Lessons for Crown corporation directors and CEOs from the Ethics Commissioner’s reports on the WE investigation

On May 13, federal Conflict of Interest and Ethics Commissioner M​ario Dion released two reports on his investigations into the decision-making around whether to award funding for a WE organization proposal and whether to select WE as the administrator of the Canada Student Service Grant (CSSG). The programs were to be part of the federal government’s response to the COVID-19 pandemic in the spring of 2020 but WE and the government ultimately parted ways.

In one report, the Trudeau III Report, Commissioner Dion cleared Prime Minister Justin Trudeau of violating the Conflict of Interest Act (Canada) (COIA) for his role in the decision-making process. In the other report, the Morneau II Report, Commissioner Dion ruled that then Finance Minister Bill Morneau had breached certain provisions of the COIA as a result of his failure to recuse himself from the decision-making process and as a result of preferential treatment and access afforded by ministerial staff to Mr. Kielburger of the WE organization, whom the Commissioner determined to constitute a friend of Minister Morneau.

The two reports have important implications for directors and CEOs of federal Crown corporations who are subject to the same provisions of the COIA.

What you need to know

• The Ethics Commissioner affirmed that the COIA only addresses actual conflicts of interest and does not impose any recusal requirements in respect of matters that merely give rise to an “appearance” of conflict. Nevertheless, Crown directors and officers are well advised to be mindful of and avoid situations that could give rise to the appearance of a conflict.
• Involvement of a relative or friend with an organization that a Crown corporation is doing business with will not, by that fact alone, give rise to a conflict of interest. The situation must be analyzed to determine whether the transaction provides an opportunity to further the private interests of the relative or friend.
• The definition of “friend” has been broadened from that adopted by the previous Commissioner. Commissioner Dion explained that the term should capture relationships where “personal and professional interactions become intertwined to such an extent that it becomes difficult to draw the line between the two”. The approach by the previous Commissioner was to adopt a narrow definition capturing only the public office holder’s closest personal friends and excluding colleagues, associates or members of a broad social circle.
• Specific actions by a director or CEO to afford preferential treatment are not required for a finding that the COIA has been violated. Actions by staff with the tacit approval of a director or CEO to afford preferential treatment to a person or organization can be sufficient to result in a violation of the COIA by the director or CEO.

The Conflict of Interest Act

In addition to Cabinet members and other senior government officials, the COIA also applies to Governor in Council appointees, which includes most federal Crown corporation directors and CEOs. Individuals subject to the COIA are referred to as “public office holders”. The COIA prohibits a public office holder from making a decision or participating in making a decision “related to the exercise of an official power, duty or function if the public office holder knows or reasonably should know that, in the making of the decision, he or she would be in a conflict of interest”. The COIA provides that “a public office holder is in a conflict of interest when he or she exercises an official power, duty or function that provides an opportunity to further his or her private interests or those of his or her relatives or friends or to improperly further another person’s private interests”.

The COIA’s definition of a conflict of interest is broader than the traditional definitions found in corporate statutes and in the Financial Administration Act. The definitions in those statutes prescribe a narrower set of circumstances giving rise to conflicts, notably being a party to the transaction or being a director or officer of, or having a material interest in, a party to the transaction. Given the broader definition of conflict of interest under the COIA and the lack of statutory definitions for some of its elements, decisions of the Commissioner are important in interpreting the reach of the COIA provisions.

Perceived or apparent conflicts of interest

The Commissioner took the opportunity in the Trudeau III Report to affirm that the COIA does not apply to “perceived” or “apparent” conflicts of interest. This is consistent with the language of the COIA which makes no reference to perceived or apparent conflicts but uses objective language to only address actual conflicts of interest. In particular, the Commissioner noted that amendments to explicitly add an appearance standard to the COIA were defeated by both Houses of Parliament in 2006.

In the Trudeau III Report, the crux of the complaint to the Commissioner involved the relationship between Mr. Trudeau and certain of his family members with the WE organization and whether those relationships created a conflict of interest for Mr. Trudeau. In particular, Mr. Trudeau and his spouse had participated in a number of WE Day events and his spouse was an honorary ambassador for WE. Mr. Trudeau’s mother and brother also participated in paid activities for WE. The Commissioner acknowledged, and Mr. Trudeau conceded, that these activities could give rise to the appearance of a conflict. However, the Commissioner concluded that they did not give rise to an actual conflict of interest noting that “the argument that Mr. Trudeau’s relatives, who were remunerated through WE for their speaking engagements, could ultimately benefit from the funds received by WE (to administer the CSSG) is too remote and speculative to merit further consideration”.

