Hon. Céline Hervieux-Payette:

Honourable senators, I rise today for the second reading of Bill S-205, a bill that will restore Canadians' trust in corporations that have received government assistance, bailouts or support, and that will ensure that directors act solely in the best interests of those who have provided the financial assistance: Canadian taxpayers.

Bill S-205, an act to provide the means to rationalize the governance of Canadian businesses during the period of national emergency resulting from the global financial crisis that is undermining Canada's economic stability, will limit to $500,000 the remuneration paid to officers of corporations receiving federal loans.

The financial crisis that started in 2008 caught people off guard despite all the obvious warning signs. This event demonstrated a number of things: first, that our economy and the global economy are interconnected; and second, that some people's lack of accountability and greed gave some individuals free rein to turn a profit at the expense of hundreds of millions of people who lost their homes, their savings and their jobs. The government must therefore assume its responsibilities and help these people and businesses keep their jobs. Canadians should not have to pay for the mistakes of profiteers.

At a time when Canadians are angry with their leaders for not doing enough to prevent the crisis and are demanding, with increasing insistence, that the government and the private sector be more transparent and accountable, they deserve the assurance that their hard-earned money will be put to good use and benefit Canada as a whole.

Accountability and transparency are two concepts that are frequently used in these hard times represent the type of values we must install in all spheres of our life, whether it be in this place, our government and institutions or the private sector. Bill S-205 seeks to reform corporate governance to restore both corporate and consumer confidence in the economy. Many important international organizations have commented on the link between corporate governance and the performance of a company. In 2005, during the sixth Global Forum of Reinventing Government organized by the United Nations, Chul-kyu Kang, then Chairman

of the Korea Free Trade Commission, said in a paper entitled: Market Economy and Corporate Governance — Fairness and Transparency for Sustainable Growth:

According to various experimental studies, ethical management has shown positive influence on business performance. Companies, which ensure high-level of ethical treatment, have seen improved productivity and profits for giving more motives and encouragement to their staffs to work harder.

Honourable senators, we must remove the negative stigma associated with the government taking on the responsibility of enforcing positive changes in the private sector. The government, like other governments in Europe and the United States, can and should take every possible step to improve ethical corporate governance. Responsible corporate citizens can play an important role in our society and our economy. We must create terms for which they hold respect and will abide by certain moral standards and lead by example in good and bad times.

According to Mats Isaksson, Head of Corporate Affairs at the OECD:

. . .when there is a very weak link between pay and performance it is obviously a case of poor governance.

People who lost billions of dollars were still paid annual salaries of over $20 million. He added:

When looking at various models for compensation, boards should explicitly ask themselves if the company's compensation model is aligned with prudent risk taking and the long term objectives of the company.

Like some of its G8 partners, Canada needs to take measures to create a climate of greater financial responsibility. We need to follow the examples of the United States and Germany, which have taken measures to cap incomes of company executives at $500,000 U.S. or 500,000 euros if their business has been bailed out with taxpayers' money. Bill S-205 would follow that lead and cap, at $500,000, the remuneration of company executives running Canadian businesses that have been saved, bailed out or helped.

Our economic well-being is closely intertwined with that of the United States. We should not hesitate to impose these rules on businesses that receive public monies. This bill is a commitment to fixing the moral problems that led to this mess we are in, which required the use of pension funds to pay the bill. Strong business governance must become one of our priorities. Other countries have understood this, and it is time that we did too.

I can already hear some of my colleagues crying foul and wondering about the poor executives who run their business well and respect the deadlines for reimbursing their debt to Canadian taxpayers. Bill S-205 also proposes to limit executive bonuses to one-third of their salary or stock options, which would allow for good production to be reasonably rewarded. In addition, by not allowing excessive bonuses, we are working towards restoring public confidence and making people understand that stock options and bonuses are a privilege to be earned, not a right, and that this privilege must not negatively impact the real owners, namely, shareholders and those who helped bail out the businesses in trouble.

European countries were hit hard by the economic crisis and, like Canada, were forced to question whether our current capitalist model was to blame. The European Commission was mandated to study how to reform the financial system in order to avoid a future crisis. We know that we do not need another crisis. Allow me to read two passages from one of their green papers entitled: Corporate Governance in Financial Institutions and Remuneration Policies:

Strengthening corporate governance is at the heart of the Commission's programme of financial market reform and crisis prevention. Sustainable growth cannot exist without awareness and healthy management of risks within a company.

The paper continues:

Although corporate governance did not directly cause the crisis, the lack of effective control mechanisms contributed significantly to excessive risk-taking on the part of financial institutions.

