time, more attention must be given to the skills and the competencies required and identified in the board profiles. I think I'm on safe ground in saying we're prepared to show a timetable for those profiles to be prepared and action to be taken.

Mr. Philip Mayfield: Would you provide those to the committee, please?

Mr. Ronald Bilodeau: Certainly, Mr. Chairman.

The Chair: In what kind of a timeframe can we expect that, Mr. Bilodeau?

Mr. Ronald Bilodeau: We have about half of the profiles now from the crown corporations, and I expect we'll have all of them within a month, or a month and a half. So we'll be able to provide a report to the committee within a reasonable period.

Mr. Philip Mayfield: Does the government intend to meet all the skill and capability requirements that are suggested by the Auditor General?

Mr. Ronald Bilodeau: The government is very sensitive to the competencies required of directors of the boards, chairmen of the boards, and CEOs. The board profiles prepared will certainly be a guide. Ministers are looking forward to receiving them—those that haven't been received yet. Certainly there'll be a strong indication of the skills required.

The final responsibility for appointments rests with ministers and the Governor in Council. But I believe these profiles will very much help to show the kinds of skills needed, where they're needed, and the strengths and weaknesses of boards and representatives of boards now.

So the answer is yes, Mr. Chairman, the profiles will be fully taken into account in making appointments.

Mr. Philip Mayfield: So the rigorous review and challenge that the Auditor General of Canada refers to are included in your plans we will receive. Is that correct?

Mr. Ronald Bilodeau: They will be elements, sir.

Mr. Philip Mayfield: What role will the government be playing in improving the orientation and training provided to newly appointed directors?

Mr. Ronald Bilodeau: I mentioned we have periodic sessions with new board members, officers and directors. We work with the corporations themselves in organizing such sessions. I think the frequency of those could be increased, as boards are renewed and new members come in. Working with Treasury Board on the financial side and other central agencies, I believe we could have a greater frequency.

It depends on the rate of replacement of boards at certain times. As the report says, board members should not be replaced all at once. As much as possible there should be some planning. But as the numbers justify and new members come in, I think it's very feasible to organize a larger number of training sessions, and as time goes on, to provide refreshers. As laws and policies change, board members need to be kept updated. We're looking to more activity on that.

Mr. Philip Mayfield: I believe one part of the criteria is regional representation on boards. Is that correct?

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Mr. Ronald Bilodeau: It certainly is an element of a national corporation to have on its board representation from Canada's regions. The board should reflect the country's linguistic and multicultural makeup. Certainly being able to speak about the issues and represent the population are criteria for competence, in addition to the technical skills obviously required to manage.

Mr. Philip Mayfield: But with something like the Wheat Board, how important are things like regional representation and language requirements to the performance of those board members who deal with a regional activity, like the production and selling of grain products? Do some of the requirements tend to handcuff the selection process and prevent getting the right people to do the right job? Because I can think of people who may not have the language requirements, and people who may need to be there from another region who are not as qualified as other people from within the region.

I don't want to take all of your time to answer questions by asking them myself, but when a group is responsible for making the rules, if they have a lot of latitude in deciding who's going to be on the board, perhaps some of the requirements work against having the best qualified people appointed to positions that require their expertise.

Mr. Ronald Bilodeau: It's a challenge one finds in appointing board members, and it's true in the private sector as well.

If you read the Dey report and the reports done on governance of private sector boards, we are all looking for competent members. The private sector remunerates well and so on. So the public sector has a challenge at the outset to find good, competent board members, and sometimes there are few experts in certain areas, like those one may deal with on the Wheat Board, for example. So the board has to balance the technical requirements and management skills and financial abilities with the representation.

You're absolutely right, sir, it may be difficult to find people who have all of these abilities. A judgment would have to be made, and that's where the advice of the chairman of the board and the minister are key—a judgment to balance the operational needs and the representation. It's not an easy thing to do.

Is there an imbalance—too much one way or the other? I won't comment on that. It's possible sometimes, but certainly it's worth thinking of both dimensions—the representation and the competence.

The Chair: Mr. Mayfield, I understand the Auditor General has something to say as well.

Ms. Sheila Fraser: I'd like to make the comment that when we talk about the skills and capabilities of boards, we're referring to the board as a whole.

The government has made great progress in reflecting the diversity of the country on boards. The issue we're raising is that those boards, as a whole, do not necessarily reflect all the skills and capabilities necessary to function well, but this does not mean that every single individual on a board has to have all of those skills.

Mr. Philip Mayfield: Oh, I appreciate that, but think of some of the regional needs, where perhaps other regions have to be brought in because of the criteria of selection. Is it necessary to bring in someone from a region of Canada for the Wheat Board who may not be very familiar with the process of selling grain? Wouldn't it be better to have less emphasis on the regional aspect when selecting board members?

Thank you very much. I'll get back again.

The Chair: We'll have a response to that question and then we'll move on.

Mr. Bilodeau.

Mr. Ronald Bilodeau: That's a very fair comment. The needs of a board like the Wheat Board are different from VIA Rail or Canada Post. It may not be possible in a board of a dozen people to have every regional interest or functional interest represented, but the board must be able to provide advice and manage the corporation.

Mr. Philip Mayfield: I would think that would be the primary responsibility.

The Chair: Thank you, Mr. Mayfield.

[Translation]

Go ahead, Mr. Desrochers.

Mr. Odina Desrochers (Lotbinière-L'Érable, BQ): Thank you very much, Mr. Chairman.

Madam Auditor General, ladies and gentlemen, I have here a copy of the report on the Governance of Crown Corporations tabled in December 2000. The following is noted on page 11:

Politics, gender and geography are the top three selection criteria now [...] Relevant business experience needs to be number one.

The report goes on to say this:

Depth of experience is needed, and character to promote a close working relationship with the CEO.

And finally, the report also contains the following revealing statement:

We have lots of lawyers, which is fine, but could use at least on accountant.

I also noted the following in your presentation, Mr. Bilodeau:

Last December, the Privy Council Office wrote to the chairs of Crown corporations to ask them to update or to complete the development of profiles required by their boards of directors.

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I can understand full well why, in light of this report, you would want to know what it going on within Crown corporations. I'm curious as to how many Crown corporations you contacted, what the response rate was and if, out of all the lists you received, you were able to validate the skills of certain board members.

Mr. Ronald Bilodeau: Mr. Chairman, we wrote to the CEOs of 41 or 42 corporations. The response rate thus far is about 50 per cent. Obviously, this skills profile will be used for future appointments. It also serves as a tool with which to assess the skills of board members, and this is done by the board chairman.

Since we are still waiting to hear back from half of the CEOs, I would have to say that we have not completed this task. As I said, this profile can be used to determine which skills are lacking among board members and for the appointment process. The questions asked include: What are your goals? What are your current skills? Which skills do you need to acquire? Which particular skills do you feel board members should have?

The profile will serve as a planning and recruitment tool. Can it also be used to assess current performance levels? I think it can, although this was not the primary objective of the profile.

Mr. Odina Desrochers: What do you intend to do in the case of boards where some of the directors may not have the required skills to do the job? You're telling me that those who are already serving on boards will not be affected, but that efforts will be made to correct the situation for future appointments. However, what are you doing to correct existing shortcomings?

Mr. Ronald Bilodeau: If there are any shortcomings, then the board chairperson can discuss them. That's what is suggested, namely that these be discussed with the minister. Terms on boards expire on a regular basis. Board membership is renewed on a fairly regular basis. If problems with performance or with skills have been noted, it is the responsibility of the chairman to broach the matter with the minister.

Board members are appointed at pleasure and must perform. Although it doesn't often happen, appointments can be terminated. Ultimately the chairman of the board is the one who decides to discuss the matter with the minister and subsequently with the us.

Mr. Odina Desrochers: Therefore, no steps have been taken to correct existing shortcomings. The chairman of the board and the minister have the flexibility to decide whether or not to correct the situation. Nevertheless, problems still exist. The Auditor General made himself quite clear at the time. I understand that you are optimistic about the future, but how do you intend to correct existing problems?

If the response rate thus far is 50 per cent, I would imagine the remaining corporations will be responding soon, given that it's already October. I ask you again: what are you doing to correct the shortcomings that have been identified?