While the Commissioner concluded that the COIA only applies to real conflicts of interest, many Crown corporations’ codes of conduct for directors and officers go beyond the definition in the COIA and also address apparent conflicts of interest. A oft-cited definition of an apparent conflict of interest referred to by the Commissioner in the Trudeau III Report defines it as follows: “An apparent conflict of interest exists when there is a reasonable apprehension, which reasonably well-informed persons could have, that a conflict of interest exists”¹. Given the high degree of public scrutiny to which Crown corporation directors and officers are held and the public trust placed in them, it continues to be prudent for them to avoid any appearance of a conflict of interest. The distinction between a real and an apparent conflict of interest does little to shield directors and officers, and the Crown corporation as a whole, from criticism in the court of public opinion.

Family and friend relationships with organizations

The Commissioner’s decision in the Trudeau III Report makes clear that the involvement of a relative or friend with an organization that is a party to a transaction with a Crown corporation will not, in and of itself, constitute a conflict of interest. The situation must be analyzed to determine whether the matter under consideration by the Crown corporation actually provides an opportunity to further the private interests of the relative or friend. In the Trudeau III Report, a number of Trudeau family members had different roles and involvement with the WE charity; however, the government contract in question did not provide an opportunity to further the private interests of those relatives. The Commissioner found that none of them was expected to gain personally by the award of the government contract to WE.

Crown directors and officers must nevertheless still be cognizant of the appearance of participating in decisions involving organizations in which they have connections through family or friends. Such situations may still give rise to an appearance of conflict that subjects to the director or officer and Crown corporation to public criticism. Each situation involving relatives and friends should be carefully analyzed through the lens of the COIA and the lens of public perception.

A broadened definition of “friend”

The term “friend” in the COIA is undefined and has led to much discussion in the past as to just who constitutes a friend. In a previous investigation, former Commissioner Dawson had adopted a narrow construction of the term, limiting it to the public office holder’s closest personal friends and excluding colleagues, associates or members of a broad social circle. In the Morneau II Report, Commissioner Dion stated that “I believe it is necessary to broaden the scope of the term to capture relationships where personal and professional interactions become intertwined to such an extent that it becomes difficult to draw the line between the two. In such cases, the public office holder’s judgment in the exercise of their official powers and duties can also reasonably be impaired”. The Commissioner determined that Mr. Morneau and WE co-founder Mr. Craig Kielburger were friends within the meaning of the COIA, based on, “among other factors, the duration of and motive for the relationship; the nature, frequency and exclusivity of interactions; the sharing of meals and gifts in a personal setting; and mutual displays of trust, respect, affection or admiration”.

The Commissioner noted that “the evidence makes clear that Mr. Morneau and Mr. Kielburger were more than passing professional acquaintances or simply members of the same broad social circle”. In reaching that conclusion, he cited, among other things, email exchanges, personally extended invitations to WE Day events, correspondence about the friendship between the two families, the use of first names in correspondence relating to professional activities, the sharing of personal news and small gifts and attendance by Mr. Kielburger at a social event at the Morneau residence.

The expanded definition of friend means that aspect of the COIA’s definition of conflict of interest continues to be the most difficult and uncertain to apply. The expanded definition will likely make it even more difficult for Crown directors and CEOs to determine when a relationship crosses the line from a professional or business relationship to becoming that of a friend. Directors and CEOs will need to be attuned to the types of relationship described by the Commissioner in the Morneau II Report when matters come before them for decision.

Preferential treatment

Section 7 of the COIA states that “[n]o public office holder shall, in the exercise of an official power, duty or function, give preferential treatment to any person or organization based on the identity of the person or organization that represents the first-mentioned person or organization”. The Morneau II Report is significant in that it found Mr. Morneau had violated section 7 of the COIA even though the Commissioner found no evidence that Mr. Morneau was directly involved in the development of the student program’s delivery model or that he had provided instruction or direction to anyone associated with WE’s social entrepreneurship proposal. The Commissioner nevertheless found that “Mr. Morneau’s ministerial office, with Mr. Morneau’s tacit approval, afforded WE preferential treatment in its discussions leading to the eventual development of the CSSG and in continuing to promote and support WE’s original Social Entrepreneurship program”. The Commissioner noted that there was also a pattern of access provided to WE representatives by ministerial staff on prior matters, including facilitating introductions with federal and provincial counterparts on other funding initiatives. The Commissioner found those actions to be outside the scope of activities that would be undertaken by ministerial staff for other organizations and that the access was due to the relationship between Mr. Morneau and Mr. Kielburger.

Crown directors and CEOs should be cautious that they, and organizational staff, do not afford preferential treatment to individuals or organizations interacting with the Crown corporation based on prior relationships between those individuals or organizations and a director or CEO. Even without taking positive steps to facilitate such preferential treatment, individuals could still find themselves offside section 7 of the COIA if preferential treatment is afforded by staff members with their tacit approval.

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¹ Canada, Minister of Supply and Services, “Commission of Inquiry into the Facts of Allegations of Conflict of Interest Concerning the Honourable Sinclair M. Stevens,” (1987), at pp. 34-35.