Excessive risk-taking by corporations can be reduced with strong corporate governance and remuneration policies that are proportional to the accurate financial health of corporations. Bill S-205 requires the creation of remuneration committees to ensure that remuneration will be no more than 20 times greater than the annual average industrial wage as calculated by a famous institution, Statistics Canada, and by examining the book value of the corporation for the current fiscal year compared to its book value for the preceding fiscal year.

In the last 20 years, the gap between workers and managers, honourable senators, has increased dramatically, up to 240 times in some corporations.

These checks and balances are right on the money. They are good for business, good for Canadians and reinforce the fact that corporations indebted to the federal government must act in the best interests of their companies, their employees, their shareholders and the Canadian people.

Since the crisis started, world leaders have come together to seek greater co-operation in stabilizing the financial system at G8 and G20 summits and the World Economic Forum. Canada participated in these meetings, but has yet to do its homework and to show leadership in reforming the financial sector. One thing is perfectly clear: Canadians want the economy up and running again, they want the money they loaned to struggling companies to be paid back, they want global business culture to become more accountable and transparent, and most importantly, they want more fairness between workers and management.

Honourable senators, it is possible that we weathered the economic crisis better than others, at least in some respects, but that does not mean we are less vulnerable to the abuses being committed around the world. The longer we take to fix these

endemic problems in the financial system, the longer they will persist. Publicly traded Canadian companies must be held accountable to Canadians. Our population is aging, and Canadians need the job security that comes along with sound management practices. As we saw with Nortel, a poorly managed company can make a real mess. Those who chose to invest some of their savings in securities for retirement want to be sure that no publicly traded company will act irresponsibly.

The Canadian taxpayer has invested over $70 billion in bailout funds and needs to be reassured that regulations are imposed on companies who have received some of this money. Bill S-205 proposes realistic and achievable regulations that will foster better corporate governance, restore faith in the private sector and assure a stable economic recovery.

Some of my colleagues opposite might be of the opinion that Canada should not force regulations upon the financial and private sector at the risk of choking any form of economic recovery in this country or abroad. Honourable senators, let me be clear. Bill S-205 is not aimed at reducing the private sector's ability to create jobs, stimulate innovation and improve communities. It aims to send a warning that all that incompetence and greed will not be rewarded by this government, by any other government and by the Canadian taxpayer.

The regulations I propose for companies that receive money from the federal government would cap officers' salaries at $500,000 or, as I said, roughly 20 times what the average Canadian worker earns, prohibit bonuses or stock options worth more than one-third of the officer's salary, so one-third of $500,000, prohibit directors — people who sit on boards of directors and who currently can sit on several boards at once — from sitting on more than four boards at the same time, and require them to invest in the corporations they direct. These rules will change the culture of irresponsibility and greed that shook the global economy, ruined families and left thousands unemployed.

I would like to quote someone who talked about how countries needed to take action to reform the financial sector instead of just talking about reform. This person said that:

. . . an agreement to act is just a start; it is acting on the agreement that matters.

Those words were spoken by none other than the Prime Minister of Canada, Mr. Harper, when he addressed the World Economic Forum in Davos, Switzerland, last January.

Bill S-205 will force Canadian companies that received loans from the federal government to lead by example. Canadians deserve to know whether their investments have paid off and whether the money they loaned is being put to good use. Bill S-205 will require these companies to report on the benefits their officers receive, whether for travel, entertainment, living expenses or personal benefits such as health insurance and, in some cases, exotic trips to attend board meetings in locations that generally are warmer than our country. This measure is aimed at deterring officers from abusing their privileges and putting an end to hypocritical behaviour at the expense of workers, whose hours, salaries, and benefits get cut, if not their jobs outright.

Business cannot go on as usual. The invisible hand of the market has slapped us right in the face. Public monies cannot and should not be used to enrich company directors who line their pockets with cash as their companies continue to sink into the abyss.

I think mainly of a former Canadian jewel, Nortel, whose former employees now are left with nothing. Pensions are gone; disability insurance is gone; jobs are gone; and, of course, for all the shareholders, their money is gone. All the while, executives were walking away with million-dollar bonuses and golden parachutes.

Honourable senators, even my personal hairdresser lost half her pension by investing in Nortel. This situation cannot go on, and Canadian families should never have to live through similar ordeals. The responsibilities of board members and officers must be made clear, especially when the federal government becomes a major creditor.

Honourable senators, supporting this bill means that you support the role of the private sector in our economy. When public monies are involved, there must be responsibility, accountability and economy. This will help companies restructure effectively, survive, thrive, and pay back their monetary and moral debts.

Honourable senators, Canada has the opportunity to take a leadership role in reforming the global financial system in Canada to foster growth while promoting fiscal responsibility. The pen might be mightier than the sword, but actions speak louder than words. Supporting this bill is morally the right thing to do because the state of the economy is everyone's business, and I feel that we owe this bill to them.

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