Mr. Ronald Bilodeau: The shortcomings identified are more in the nature of lack of representation or lack of technical skills. Professions or regions may not be equally represented. In some areas, there may be a shortage of skills.

I don't think the Auditor General was telling us that any one board member in particular was incompetent or that action was warranted in the short term. If the board chairman decides that action should be taken, then the onus is on the responsible minister to follow up. Appointments are made, upon the recommendation of the minister, by the government. Appointments can be terminated by the government, also upon the recommendation of the minister. That's how things are done. There will not be any systematic checks, but the performance of board members will be assessed, as has always been the case.

Until further notice, our position is that corporations are fairly well managed, as noted in the report. There have been significant improvements and while some shortcomings exist, these will be corrected in time. If there are any immediate problems, Mr. Chairman, we'll hear about it from the minister responsible. If you have any concerns about a particular corporation, the first thing you should do is bring them to the attention of the minister responsible.

Mr. Odina Desrochers: Will you pressure the ministers concerned in any way if you receive some negative feedback about board members? Will you inform them if changes are truly warranted?

Mr. Ronald Bilodeau: Certainly we will make representations concerning corporate governance. If specific problems involving any individual directors are brought to our attention, we will have a responsibility to follow up on the matter.

Mr. Odina Desrochers: Thank you, Mr. Chairman.

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[English]

The Chair: Thank you very much, Mr. Desrochers.

Mr. Harb, please. You have eight minutes.

Mr. Mac Harb (Ottawa Centre, Lib.): Thank you very much.

First I want to thank the Auditor General, as well as our witnesses.

I have a comment. All of our three witnesses could give me their feelings on it. My understanding is that the board of directors of these crown corporations are appointed for two or three years, and in some cases up to five years. The vast majority of them, if not all of them, are either paid per diem or in some cases do it on a volunteer basis. There are situations where they are full-time for three, four, or five years.

From my perspective, I feel it is one challenge that crown corporations are faced with on a regular basis. The continuity of having a board of directors for five, ten, or fifteen years, where they know the inner working system of a crown corporation, is not there. We're dealing with volunteers, by and large, who give their time and energy and come to serve on the boards. At the end of the day, they may be appointed for one or two terms, and they may move on.

It is my understanding that the board of directors, to a large extent, has a role that is an advisory one, rather than being a board of directors that really looks at every comma, sees where every period should be put, and looks at the day-to-day operation. The day-to-day operation of crown corporations, similar to that of government, hospitals, and everything else, is really done by the staff who are full-time, middle management, lower management, front-line employees, and so on.

I am wondering whether we should be looking at this other aspect of it. In the long run, if we are looking at continuity in the system and having inefficiencies, perhaps we have to modify the role of the board of directors. My understanding all along has been that a board of directors, to a large extent, is a board of trustees and a board with an advisory capacity, not a board that is going to tell the administration of a crown corporation how they should run the day-to-day operation.

I think that is put in for a good reason, basically, in order to reflect the society in which we live. An individual who comes from region A or region B would bring a perspective. If that person comes from a different linguistic or gender background, it would bring a different perspective to the board, and is not there in order to run the corporations.

I'm interested in shedding some light here. Mr. Chair, I was quite encouraged by the Auditor General for tackling this issue, and by the very positive response we have received from the Privy Council Office, as well as the Secretariat of the Treasury Board.

I think we are on the right track. I would like to hear your comments.

Ms. Sheila Fraser: Thank you, Mr. Chair.

I'll perhaps start with the second question first. The role of the board is not an advisory role. Under the Financial Administration Act, the board has the responsibility to manage the affairs of the corporation. It plays a very key role in the management. It has a duty to oversee the management of the crown corporation. It is there to establish the corporation's strategic direction, safeguard its resources, monitor its performance, and report to the crown. It is very much like the private sector, except for, of course, the appointment process for certain key positions that are Governor in Council appointments. It is very similar, within its responsibility, to private sector boards.

Mr. Mac Harb: The day-to-day operations of those corporations?

Ms. Sheila Fraser: The day-to-day operations of the board.

On your second issue, length of service, we agree with you. It's one of the issues we raised. The length of service of directors on crown corporations has improved in the last few years, but is still very short. The average length of service is less than five years. The actual term of appointment is not that critical. It's more the renewals. They could be for two or three years, as long as we think there should be renewals for well-performing board members. In our report we indicate that the private sector length of service is 7.7 years, so there is quite a bit of gap.

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I think you're right. These are very large complex organizations, and it does take a while before somebody becomes familiar with the operations and feels at ease in that management role. We would encourage the government to continue to lengthen that term of service.

As to the remuneration, it's not an issue that we looked at in any great detail. I would suggest that, as Mr. Bilodeau has mentioned, private sector boards are much more lucrative. However, people don't necessarily come onto these boards only for the compensation. They also serve on them for the public policy interests and the kinds of quite unique experience they can get.

Mr. Mac Harb: Thank you.

Mr. Bilodeau.

Mr. Ronald Bilodeau: Mr. Chairman, the only thing I would add to Madame's answer—it's very complete—is that like a private sector board, this board has the role of setting strategy and measuring results for the corporation. The board has the responsibility to look beyond day-to-day operations, to set goals over the longer term, to make yearly evaluations in the business plan and other documents of how the corporation is doing, and to advise the chair and the minister. So it's both a responsibility for direct day-to-day operations and also a broad one for strategic development. It's quite a challenging role.

Mr. Mac Harb: As a final comment then, that is probably where we have the out-of-sync situation. We have individuals who either are there on a part-time basis or are not paid sufficiently or are paid very little or nothing, and the task before them—to be responsible for the day-to-day operation—is absolutely monumental. Frankly, that's what we have to put our teeth into. We have to try to figure out ways of creating a proper match between what we ask of these people and what we pay them versus what's really going on now.

Ms. Sheila Fraser: I think it's an issue that's worth looking at, although I don't think—quite honestly—that increasing per diems is going to solve all the problems. The critical issue is to go back to the competency profiles that boards need and to ensure that those are taken into account very seriously when the board appointments are made.

Mr. Mac Harb: I'm not sure about meeting once a month. If they're only going to meet once a month, it doesn't matter whether you're going to pay somebody $15,000. It's 30 days' absence. They just come in once to a meeting for three or four hours. It's very unlikely they're going to find out what has happened in the corporation during that period of time. In fact, the individuals who will respond to you are from the lower management, middle management—

[Translation]

Mr. Odina Desrochers: We're not talking about salaries today. We're talking about...

[English]

The Chair: No, we're getting into dialogue here.

Mr. Mac Harb: Okay, I'm finished, Mr. Chair.

The Chair: Thank you very much, Mr. Harb.

Mr. Mayfield, it's back to you. We're on to the second round. Four minutes, now.

Mr. Philip Mayfield: Thank you very much.

From the tone of the Auditor General's comments, it would seem that there is a lot of slack in the organization of how boards relate to the government and how the boards meet and do their business. I would be interested to know, for example, whether in all the boards a director has ever been actually fired for incompetence.

The Chair: Ms. Fraser.

Ms. Sheila Fraser: I'm afraid, Mr. Chair, that we can't respond to that. That's not an issue we looked at.

The Chair: Mr. Bilodeau.

Mr. Ronald Bilodeau: We can check on that, sir. Mr. McCutcheon is nodding in the negative.

The Chair: Nodding in the negative. Okay.

Mr. Philip Mayfield: I would love to think that every selection was so well made there would never be a need for this. But in the reality of life and from reading the newspaper, you might get the impression that once in a while this needs to be looked at.

Mr. Bilodeau, in your comments you talked about the Privy Council Office publishing a guide for the development of skills profiles and that these are provided to the chairs. How many of these guides have actually gone out?

Mr. Ronald Bilodeau: The guide is available, sir. It's gone out to the chairs of the board. It helps them prepare those profiles that I've mentioned. I'd be glad to provide copies.

• 1615

Mr. Philip Mayfield: How many have actually been picked up? I suppose it's asking too much for you to say whether they've really been read or not. But does anybody care about this stuff? What is being done to ensure that there is a proper performance by directors to fulfil their board responsibilities?

Mr. Ronald Bilodeau: At the meetings that we have with the chairpersons to talk about the needs of their members and the needs of their corporations, great attention is given to the quality of their work and to the competency of their members. They're very much supportive of preparing the profile, because it's a competency scenario—what they need to do their job. The ministers want them as well, because they want to know what the board actually needs to operate.

