Monday, October 17, 2005

Sorbara’s Plea: Incompetent but Innocent

Recently-resigned Ontario finance minister Greg Sorbara has begun to fight back against RCMP fraud allegations related to his tenure as an independent director and chair of the audit committee of Royal Group Technologies.

In an interview with Richard Brennan of The Toronto Star, Sorbara presented his main line of defence against the allegations that Royal Group shareholders were defrauded when Royal Group purchased property in Brampton from a Sorbara family company. Sorbara tells Brennan that he was concerned “from Day 1” he began serving on the board in 1994 that “we [the board] had no capacity to reverse the decisions of management.” Sorbara says he tried to assert the board’s oversight over management, but he was unsuccessful. For ten years, attending four board meetings a year and an unspecified number of audit committee meetings, he was unsuccessful.

This spin is somewhat at odds with what Sorbara told the Star in March last year, shortly after RCMP, Ontario Securities Commission and Canada Customs investigations into Royal Group became public:

Finance Minister Greg Sorbara says he did not alert a cabinet vetting team that his time as a director at a Woodbridge firm might come back to embarrass the government because he didn’t foresee any problems.

“Absolutely not, because I wasn’t aware of any (problems),” Sorbara told reporters.
--Toronto Star, March 4, 2004
Sorbara did not think McGuinty’s cabinet vetting crew needed to know about his frustrations at Royal before he was given the keys to Ontario’s treasury. Now he is telling the same media outlet that he had concerns about Royal Group management “from Day 1.”

Going back further, to when Sorbara was appointed to cabinet, he told the National Post:

I am quite satisfied with the work I did as a director,” he said. “In the main, the criticism has not been justified, and my duties there were just one of many responsibilities I’ve had over the past few years. I know the board of Royal Group is going through a transformation, in terms of corporate governance, and one of the things I now give up is the opportunity to see that work through.”
--National Post, October 24, 2003

But to Brennan last week he said:

“My energy on the board was to try and force management to try and realize that, as a public company, the responsibilities were dramatically different and that there were shareholders all over the world that had to be accounted to. That was every board meeting and they were ... like four a year. Every board meeting we would push a little, but really unsuccessfully.”

In this latest interview Sorbara admits what some in the financial press had been saying for years: that Royal Group Founder Vic de Zen continued to run Royal Group as his personal fiefdom even after Royal Group became publicly traded and hence partly owned by the working stiffs who contribute to the Canada Pension Plan and Ontario Teachers Pension Plan (N.B. Royal Group's symbol is "RYG". CPP holdings are under "Mutual Fund Ownership" and Teachers’ holdings are under “Institutional Ownership” on the MSN site). When the OSC notified Royal Group of its investigation in December, 2003, the Ontario Public Service Employees Union (OPSEU) Pension Plan held about 750,000 shares, but no longer owns any shares.

Sorbara claims to Brennan that he tried to persuade de Zen to relinquish some power:

“I started to apply pressure at the board, including urging that Vic De Zen either step down as the chair or step down as the president but not hold both positions. I urged him to give up his multiple voting shares. That would have been in probably 2002,” he [Sorbara] said.
Sorbara’s concerns did not seem to be reflected in senior executive compensation for the subsequent year, however:

Shareholders of Royal Group blasted the company’s board this year for approving a pay package for Vic De Zen, chairman and chief executive, that more than doubled to $6.1-million.
The compensation included $500,000 in salary for fiscal 2002, plus a $5.6-million bonus, compared with $2.2-million the year before.

Douglas Dunsmuir, company president, was paid $358,000 in salary and a $3.2-million bonus, also double what he received in 2001.

The company’s share price declined 43% over that time, as sales growth failed to meet internal targets, edging up to $1.9-billion from $1.7-billion.
--National Post, October 24, 2003

Little wonder, then, that Canadian Business magazine named Royal Group’s board the 4th-worst corporate board in August 2003.

As for the sale of two Brampton properties from a Sorbara family company to Royal Group, which transaction was named in the RCMP search warrant executed at The Sorbara Group last week, Sorbara says his brother Ed told him the two companies were talking but Sorbara kept out of it because of the potential for conflict of interest. The article does not delve into whether or not Sorbara, as a Royal insider, understood that the potential conflict should have been disclosed to Royal.

Time will tell what the RCMP and OSC find lacking in Sorbara’s conduct – if anything. In the meantime, Sorbara is girding himself for a battle, Brennan reports, lining up the talents of Julian Porter, one of Canada’s leading libel lawyers, and Frank Marrocco, former Treasurer of the Law Society of Upper Canada (the Treasurer is the top position at the LSUC).

