Ethically Challenged Canadian Corporate CEOs Double-Dipping on the Taxpayer's Dime

"The orthodoxy is that executives owning shares is absolutely the proper corporate governance because it aligns the philosophy, the risk and the performance period with payouts."

"What's interesting is that when you bring dividends into play and the ability of an organization to determine dividend payouts based on a government subsidy, it does raise questions about that linkage and the optics of that linkage."

"By the time you actually own a physical share, it's considered an after-tax investment the same way it would be if you bought mutual funds [there has never been a requirement to directly disclose figures relating to dividend payouts publicly]."

Christopher Chen, managing director, Compensation Governance Partners

 

"You may be less willing to suspend dividends because you have an interest in receiving the dividends. To say [CEWS] is different money or the left hand doesn't know what the right hand is doing I don't think addresses that conflict that certain CEOs have seven digits in dividends at the same time they're accepting the government subsidy."

"What you could do is voluntarily take a haircut so your net total compensation remains the same ... and say we're not going to benefit financially during receipt of taxpayer money."

Richard Leblanc, York University professor, governance consultant

There is nothing illegal about companies claiming emergency benefits while continuing to pay dividends. But the findings raise all kinds of questions that are worth debating. Photo by Peter J. Thompson/National Post files

There may be nothing illegal, strictly speaking about wealthy corporations lining up to receive government benefits out of taxes imposed on citizens, during the economic hardships of SARS-CoV-2 causing a global pandemic, but that is only because the government in its haste to send out cheques to individuals and corporations claiming to have been deleteriously impacted by the pandemic, in a bid to soften the blow and give aid to those in need, overlooked cautionary principles in flux when greed equals need, and failed to specify certain conditions be met to qualify for the handouts.

That wealthy corporate interests have taken advantage of the situation claiming Canada Emergency Wage Subsidy benefits to enable them to meet payrolls and avoid laying off personnel, when in fact they faced questionable such emergency reactions to the COVID situation, speaks volumes of their lack of principle and perspective. Seeking to enrich themselves at the expense of the taxpayer may be a common enough human lapse in judgement but it hardly excuses them, and nor does it earn any plaudits for government either.

An investigative report by journalists at one of Canada's leading national newspapers revealed that the chief executive officers of 68 Canadian companies that proceeded to pay out dividends to their shareholders while at the same time taking possession of the special pandemic wage subsidy, saw those same executives earning an estimated $30 million in dividends personally during the quarters where their firms accepted the wage subsidy.

The investigation revealed a minimum of 68 companies receiving over $1 billion in CEWS, designed as a subsidy giving aid to companies seeing a revenue drop due to the coronavirus impact -- to enable them to cover payroll costs, and who then chose to nonetheless pay out over $5 billion in total to shareholder dividends in the past two quarters. Nothing in the CEWS program as it was designed prevents companies from paying out those dividends.

 

Toronto's financial district is seen on Friday. CBC News analyzed the financial statements of 53 public companies that disclosed receiving more than $10 million from the Canada emergency wage subsidy program. Collectively, these companies dished out nearly $2 billion to shareholders between April and September. (Evan Mitsui/CBC)

 

 

Pierre Karl Peladeau of Quebecor, known to be close to the Liberal government of Justin Trudeau, earned close to half of the group's total in shareholder dividends personally, estimated at $14 million. K.Rai Sahi, CEO of four companies on the investigated list earned $3.1 million in dividends, with his company receiving over $22 million in CEWS payments. Quebecor claimed its telecom business failed to qualify for CEWS while its media subsidiaries did. 

 

According to Christopher Chen, companies have made it a requirement that executives own shares for the past several decades, as the gold standard of good governance, but the dividend earnings of the executives now has him rethinking a practise once taken for granted. Government to date has paid out over $52 billion to 359,880 applicants through the CEWS program, extended recently to June 2021.

Millions were received by other CEOs on the list of dividend recipients.

 

York University professor Richard Leblanc stated executives owning shares has always represented a "small-c" conflict of interest for the fact that the executives and board members deciding what gets paid out in dividends may themselves be recognized as among the largest beneficiaries of those payments.  The issue of dividends is characterized by many companies as necessary, arguing their dividends represent stability for investors. Suspending paying out dividends, they argue, would break the cycle of trust and might lead to a stock price downturn.

As Frank Li from the Ivey Business School explains, an executive's compensation should be linked to the firm's performance but when funds like CEWS become introduced into a company, injected into revenue and net income figures they tend to exaggerate performance metrics. This leads to higher compensation while facilitating payouts like dividends, in other words 'compensating' CEOs at taxpayers' expense. It is "luck or taxpayer money" that has resulted in executives collecting dividend income, not that they succeeded in leading their companies to good financial outcomes.

"If you perform badly, then you are fired, but in this case, they performed badly, they received [CEWS] and executives still enjoy high pay and high compensation."

"That's not an efficient corporate governance mechanism."

Frank Li, finance professor, Ivey Business School, Western University