As was mentioned earlier, the assessment of the performance of current board members is a different topic. If there are problems of operation with a member or more than one member on the board, it is up to each chairperson to discuss that with the minister, who would in turn discuss it with the Prime Minister's Office.

Mr. Philip Mayfield: It goes from top to bottom, in my mind. I'm asking, why the inaction? Here's a report that was put out in December 2000. In October the Auditor General was asking very specific questions and seeking answers that, in my mind, she should have had a clue about—if not she, then her predecessor, Mr. Desautels—a long time ago.

It would seem that the question about audits not being taken seriously, whether board members take their responsibilities seriously, is really a question the committee needs an answer to, because these are very important institutions. So many of our Canadian citizens depend upon them. The service they provide is so important to them and to the economy—to our transportation.

I get the impression that the results we need are not being demanded, either by the Privy Council or by the boards. I'm wondering whether you could respond to that, sir, in a straightforward manner. If I am wrong, please tell me I'm wrong. I'd love to hear it.

Mr. Pat Martin (Winnipeg Centre, NDP): I'd like to tell him...

Mr. Ronald Bilodeau: Mr. Chairman, this is a question of degree, obviously. The report of the Auditor General has been acted upon; letters have been sent; steps have been taken. We're talking about governance—the quality of governance, the quality of appointments, systems used to manage crown corporations. We must remember that crown corporations are independent entities legally. The government has a responsibility at the appointment level, but the management rests with the board and the minister under each act. It would not be proper—and my colleague Mr. Heintzman is in a far better position than I to comment on it—for the government to intervene daily in the management of a crown corporation. By definition, they are at arm's length. So there's a balancing of the corporate issues, which are very well explained in the Auditor General's report, and the steps that need to be taken. I can assure you that the Privy Council and the Treasury Board and the finance department and others are working on it, sir. They're serious issues and they're seen as such.

[Translation]

The Chair: Thank you very much.

You have four minutes, Mr. Desrochers.

Mr. Odina Desrochers: Thank you very much, Mr. Chairman.

Earlier, Madam Auditor General, you stated that in the private sector, the length of a term was 7.7 years. What is the current average for the public sector?

Ms. Sheila Fraser: Currently, it is 4.6 years.

Mr. Odina Desrochers: Is incompetence a factor in any way, or is the turnover on boards of directors due in any way to frequent political appointments?

Ms. Sheila Fraser: Mr. Chairman, we haven't specifically looked at the reasons why terms were not renewed. Furthermore, it should be noted that as recently as five years ago, the average term was 3.9 years. Therefore, some progress has been made in terms of keeping directors around longer. I hope the trend continues. However, our audit didn't look specifically at the reasons why terms weren't being renewed.

Mr. Odina Desrochers: At present, directors usually serve five-year terms. Is that correct, Mr. Bilodeau?

Mr. Ronald Bilodeau: It varies. The terms may be three years or five years. Occasionally, they are renewable terms, but generally speaking, directors serve three-year terms, as provided for in the legislation.

Mr. Odina Desrochers: Can you explain the current appointment process to me, Mr. Bilodeau?

• 1620

Mr. Ronald Bilodeau: Recommendations are made by the minister to the Governor in Council, that is to Cabinet. The files can come from the minister's or from the Prime Minister's office. Appointments can be recommended by other directors, or by the chairman of the board. There is no one way of obtaining files. However, as a rule, the chairman of the board recommends someone to the minister, who in turn submits this name to the Prime Minister's Office. Cabinet then either approves, or rejects the nomination. That's how the process works. Politically speaking, responsibility rests with the minister.

Mr. Odina Desrochers: In other words, the minister submits a lists. He's already made his selection, and the Privy Council Office endorses it.

Mr. Ronald Bilodeau: It works several ways. The minister can submit one or more names and the decision that is made, by the minister as well as by the Prime Minister's Office, is ultimately a political or government decision.

The Privy Council Office also plays an advisory role in the process. If requested, it checks the nominee's background and references and examines security concerns. We assume an advisory role. As public servants, our job is to advise our political representatives who in turn make the final decisions.

Mr. Odina Desrochers: How many persons are nominated for positions each year?

Mr. Ronald Bilodeau: I don't have the exact figure in front of me, but the Governor in Council appoints a total of 2,400 people to various positions. This includes agencies and Crown corporations. I would say that several hundred positions must be filled every year. I can get the exact figures for you, if you wish.

Mr. Odina Desrochers: And the same procedure is followed for all appointments to boards of directors. The minister always submits a list.

Mr. Ronald Bilodeau: Some corporations follow different procedures. In some instances, the law stipulates that the board makes the recommendation to the minister. The board nominates someone and the government subsequently formally approves the nomination. Such is the case with the Bank of Canada and the museums. Again, we would be happy to supply you with additional information, Mr. Chairman.

Mr. Odina Desrochers: I have one final question for the witness. Do you intend to send out a reminder to the 50 per cent who have not yet responded to your request? When will you be in a position to report on the initiative undertaken last December?

Mr. Ronald Bilodeau: We certainly intend to send out reminders and I'm confident we'll get the information we want. I am committed to reporting back to the chair of the committee as soon as possible. Within the next month or six weeks, I should have received responses from everyone. If not, I will personally call people to ensure that I get an answer.

Mr. Odina Desrochers: Thank you very much, Mr. Bilodeau.

The Chair: Thank you very much, Mr. Desrochers.

Go ahead, Ms. Phinney.

[English]

for four minutes.

Ms. Beth Phinney (Hamilton Mountain, Lib.): Thank you very much. And I thank all the witnesses for coming here today.

I have two questions, just general questions. One is about the arm's length of a crown corporation, and how sometimes the government is accused of not getting involved enough or of being involved too much. Who finds this balance, and who is there to say you've gone over the edge, and the government shouldn't be interfering, or the government should be interfering more? Who decides what that balance is, and is there anybody from day to day overseeing that? That's the first question.

Secondly, I think the number of crown corporations is growing. If we form a crown corporation this year, I wonder if there is anybody who will look at it four years from now or eight years from now, and say we really don't need that crown corporation, as that little job could be back in the department. I would like your answer on that. Is there anybody looking over the whole system to see whether they could eliminate some of these?

The Chair: Mr. Bilodeau, do you have an answer on that?

Mr. Ronald Bilodeau: The balance and the arm's length nature sometimes is set by legislation. Some crown corporations are established by law. Others are established under the Business Corporations Act.

Over time, as Mr. Heintzman said, some of these statutes call for statutory reviews every five years. Most don't have that provision for a review, but this government and previous governments have disposed of crown corporations. Some have been privatized; some have been terminated. Is there sufficient examination? That's a political judgment. But certainly in some statutes there's provision for that to happen every five years, and where it isn't set by law, really the minister should make the political judgment about the relevance of the corporation at regular intervals.

Whether they should be at full arm's length or parts of departments is again a difficult matter. The more commercial, the more business-like the activity... For instance, should running a railway be a commercial activity or a government activity? Or airlines—we no longer own any airlines. We had that judgment as well. In each case, some have a policy mandate, some have a commercial mandate, and over time they change, so it should be requestioned.

• 1625

The Chair: Ms. Fraser, do you have a comment?

Ms. Sheila Fraser: Yes, Mr. Chair. I'd just like to add that in our audit we looked at the reviews of mandates and suggested there should be more systematic reviews, at least every ten years, and that they should become a formal part of the process so there is an evaluation as to whether the mandate is still relevant or needs to be adjusted.

Ms. Beth Phinney: Who did you suggest should do the review?

Ms. Sheila Fraser: Well, government actually—

Ms. Beth Phinney: Privy Council, or...

Ms. Sheila Fraser: Government actually does conduct mandate reviews of crown corporations.

Ms. Beth Phinney: Who is government? What do you mean? The cabinet? The department itself?

Ms. Sheila Fraser: It's usually the minister, I would think, who does the review.

Ms. Beth Phinney: Not somebody from outside of that ministry?

Ms. Sheila Fraser: Well, there can be people brought in as consultants to conduct the review on behalf of the minister.

Ms. Beth Phinney: I'm just wondering what your suggestion was, or did you not make a suggestion on who should do the review?

