Mark Carney’s relationship with Brookfield Asset Management has been under the microscope since his entry into federal politics, scrutiny that may intensify as he rolls out an ambitious “transformation” of Canada’s economy following his victory in last week’s federal election.
The Liberal Party has promised to use government spending to kick start private sector activity and “catalyze” $500 billion in new investment over the next five years, with an emphasis on infrastructure. That’s one of a handful of items on the federal government’s agenda that could attract the interest of the asset manager, where Carney spent more than four years, first as vice-chair and head of ESG and impact fund investing and then as chair.
In addition to the joint spending program, details of which have not been laid out, the government is expected to eventually put the Trans Mountain Expansion pipeline on the block. It has also been exploring ways to encourage large Canadian pensions to invest more within the country, a process that could lead to the privatization or development of other kinds of assets coveted by Canada’s multi-billion-dollar institutional investors: airports, toll roads, utilities, wind farms and ports.
If Brookfield, which owns businesses ranging from pipelines and other infrastructure to real estate and mortgage insurance, winds up vying for the new public-private investments alongside Canada’s largest pension funds, conflict of interest safeguards are likely to return to the spotlight.
Andrew Stark, a professor at the University of Toronto’s Rotman School of Management who wrote a book on conflict of interest in public life, said there are mechanisms in place to manage potential conflicts of interest in Ottawa. These include both conflict and ethics rules that can go as far as requiring senior politicians — including the prime minister — to recuse themselves from discussions and decisions in some circumstances.
Off the top, conflict of interest rules require that publicly traded holdings be put into a blind trust so the owner doesn’t have direct access to or knowledge of the assets.
Carney has said he “over-complied” with conflict and ethics rules by putting everything other than his house, cottage and cash into a blind trust, and had a seemingly testy exchange with a reporter who suggested that it might be better to sell his Brookfield holdings.
Given the limitations of a blind trust — namely that the person knows what goes into it and might reasonably assume those assets continue to be owned for some time — there are additional requirements set out by the ethics commissioner that require ministers to recuse themselves from files where there could be a conflict or perception of conflict, Stark said.
These more stringent safeguards would apply in Carney’s case if the government has any business that directly involves Brookfield while he is prime minister.
“He should be screened from involvement in any file directly implicating Brookfield … (including) if Brookfield was competing with others for government business (or assets),” Stark said. In this case, other ministers would be required to step in.
A third layer of conflict of interest and ethics rules applies when an issue is of such importance that it would be difficult for the prime minister to remove himself: divest or disclose.
“If by some chance Brookfield will be directly affected by an issue that is too important … to avoid prime ministerial involvement, then he should fully disclose what that issue is and the nature of his holding in Brookfield that will be affected, so that the public can appropriately judge his conduct,” Stark said.
An alternative, he said, would be to divest from whatever is putting him in potential conflict.
“All three of the primary remedies for conflict of interest — divestment, recusal and disclosure — are necessary,” Stark said. “Any one by itself wouldn’t suffice.”
Examples of a scenario where Carney, as prime minister, could not recuse himself would be something like a new tax policy that, while broad-based, would have particular implications for Brookfield, Stark said. In such cases, Carney would have to take the additional steps to avoid the appearance of conflict.
While complicated, Stark said there was no reason to prevent Brookfield from being able to bid on major projects the Liberals make available.
“Suppose Brookfield tries to buy the Trans Mountain pipeline. If it were doing so in a competitive bidding process, there’s no reason why the prime minister would have to be involved,” he said. “In fact, it’s unlikely that any cabinet minister would be involved, at least until the final stages, because public servants generally handle such matters precisely so as to guarantee that formal, neutral procedures are followed.”
He said Carney would not be offside were he to participate in crafting general policies around inviting private companies to bid on certain infrastructure projects.
“But once any policy is determined, he would then stay out of the process that determined which companies would be involved,” Stark said.
Carney’s stake in Brookfield looks to be worth more than $10 million — around $3 million in Brookfield stock and options worth about US$6.8 million as of December — based on publicly available information.
It’s possible that he has additional holdings in Brookfield funds that are not subject to disclosure because the entities are not reporting issuers, said Brian Madden, chief investment officer at First Avenue Investment Counsel Ltd. As a result, he said, even if those assets were also in the blind trust, questions could be raised about whether Canadians understand the full picture of what he has at stake and whether it has the potential to influence decisions or create a level playing field.
“The opposition will be like bloodhounds on any and all of this stuff, watching closely for any improprieties,” he said.
Pension funds, particularly the Canada Pension Plan Investment Board, which is a federal Crown corporation, are reticent to wade into politics, but Madden said they might feel pressure to do so if they think they aren’t getting a fair shake in desirable public-private investments.
It is rare to have a senior government minister so connected to corporate Canada at its highest levels. Bill Morneau, who was finance minister under Justin Trudeau from 2015 to 2020 and ran a large pension and benefits consultancy before entering politics, faced objections from opposition MPs when the Trudeau government introduced new pension legislation. He was cleared by the federal ethics commissioner in 2018.
A Bay Street lawyer who has advised on trusts involving elected officials said his experience bears out the limitations of blind trusts described by Rotman’s Stark. He said it is natural for the trust beneficiaries to presume that what was put into the blind trust will be owned for some time and they should act if their role in government could have an impact on such assets.
“My advice to him (or anyone in that position) would always be to bend over backwards to recuse themselves, even in the absence of a legal necessity to do so,” said the lawyer, who spoke on condition of anonymity because he was not authorized to publicly discuss client work. “It would always be better to err on the side of putting the public interest ahead of any real or possible personal interest.”
Jim Keohane, a former chief executive of the Healthcare of Ontario Pension Plan, said that while Carney will have to fully comply with parliamentary conflict of interest rules, he thinks it would be appropriate for the prime minister to shed all links with his former business affiliations as well.
“As the Prime Minister, he should want to have any perception of a conflict of interest removed. He would also want to be very careful about not giving Brookfield preferential treatment,” said Keohane, who is a director of Alberta Investment Management Corp., which manages funds for pensions and endowments.
“I would think that Brookfield would want that as well so that they are free to be a bidder on privatized assets.”
• Email: bshecter@postmedia.com
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