Ms. Sheila Fraser: We didn't go into the details on who should do it, but we said there should be a systematic review at least every ten years.

Ms. Beth Phinney: Thank you very much.

Thank you, Mr. Chair.

Mr. Ralph Heintzman: Mr. Chair, I might be able to add something.

The Chair: Yes, Mr. Heintzman.

Mr. Ralph Heintzman: Our information indicates the majority of crown corporations have had their mandates reviewed in some form or other over the past decade.

A figure that might reflect that is the fact that the number of crowns has decreased from 60 in 1985 to 43 in 2000, which indicates, among other information, there has been a review of crown corporation mandates, and decisions have been taken on, as you suggested, whether they are still needed or not.

The Chair: Thank you, Ms. Phinney.

Mr. Shepherd, four minutes, please.

Mr. Alex Shepherd (Durham, Lib.): Mr. Bilodeau, you described these profiles, and I think of job descriptions. Are profiles unique to the individual crown corporation, or are they general?

Mr. Ronald Bilodeau: I think there probably is a generic part to all profiles. Most crown corporations would have needs—for instance, for financial analysis, financial competency, and human resource management. Some of the needs and requirements are specific, but the model is adaptable. The model is really a framework. It says a board profile should cover the following elements, but the weights will be different. Obviously, if you're running a commercial enterprise or running a regulatory enterprise, your needs will be different. We won't hold them to any one tight format, as long as we are provided the information that's relevant for their needs and it tells the government what they wish to have in terms of skills and competencies.

Mr. Alex Shepherd: For instance, the CEO of VIA Rail, would he or she be required to have some experience in transportation?

Mr. Ronald Bilodeau: That's a judgment. Certainly when you're a chairman of a board of a crown corporation you need a very good knowledge of government. You need a good knowledge of the functioning of public administration.

Mr. Alex Shepherd: But the profile you'd prepare for VIA Rail would not say the person has to know anything about transportation?

Mr. Ronald Bilodeau: No. The profile would probably indicate that some knowledge of transportation should be available on the board—the CEO, some of the members, the chair... the board as an entity. The profiles are about the boards and individual members.

Each crown corporation needs competence in its domain, obviously. If it's Atomic Energy of Canada, it would be nice if somebody knew something about reactors, and I think they do. So the judgment is not to say the job must be filled with someone who has that skill, but overall, the board needs should be arrayed for the government.

As I mentioned, the government, at the end of the day, can say we have less skill of this type in this person, we have more skill of that type, and we're making an appointment. The ministers, at the end of the day, are accountable for the appointment.

Mr. Alex Shepherd: But it would be fair to say the profiles are not that specific to the individual crown corporation.

Mr. Ronald Bilodeau: I would hope, as I said, they would have a generic element. Some of them would have all common needs, but there would be some specifics. Some might say we need two lawyers. Others might say we need three people with financial background. Others might say we have problems in transportation, or management of assets, whatever. They are all in different businesses. I would think they would have a common part, but they'd also have a fairly distinct part. And that's true of the private sector. The board of General Motors may resemble the board of Ford Canada, but it is probably different from the board of United Airlines. So at the end of the day, you'd need the management skills, whatever you're doing, and you'd need the sectoral skills, I think.

• 1630

Mr. Alex Shepherd: I wouldn't mind if the VIA Rail board took the train from time to time. It bothers me.

Anyway, to the Auditor General, you mentioned that other industrialized countries are far surpassing us in these areas. How so?

Ms. Sheila Fraser: In our report we raised two examples of practices that are conducted in New Zealand and in the U.K.

On paragraph 18.42, the United Kingdom, for instance, has a commissioner for public appointments. And the whole appointment process is much more transparent. There are appraisal mechanisms all the way through and it's a very different kind of process from what we would have here.

Also, in New Zealand there is much more emphasis placed on skills, the strategic direction of the corporations, and there's an actual agreement between the minister and the corporations on skills profiles and how the candidates are appointed.

So there is some detail given here. I guess the U.K. is the one that is probably the most different from what—

Mr. Alex Shepherd: And what would be the conclusion from that—that their crown corporations are more focused?

Ms. Sheila Fraser: We obviously can't conclude on that. But we were giving examples of different practices elsewhere where there is a more rigorous process. And what we are trying to say is that the process here should become more rigorous as well with the use of board profiles. Obviously we're not taking away from the prerogative of Governor in Council to make the appointments, but there should be a more structured process leading to that appointment.

The Chair: Thank you, Mr. Shepherd.

Mr. Mayfield.

Mr. Philip Mayfield: I'd like to address my question to the Auditor General.

It seems to me that as I try to think through what we're talking about here today, if there's a problem to be looked at it would be in the area of transparency and accountability. Would you share that view?

Ms. Sheila Fraser: As I just mentioned, the prerogative of appointment does rest with Governor in Council. However, I think the process leading to the best appointments needs to be improved and that the boards need to be more involved in the selection criteria. They are the ones who probably best know what kinds of skills they need around the table.

There also needs to be more involvement of boards in the selection of the chief executive officers, and boards generally need to function better in audit committees and other processes. And there are other examples we've used—for instance, length of mandate, the renewal. The period between appointments can be very long. There can be vacancies for too long. So I think the whole importance of boards needs to be recognized and action needs to be taken by government to address the issues we have raised.

Mr. Philip Mayfield: Of necessity, I need to speak in fairly general terms. But would you say that there is sufficient accountability in the relationship between the board of directors and management of corporations?

Ms. Sheila Fraser: I hate to use this reply, but it depends. There are some where the board has been very involved in the selection of the chief executive officers, and there have been others where the board has not been involved. So I think it depends again on individual circumstances. Unfortunately, we cannot generalize from the audit we've had, but I think it has shown that boards have concerns. The issues we are raising here and the comments are basically coming from the boards of directors. These are concerns they share.

I think you should also be aware that we've had a very good dialogue with crown corporations on our audit. We have met with over half of the boards of directors, and they are very interested in the issue and want to see improvements occur and are working on the recommendations that they can deal with directly.

Mr. Philip Mayfield: Would you say that this attitude extends into Treasury Board and Privy Council as well?

Ms. Sheila Fraser: Mr. Chairman, I'm encouraged by the responses today that we will see an action plan and that there will be concrete steps to address the recommendations. So if I may, I will reserve judgment until I see that action plan.

• 1635

Mr. Philip Mayfield: I'm going to be a bit partisan at this point.

I'm aware that Treasury Board Secretariat is accountable to Parliament, and that's why we're here asking these questions, yet I don't see great enthusiasm from you, who acts on behalf of Parliament, to answer your questions. I'm wondering if accountability at the top is maybe part of the attitude that is reflected further down the chain of command in our crowns.

Mr. Mac Harb: Do you want us to dance on the table for you, Mr. Mayfield?

The Chair: We'll have no discussion across the floor.

Ms. Sheila Fraser: Mr. Chair, we can be pleased with the process that's going on here today, and the questions that are being asked. I think this shows that the process does work.

Mr. Philip Mayfield: My question conveys my concern. Thank you very much.

The Chair: Thank you, Mr. Mayfield.

Mr. Harb.

Mr. Mac Harb: I know my colleagues are not very happy because the Auditor General and the administration seem to be in tune on the issue. They both seem to be in agreement. I know that doesn't please my colleague, but I'm sorry, we can't ask the official to be dancing on the table in order to show that they are responding. They already told you, both of them, that they are working on it.

While they are working on it, Mr. Chair, I have a suggestion or perhaps just a thought.

Mr. Odina Desrochers: Read that first.

Mr. Mac Harb: I know, and they responded to that.

The Chair: The questions are to be focused to the witnesses.

Mr. Mac Harb: We are faced with a dilemma. What we need to look at is is either we have to see whether the mandate of these boards has to be changed a little bit so they can be as hands-on as the legislation has asked of them, or we have to make sure that they are full-time and continuously engaged in working so they will be able to do the kinds of things the legislation has asked of them.

My feeling about this problem is it doesn't matter how efficient or good the member of the board of directors is going to be unless there is continuity and unless this person is on the grounds of the corporation on a continuous, regular basis. Without this we're always going to find them out of sync with the corporation and the efficiency of the operation and the corporation itself.

My thought is that perhaps the legislation should be revisited to give the board of directors more of an advisory and trusteeship role rather than just to look at the other side and demand of those people who come to those meetings once a month to really know exactly everything that's going on in every department of the corporation, because that isn't going to happen. I'm trying to ask whether this is something that Mr. Bilodeau and his people, as well as our government, should start thinking about in light of what the Auditor General has said.

The Chair: We'll start with Mr. Bilodeau, and I think Ms. Fraser may have some remarks as well.

Mr. Ronald Bilodeau: Obviously we're very concerned that boards be effective and ministers who are responsible want their crown corporations to function properly. In terms of the judgment as to their composition, the judgment as to their remuneration, their mandates, as we said earlier, some are subject to periodic review, and some are subject to less frequent reviews, but basically they're all reviewed over time.

In terms of asking the questions, Mr. Member, you are asking about full-time or not, and whether they should be reviewed more generically and should it be oversight rather than actual accountability. Again, there it's a judgment. I think the President of the Treasury Board and the Prime Minister would have to assess the feasibility of that over time. I'm sure Ralph would want to comment on it as well.

Some function very well, as indicated in the report. In crown corporations there's been a significant improvement. There's a distance to go. As you say, sir, there are endemic questions about memberships on those boards. Should the conditions and the terms of members and their mandates be reviewed? I would say probably. In what sequence and over what period is the judgment.

The Chair: Ms. Fraser.

Ms. Sheila Fraser: I'd like to add that I think it's important that when we—and I may have created some confusion—talk about overseeing the management, boards of directors should not substitute themselves for the management of the corporation. The management is responsible for the day-to-day operations. The board is there to oversee that management. So you would not expect management to be involved in every detail of operations—

The Chair: You mean the board?

Ms. Sheila Fraser: The board, sorry. The board should give strategic focus, should be looking at risk assessments in the organization, should be challenging the management as to their management of the day-to-day operations. In order to do that challenge role effectively, you have to have the skills and capabilities around the table to be able to ask the right questions.

• 1640

I think one of the reasons for setting up crown corporations as they were was to distance them a little bit and give them more independence from government, and boards play a critical role in that. If you turn them back into an advisory role, they would obviously become much closer to government and would lose some of the independence they now have.

The Chair: I see crown corporations as conducting business just as in the private sector, but with a public policy requirement as well, because quite often they operate in a monopoly environment. Do you have a policy of trying to evaluate the business portion to see that it is as efficient as in the private sector? Because the public policy may actually cause them to lose money or reduce the profitability of the organization as it manages that policy requirement as well. Do you evaluate their efficiency in business and the cost of public policy as two separate entities, or do you just take it as one?

Mr. Ralph Heintzman: Mr. Chairman, first of all, crowns do report annually to Parliament on their operations, and the President of the Treasury Board submits an overview report to Parliament on the operation of the crown corporation regime. All crowns prepare corporate plans, and the plans of most crowns are reviewed by their minister.

The Chair: I asked if you evaluate them separately—business and public policy—or do you just take it as one entity and look at it as one entity?

Mr. Ralph Heintzman: The normal way for the minister responsible, who has the first accountability, and for the government more broadly through the Treasury Board, is through the review of the corporate plan.

The Chair: You're basically saying you don't split it into business analysis and public policy analysis. You just take a look at the crown corporation.

Mr. Ralph Heintzman: I think that's a fair statement.

The Chair: And you mentioned that it reports to Parliament, but I'm looking at Appendix B under “Roles and Responsibilities Under the Financial Administration Act”, and by and large the corporations don't report to Parliament at all, other than that the “creation, acquisition, disposal and dissolution” of parent crowns is approved by Parliament. Everything else is either blank or indicates “receives”, or “may receive”. I think it is—

Mr. Ralph Heintzman: What I meant to say is that their annual reports are tabled in Parliament.

The Chair: They're tabled in Parliament.

My number may be wrong, but last year the main estimates gave crown corporations about $1.3 billion. Don't you think Parliament should be more engaged in the review of crown corporations if they're costing us that kind of money, if we're allocating over $1 billion to crown corporations?

Mr. Ralph Heintzman: I think that is probably a matter for Parliament to...

The Chair: Ms. Fraser, do you think that Parliament should be more engaged?

Ms. Sheila Fraser: Mr. Chair, we mentioned in our report that Parliament has little direct contact with crowns, and we would encourage that contact to increase.

The Chair: We've talked about good governance and we've talked about oversight both by the Privy Council and by the Treasury Board. Now I'm looking at Appendix C on pages 18-34 and 18-35 and I'm troubled. It talks about first cycle, second cycle, and third cycle. These are five-year cycles starting in 1984-1990, with 1990-1996 being the second and 1996-2000 the third cycle.

Under “Type of Opinion”, 77% had “significant deficiencies”, dropping down to 48% in the third cycle. That is just a hint under 50%, down from over three-quarters. I think those are abysmal results. Who is supervising? Who is calling the tune, and who is saying this isn't good enough? Nobody?

Mr. Bilodeau, is it you?

Mr. Ronald Bilodeau: The examination of the business performance and the policy performance, as Mr. Heintzman has said, would be done annually by the Treasury Board ministers.

The Chair: Okay, Mr. Heintzman, you're at the Treasury Board.

Mr. Ralph Heintzman: The primary accountability for overseeing crown corporations is the minister himself or herself. He's responsible—

The Chair: So you're saying it's back to the minister.

• 1645

Mr. Ralph Heintzman: He or she is responsible to Parliament. The Treasury Board does review most corporate plans and—

The Chair: I'm talking about the opinion. The “type of opinion” says “significant deficiencies” on the third cycle are 48%.

Ms. Fraser.

Ms. Sheila Fraser: I'd clarify that these are special examinations that we conduct once every five years at crown corporations. Our reporting is to the board of directors, not to any central agency. In those cases where we believe there is a very significant deficiency, we report to the minister.

You will notice in the table on page 18-35 that three-quarters of the reports that we issued were reported to the board of directors only, and in about one-quarter of the cases there were issues that we thought should be brought to the attention of the minister. So it is basically up to the board of directors to ensure that improvement is made over the next cycle.

The Chair: So you're reporting back to the board, and now we're finding that these opinions range from three-quarters to just under one-half that have significant deficiencies. Who is holding the boards of directors accountable if over a period of 15 years they've only dropped from three-quarters to 50% showing significant deficiencies? Who is saying to boards of directors that we've had discussions about responsibilities, and the Auditor General has told us that they have legal responsibilities and direct responsibilities, and half the time significant deficiencies? Who is saying this isn't good enough?

Mr. Ralph Heintzman: I think Ms. Fraser has given the right answer. There is a variety of responsibilities. The first responsibility is that of the board of directors. The minister has an important role to play, and there is an oversight rule for the Treasury Board.

The Chair: I look down to the table on page 18-35, the second table, under “Corporate and strategic planning”, and see 50% deficiency in the first cycle, 53% in the second cycle, 38% in the third cycle. And it says “Percentage of crown corporations with both significant and other deficiencies” on the third cycle, 66%. Two-thirds have “significant and other deficiencies”.

Now, Parliament, as I said, voted about $1.3 billion to crown corporations. Taxpayers are the shareholders, and you know what happens in the private sector when the board of directors get this kind of report and it's made public to the shareholders. Do you think they would be happy?

Mr. Bilodeau, do you think they would be happy?

Mr. Ronald Bilodeau: I think they would do something about it, sir. I think they'd want an examination of the reasons and—

The Chair: Fire the board?

Mr. Ronald Bilodeau: I certainly think they would get a report on this from the board and make a judgment after that.

The Chair: Okay. Now the government operates on behalf of the taxpayer. Are you asking what's going on here?

Mr. Ronald Bilodeau: I think in the system the minister is first responsible for the management of the crown corporations. These issues are brought to their attention, and the Treasury Board annually reviews the budgets. Some crown corporations are financially autonomous, some are not. The ones that are not clearly come before Parliament for appropriations—

The Chair: If I recall, it may be about $1.3 billion last year.

Mr. Ronald Bilodeau: That's right. And therefore standing committees in Parliament can ask questions in voting these funds to crown corporations. That's very legitimate. That's their role.

The Chair: We're even further removed than boards as far as being able to look at corporate plans is concerned. We rely on the advice of our officers of Parliament, such as the Auditor General, and she's now saying that on the third cycle from 1996 to 2001, two-thirds have corporate and strategic planning deficiencies, and so on.

I find it quite abysmal, actually, that we're running $55 billion to $75 billion worth of corporate business in this country with this kind of lack of corporate and strategic planning. How are we going to fix it?

Mr. Ronald Bilodeau: Mr. Chairman, as a first step, I think the problem behind the percentage perhaps would require greater clarification, and I think Madam Fraser could tell us exactly what kinds of corporate and planning problems these are. Are they quality problems? Are they quantity problems? Are they a combination of no planning, or improvisation? I'd say we'd need additional information on each of the crown corporations.

• 1650

The Chair: I know, Mr. Bilodeau, but you have had the report since December 2000, that's ten months ago, and now you're saying you want more information. It's been there, public knowledge, for ten months. You are in the role of looking after these, and also Mr. Heintzman and Ms Hardy. Your position is director of crown corporations, policy and information. What are you saying about the issue? How are you going to fix this up?

Ms. Helen Hardy (Director, Crown Corporations, Policy and Information Division, Office of the Auditor General of Canada): Currently, based on the Auditor General's report, we do not have the details of which crown corporations the Auditor General's audit has found to be deficient in their plans.

One thing I would like to mention is that each one of those crown corporations that are subject to part X of the Financial Administration Act must annually submit a summary of their approved corporate plan in both Houses of Parliament, as well as their annual report. These reports are automatically referred to the standing committee that deals with the issues related to that corporation. So there is an opportunity for the various standing committees to call the crown corporation chairs and CEOs to account for the information that is included in those plans.

The Chair: You're doing this full-time, and committees have many other responsibilities. Have you asked the Auditor General for the details?

Ms. Helen Hardy: No, we have not.

The Chair: Do you intend to do that now?

Ms. Helen Hardy: Yes.

The Chair: Thank you.

Ms. Beth Phinney: The opposition should do it.

Mr. Mac Harb: Yes, but I think there's a policy question here.

The Chair: Okay, just a second. I'll now go to Mr. Harb for four minutes.

Mr. Mac Harb: I think it's quite obvious here. The Auditor General has made her presentation and we have heard from the witnesses, and they are in agreement that the action plan the government has taken is the proper action plan. For us to now start looking at the nitty-gritty, who did what at what time, I think will be highly unfair for the witnesses. And frankly, I agree with what the young lady said, that it's really the standing committee's responsibility for a specific portfolio, whether industry, foreign affairs, international trade, for EDCs or others. They are the ones who would have that opportunity. I think for us as a committee to start going into that much detail is to go outside our mandate a little.

In general terms, the presentations we have heard today have been very forthcoming. It's very positive, and it led me to believe, as a member of this committee, that we are in good hands, both with the Auditor General and with the administration. This is a work in progress. We had to overcome a system 50 or 60 years in the making, and finally this government has taken proper action to modernize not only the government and the way it operates, but crown corporations, Parliament, and everything else. We are moving right ahead. It's step by step.

It's a difficult balance, Mr. Chair, you have to keep in mind, but nonetheless, I'm quite optimistic that by this time next year both the Auditor General and Mr. Bilodeau will come back to this committee and tell us they have got to the bottom of the problem and this is the action plan they have taken. I don't think it's fair for us to expect them to give us all the answers at this point in time.

The Chair: Ms. Fraser.

Mr. Sheila Fraser: Mr. Chair, I'd like to ask Mr. Wiersema to give you some information on this issue.

Mr. John Wiersema (Assistant Auditor General, Audit Operations Branch, Office of the Auditor General of Canada): Perhaps, Mr. Chairman, if I might, with the Appendix C you've been referring to that deals with the special examination results, you've been keying in on the results in the area of corporate and strategic planning. It is a feature of all of the special examinations we do of crown corporations, recognizing the difficulties you talked about earlier, balancing public policy objectives with commercial objectives, separating those. Are those one and the same? Should we evaluate the corporation separately? How does the corporation deal with those? How do they trade off public policy against commercial objectives? These are all questions we will ask when we do the value-for-money audit, a special examination of the crown corporation.

For many of these corporations this is frequently a very difficult balancing act, and some of them do it better than others. Some of them have further work that's required to really do that in a manner that we think would be satisfactory. So what you're seeing there is where a corporation hasn't really handled that trade-off and that balancing as well as it should. We will report to that board of directors significant deficiencies. Where we think they're making good progress, but some further improvement is required, we'll report a deficiency and we'll just say it's another deficiency, not a significant deficiency. Normally, as the Auditor General has indicated, we would give that report to the board of directors only of the crown corporation. If we think there are serious matters there, or if we think the minister needs to be involved in resolving the problem, then we will also report the matter to the minister.

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All of this is consistent with what's required of us under the Financial Administration Act. There is, I should point out, no provision in the Financial Administration Act for us to provide the report to Treasury Board. However, for the reasons you've suggested, Treasury Board and other government officials might be interested in these reports.

The Chair: I hope it's more than “might”, Mr. Wiersema.

Mr. John Wiersema: Well, perhaps more than “might”. I would encourage Treasury Board and other officials, and perhaps even a parliamentary committee, to talk to the corporations directly about these findings. There is nothing to prevent a parliamentary committee asking a crown corporation for its report and to respond to the report. The Treasury Board officials could also ask the corporation for the Auditor General's findings on the special examination.

So I thought perhaps you might find that a bit of clarification.

The Chair: Okay. Thank you.

Ms. Phinney.

Ms. Beth Phinney: You said there's nothing in your mandate saying you should give these reports to the Treasury Board. What could be done to make that part of your mandate? Would something have to be done, or could you just do it?

Mr. John Wiersema: We would have to amend part X of the Financial Administration Act.

Ms. Beth Phinney: What if they asked for it?

The Chair: We may put that in our report, and if the committee recommends that, the government will take it under advisement.

Ms. Beth Phinney: Okay.

The Chair: Mr. Mayfield, you had a question.

Mr. Philip Mayfield: I appreciate it occurring to you to quantify for us some of the conversation we've been having here.

I think I understood Mr. Harb to say that we have agreed on an action plan. I think we've agreed that we're going to see the action plan, but I don't think we've agreed on the plan.

The question I'd like to ask of Treasury Board and Privy Council folk is, will your action plan include some demonstration of dealing with these problems? I'd like to know whether you have the tools to deal with the problems the Auditor General has brought to you and to this committee.

Mr. Ronald Bilodeau: Mr. Chairman, the response we'll be providing will be how the government will deal with the recommendations in the report and the problems raised and in what timeframe. As to the tools we have at our disposal, obviously, the Privy Council is a fairly small operation, and we do not have a lot of people.

Mr. Philip Mayfield: But there is a chain of command, if I'm not mistaken.

Mr. Ronald Bilodeau: There is a chain of command, sir, but it is... We intervene at a certain stage of the appointment process, not on the day-to-day management of the crown corporations. I think that's true of other central agencies as well. More oversight, more attention, more review would be helpful, obviously, and it's a judgment as to how much more the government is willing to put in each department and in the central agencies. We could use more resources.

Mr. Philip Mayfield: Yes, I'm sure you could.

I'm not sure I can speak on behalf of the committee, but I'd like you to understand, I don't think Treasury Board or Privy Council should be micro-managing, or even managing, but you certainly have a responsibility to see that the managers are there who can do the job and the board there to set the policies. I don't think you should necessarily be involved in all of that either.

But there really is a chain of command, and when we look at the numbers and the concerns we have here, I would really like to see, when you bring the information you have to this committee, that there is a plan to tighten up the organization, the chain of command, the areas of accountability, and perhaps even an ability to let go those who are not doing the job that needs to be done on behalf of Canadians.

The Chair: Thank you, Mr. Mayfield.

Paragraph 18.86 of the AG's report dealing with financial literacy and accounting expertise says there were three audit committees with at least one member who was not financially literate, and on one audit committee most members were not financially literate. It goes on to say that two audit committees had no members with any accounting or financial management experience. You mentioned, Mr. Bilodeau, that not everybody on the board had to have specific expertise in the area of the crown corporation. You used transporation as the example: not everybody had to be a transport expert to sit on the board. But one would hope that to sit on the audit committee financial literacy would be one of the requirements, surely. Do you agree with that? If you do, why is this happening?

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Mr. Ronald Bilodeau: Definitely the judgments that the audit committee applies on the financial performance of crown corporations are enhanced if the people reviewing have the skills to understand the technical issues at hand. So I agree with that.

I can't comment as to why they haven't at this time. I can vouch for the fact that the government is aware that there are deficiencies in representing certain professions on board and certain skills, and looking forward, will do something about it.

At that time, the financial requirements might have been less. They might become more acute over time, and the need for the audit committee might become more severe as things improve. It's a minimum.

The Chair: I would think every crown corporation that we set up is a multi-million-dollar organization; it's not just a mom-and-pop enterprise. Therefore somebody on the board should have financial expertise. Wouldn't you agree, Ms. Fraser?

Ms. Sheila Fraser: Yes, most definitely.

These are, as I mentioned earlier, for the most part, very large, complex organizations involving billions of dollars. I think it's an absolute requirement that there be people with, as a minimum, financial literacy, and in most cases, someone with financial expertise on the boards.

The Chair: In paragraph 18.85, you say, dealing with crown corporations—this is again with audit committees: “five others used only some of the best practices and were only marginally effective; and two were ineffective despite using... best practices.” How can they be ineffective if they're using best practices? Is this because they're financially illiterate, and if so, who are these crown corporations? Can you tell us?

Ms. Sheila Fraser: I'll pass the question to Mr. Wiersema to explain the two that were ineffective.

Mr. John Wiersema: The comment dealing with the two that were ineffective says that the committees went through the motions of following many of the best practices but didn't have the necessary skills and experience to do that in a very effective way. So, to oversimplify for a moment, it's largely an exercise of going through the motions.

The Chair: Who are the corporations?

Mr. John Wiersema: That's information I don't have with me.

The Chair: Can you send it on?

Ms. Sheila Fraser: If the committee requests, we will send it. We would prefer not to, because these were 14 out of 40-some corporations that were done as a sample.

Mr. Mac Harb: I'm not trying to interject here; I would let the Auditor General... If you will recall, she told us that under the Financial Administration Act, they are not required to inform even the Treasury Board, that they go through the board of directors.

Frankly, I'm not interested in that, and I would rather this issue be dealt with through the board of directors. Otherwise I don't want to find myself in a bit of a conflict situation where I'm telling the board of directors of a corporation what to do.

The Chair: Yes. Thank you very much.

Mr. Murphy.

Mr. Shawn Murphy (Hillsborough, Lib.): I have a question for the Auditor General or Mr. Wiersema.

You indicated that you do special examinations, and if there is a significant deficiency, it's reported to the minister. How many of those cases would have been reported to the minister?

As a supplementary question to that, has corrective action been taken by the minister after a report has been made?

Mr. John Wiersema: By way of clarification, firstly, not all “significant deficiencies” are reported to the minister. In many cases we'll report significant deficiencies to the board of directors if we think the minister should be aware. Or if the minister's involvement is required to resolve the issue, we will also then report it to the responsible minister.

In response to the second question of how many special examination reports were reported to the minister in the third cycle of the special examinations, I'd refer the member to Appendix C of our report, page 18-35, which says 24% of the special examinations done in the third cycle were reported to the minister. That would be 24% of some 29 examinations. I'd have to do the math: Roughly six or seven cases were reported to the minister.

Mr. Shawn Murphy: So there were other significant deficiencies that were reported to the board but not to the minister.

Mr. John Wiersema: Yes, there would be cases where there were other significant deficiencies reported to the board but not to the minister.

The Chair: Thank you, Mr. Murphy.

Mr. Mayfield.

Mr. Philip Mayfield: Thank you, Mr. Chairman.

I want to go back a little bit, perhaps to where I began—and maybe I was a bit presumptuous to begin with.

Do you have a detailed action plan to deal with the recommendations of the Auditor General?

Mr. Ronald Bilodeau: Not at this time. We're working on an action plan to respond to the various recommendations. We're putting some elements into place. The board profiles are a recommendation. There are other elements to the plan, but we don't have an integrated plan at this time.

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Mr. Philip Mayfield: Would you say it's half done yet? Would you be able to estimate that?

Mr. Ronald Bilodeau: Certainly. We have reports on the particular board profiles. We have information from more than half the crown corporations on that element.

Mr. Philip Mayfield: Do you intend to deal with all the recommendations of the Auditor General?

Mr. Ronald Bilodeau: All the recommendations will be addressed by the government. Some bear more on the financial side, and others bear more on the governance side, but they will all be addressed.

Mr. Philip Mayfield: I believe earlier on you made a commitment to share that plan with the committee. Would you please tell us when that plan will be available to the committee.

Mr. Ronald Bilodeau: In about a month or a month and a half we will have all the responses, and then we can certainly provide an initial response or an initial plan.

On the appointment side, the Privy Council Office, which has a more direct responsibility, I'd say about a month or month and a half.

Mr. Philip Mayfield: Could we agree on December 1?

Mr. Ronald Bilodeau: It's a reasonable request.

Mr. Philip Mayfield: Thank you very much.

The Chair: Paragraph 18.93 of the Auditor General's report says:

Our special examinations have found that there are significant deficiencies in some 38 percent of government-approved corporate plans, and less serious problems in a further 28 percent.

That adds up to 64%.

Problems include any or all of the following:

absence of long-term plans;

unclear or non-existent corporate objectives, targets, goals and business strategies, as well as weak action plans; and

little information by which to judge whether the corporation is achieving its objectives.

Ms. Fraser, can you tell us again what a board's responsibility is?

Ms. Sheila Fraser: As I mentioned earlier, the board is responsible to oversee the management, to look at stewardship of the assets, the reporting of results, the monitoring of corporate performance, and to establish the corporation's strategic direction.

The Chair: To establish the corporation's strategic direction... In a total of 66%, there are either serious problems or these things are non-existent.

Mr. Bilodeau, why are we tolerating this?

Mr. Ronald Bilodeau: It is difficult to answer that question. This is obviously a troubling statistic, and there is no single answer to your question.

The responsibility is shared with the management of the corporations, the board of directors, the minister, and at the government level, the Treasury Board and the cabinet. As indicated earlier, these corporations come forward, some of them for estimates and voting funds from the government annually, and Parliament is in a good position to ask questions of them.

The Chair: We are asking a question, Mr. Bilodeau.

Mr. Ronald Bilodeau: There is a collective responsibility. Some of it is financial; some of it is governance—

The Chair: But I'm asking a question right now. I'm saying this is my problem, and you're agreeing that it's a serious problem. You are the Associate Secretary to the Cabinet and Deputy Clerk of the Privy Council, the most central agency, and you are perhaps the second or third most senior civil servant in the country. I presume this is part of your responsibility, to see that $1.3 billion of taxpayers' money is spent effectively and prudently, and in the performance of public policy, as well as the business that they conduct. There seems to be no oversight here. Why?

Mr. Ronald Bilodeau: There is a degree of oversight. Obviously there are some gaps, but I think there is a responsible oversight by Parliament, by the Treasury Board, by Finance, by central agencies as a whole. We need to go in behind this information for each of the corporations and where the problems are more acute, as was indicated by Ms. Hardy.

Taken as a global statistic, it is very worrisome. As to where the problem is more acute and which corporation, we need to have a work plan on that. I agree with you.

The Chair: Do you know which crown corporations have acute problems?

Mr. Ronald Bilodeau: I do not know at this time.

The Chair: Do you know, Ms. Hardy?

Ms. Helen Hardy: No, I do not.

The Chair: Do you know, Mr. Heintzman?

Mr. Ralph Heintzman: No, I do not.

The Chair: Does anybody know?

Do you know, Ms. Fraser?

Ms. Sheila Fraser: Yes, Mr. Chair, we do know.

The Chair: Doesn't that speak for itself, that the people who are in charge of managing the government's resources and the public policy of the government don't know, but the Auditor General does know?

As to the next question I have, Mr. Bilodeau, this report came out in December 2000, ten months ago. You are going to have this plan put together in the next month and a half. I do hope it addresses these issues clearly and definitively when you do present it to us.

• 1710

Mr. Ronald Bilodeau: We'll do our best, sir, to address the broad spectrum of issues raised.

On your previous comment as to the people who know, the boards of directors, the chairs, and some of the ministers who manage these corporations are aware. They presumably have taken some corrective action on the basis of the information that has been provided.

The Chair: I see.

Mr. Ronald Bilodeau: Some of it reaches the centre of government, and some of it may be fixable at the crown corporation level. One shouldn't conclude that across the system there's total indifference to these problems. The ministers and the management of the crown corporations concerned I would hope are working on it.

The Chair: Mr. Harb.

Mr. Mac Harb: Mr. Chair, I didn't want to jump in while you were asking your questions. The Privy Council Office and the Treasury Board didn't answer.

There is an issue here of a process the Auditor General has outlined. We have to understand, as Mr. Bilodeau has indicated, the role of the Privy Council Office. The role of the Privy Council Office is part of the process, but not all of the process. The same thing applies to Treasury Board. As they indicated earlier, the system works through a variety of channels, including mainly, or partially, the different departments and the different ministers.

I would say the answer to your question is that it is already in the pudding, with what the Auditor General has said, as well as what has been said over and over again. I guess we're having difficulty trying to understand, and that's our problem.

As far as I'm concerned, it's quite clear. If we specifically are interested in one specific crown corporation, the best route is really to go to the standing committee responsible for that specific crown corporation.

From my end as a government member, I will say I'm exceptionally happy with the process and the way in which we deliver our services. I'm not saying everything is perfect. You always find the odd troubles everywhere. By and large, our crown corporations are fulfilling the commitment as required by Parliament.

If that's not the case, then it's up to the specific standing committees to call on the crown corporations when they come with their annual reports, and to ask them all of the specific questions, including the management's and the board of directors' relation with the administration of the corporations.

From our perspective, we are interested in general terms in what we have already heard from the Auditor General as well as the administration from the Treasury Board and Privy Council Office. In fact they are both saying there are deficiencies in the system. We have a collective responsibility and individual responsibilities to try to deal with and address it.

Frankly, on their own, it can't be done. It needs the collective will of the different crown corporations, including their boards of directors, and the different standing committees. When the annual reports come to the standing committees, each standing committee should ask the questions in terms of what they have done to deal with the Auditor General's report.

I can't expect these young men and women to answer all the questions now because of what the Auditor General has said. Many of the reports have gone to the boards of directors. Obviously even the government officials don't know about them because they're not required to inform them.

I am quite happy, Mr. Chair. I can see that it's 5:15. I wanted to tell you that this was quite an eye-opener for me today. I thought the role of the board of directors of a crown corporation was similar to that of a hospital. I served on a board of trustees of a hospital. We were kept informed, but we didn't really run the day-to-day operation of the hospital.

The Chair: Thank you, Mr. Harb. I fully agree that no one is expecting them to run the day-to-day operation. We expect them to approve the corporate plan, and if there isn't one, to ask for one. It is a director's job.

I'm not going to get into a debate with you. It's not the appropriate thing to do at committee. We're here to talk to the witnesses.

I find it quite appalling that the taxpayers, as I said last year, gave about $1.3 billion to perform this public policy. I think that was the number.

Remember, the business sector part of the crown corporation, presumably without the public policy part, would have run at a profit. Back in those days, the economy was strong and everything was going well. The business part should be operating efficiently and productively. When you overlay the public policy, it may require that the organization, as a whole, loses money. I don't have a problem with that.

• 1715

However, my first question concerned the fact that there doesn't seem to be any analysis, when the business part is running well, to determine the cost of the public policy factor on top of that. No one says this is why a crown corporation has to come to Parliament for subsidization when the economy is strong and everything is growing well. Nobody seems to have asked that question. I thought that would have been one of the first questions the government would have asked as the shareholder of the organization. I would have thought that would have been the first question asked many years ago. It hasn't been asked, and I think it should be asked of all crown corporations so we can truly understand whether they are running the business efficiently and what the cost of the public policy is. I don't see anything wrong with that.

We find, for example... and again I refer to 18.50, where it says:

In one Crown corporation, 80 percent of the directors have continued in expired positions for over a year, and the chair position is vacant.

This is not the crown corporation's problem; this is the government's problem or the minister's problem. Somebody is not fulfilling their responsibilities in the government.

Ms. Hardy, perhaps as the director of corporation policy and information division, is it you who keeps track of the vacancies and the renewals of directors?

Ms. Helen Hardy: No, it is not a responsibility of the Treasury Board Secretariat. I think Mr. Bilodeau could answer that question for you.

Mr. Ronald Bilodeau: The identification of vacancies as they occur, sir, is the responsibility of the Privy Council Office and the Prime Minister's Office.

The Chair: The Privy Council. Perhaps you can tell me why in one case 80% have continued in an expired position and why there is no chair.

Mr. Ronald Bilodeau: Sometimes there are vacancies that are difficult to fill, sir, as we discussed earlier. In some cases it's difficult to find chairpersons, and it is the minister's responsibility to come forward to cabinet with a name. Now, we do flag the vacancies, and action is taken on them, albeit sometimes somewhat belatedly, as these numbers show.

If you look at the private sector analyses, sir, they have similar problems in staffing up boards. In the Dey report and the report by the Toronto Stock Exchange on Canadian corporations, you'll see exactly the same problems of competence, of makeup, and of timely filling of vacancies. That's not an excuse. I'm just pointing out that it's a problem to find good people. There are certain normal delays, and there are abnormal delays, I agree.

The Chair: It seems to me that 70% have had more than six months over their time limit. Why don't you just make the time limit three years or five years rather than two years, as the Auditor General was suggesting? In that way you wouldn't have the turnover more rapid than you want.

I have one final question before we go to Mr. Shepherd, and it deals with the ability of the Auditor General to make value-for-money audits on crown corporations. In some cases the Auditor General is barred from doing so under the Financial Administration Act. Am I correct in saying that, Ms. Fraser, that he or she is barred from doing value-for-money audits?

Ms. Sheila Fraser: Mr. Chair, the special examination we referred to is essentially a value-for-money audit for the crown corporations. In a very large sense it is actually quite an extensive audit, and those crown corporations—and we mentioned 31 of them—are required to have a special examination once every five years. In effect, they probably get more coverage than some departments do.

The Chair: So is it the financial audits you are not allowed to do in some cases, like the annual report?

Ms. Sheila Fraser: It depends. No, for these crown corporations we are in most cases the financial auditor, and we also conduct the special examinations. There are other entities, other bodies, to which we have no access.

The Chair: Okay. That is outside the scope of our debate this afternoon.

Ms. Sheila Fraser: This is another issue, yes.

The Chair: Okay. Mr. Shepherd.

Mr. Alex Shepherd: Mr. Chairman, I just want to take exception to your role as chair in relation to developing some kind of alternative accounting policy for crown corporations. It was you who were trying to suggest that they should be going to all crown corporations and somehow distinguishing between those that have a business function and those with a social policy function. Quite frankly, I've never heard of such a thing. It would be a reinvention of how governments evaluate crown corporations. As I go through the list of crown corporations, for example the National Gallery of Canada, I ask myself, what's their business function and what's their social role? It's impossible to answer, and it's a ludicrous argument.

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Now, if you want to get positive recommendations out of this committee, it seems to me you point in some of those directions the Auditor General has mentioned as occurring in other countries—that is, there is a clearer, more transparent, and more open process. Maybe that is what the goal should be, rather than trying to reinvent the accounting system.

The Chair: Okay, that seems to be about it for the day. It's almost time to adjourn.

As to the next meeting, we're going to adjourn until...

Mr. Philip Mayfield: Could the Auditor General sort of summarize, as she used to?

The Chair: Oh, yes. I'm a little rusty here. We're going to ask the Auditor General to summarize. It has been a few months since I did this.

Ms. Sheila Fraser: Thank you, Mr. Chair.

I'd just like to conclude by saying that we are pleased with the government response, particularly today, with their commitment to using board profiles and appointments.

Mr. Mac Harb: Could you repeat that?

Ms. Sheila Fraser: I'm also pleased that there will be an action plan coming, and I look forward to receiving it.

As usual, we will be back in two or three years to see how effectively our recommendations have been addressed.

The Chair: Thank you very much, Ms. Fraser.

The next meeting is Tuesday, October 16, when the committee will be considering chapters 19 and 20 of the December 2000 Report of the Auditor General.

This meeting stands adjourned, and we thank everybody for being here.