The choice of Porter is interesting. Porter was the lawyer Dalton McGuinty chose to defend him in a libel suit by Tony Clement stemming from McGuinty calling Clement “corrupt” in 1999 around the same time McGuinty was facing his post-election leadership review. Though McGuinty initially pledged to pay his legal fees out of his own pocket, he later quietly had Porter paid by the Legislature’s liability insurers. A lawyer of Porter’s experience and stature likely bills at least $500 an hour. Yet Porter ended up getting much of his Statement of Defence struck out by a judge. About 18 months after the suit was launched, McGuinty finally apologized to Clement – which is what Clement would have settled for in the first place.

The shock of the allegations seems to have caused Sorbara to undergo a bit of a crack-up. On October 11, the night he announced his resignation, Sorbara protested, “I intend to get to the bottom of this. A terrible mistake has been made and I want to know what’s up with it” (Toronto Star, October 12).

On Thursday he said, to a question from the Star’s Richard Brennan, “One of my first emotions this morning was, I just got a sense of the extent of the pain that people who are falsely accused and falsely convicted feel, and it’s not a nice feeling” (scrum, October 13, 2005). Sorbara counts himself with the likes of David Milgard, Donald Marshall and Guy-Paul Morin, who, I believe, actually woke up in prison every morning for a number of years, not in Sorbara’s house in Richmond Hill.

And now we have this interview, in which Sorbara indulges in a bit of Nixonesque paranoia, asking, “Why is this happening? Who is behind this?”

Sorbara offers a clue as to why it is happening: “The fact that I was born with a silver spoon in my mouth is a reality and I think I have become a little bit more of a political target for that basis.” Now where was Sorbara when his party’s first attempt to brand PC leader John Tory – at the leadership vote, no less – was by calling him “Richie Rich”?

The Liberals had eight people toiling in a small room on the sixth floor of the Crowne Plaza Toronto Don Valley. Their strategy was to mock Tory’s blueblood upbringing by distributing silver spoons engraved with “John Tory IV,” vintage Richie Rich comic books and blue loot bags full of other satirical trinkets.
--Toronto Star, September 20, 2004
My late sister had an expression for occasions such as Greg Sorbara pleading, “don’t hate me because I’m rich.” I apologize for the vulgarity but it is apt: “My ass bleeds.”

Sorbara’s minor meltdown is understandable on one level, however. Since his return to public life as Ontario Liberal party president in 1999, he has gone from success to success. He took an impoverished party with a pencil-necked leader that had just been thrashed electorally by one of the most provocative governments in Ontario history. He raised money, found candidates, built the election team and, more than any other individual – including McGuinty – was responsible for its 2003 majority victory.

Through the McGuinty Liberals’ first two years in power, through the 50-plus broken promises and other growing pains, Sorbara never seemed to lose his composure, until the paranoid rantings that began the night of his resignation.

Remember that Sorbara’s last public embarrassment was 13 years ago, when he finished third in the 1992 Liberal leadership race. As an opposition MPP he could retreat into the backbenches unnoticed. Sorbara actually retreated even farther, announcing in 1994 that he would not run again and that he wanted to get involved in his family business:

Liberal sources say the political wounds Sorbara, 47, suffered during the leadership race were slow to heal and that he found himself bored with the marginal role he was given afterward, as critic for urban affairs.

Sorbara said in a statement that he wants to get involved in his family’s extensive business interests.
--Toronto Star, June 18, 1994

But this situation is different. Sorbara was the number two minister in the country’s largest province and there is no hiding. Hence his deer-in-the-headlights look as he walked into a scrum with reporters in a Legislature hallway the day after he resigned.

The Brennan interview and his hiring of two high-powered lawyers suggest that Sorbara is going to mount a pro-active and aggressive defence of his actions, or inactions, as the case may be. And there lies the nub of a problem. For Sorbara to prove that he had nothing to do with this land deal or the other matters for which Royal Group is being investigated requires him to prove that not only was he ignorant of the details of transactions of the family business from which he drew an income (see below), he also failed to assert oversight over a corporation that was handling the pension money of teachers, Ontario public sector workers and CPP contributors. How will that reflect on the McGuinty Liberals during the two-year countdown to the next election?

6 comments:

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Andrew said...

Out of curiosity, is this the same Julian Porter that Ian Scott defeated in the 1985 election?

ABigMachine said...

That's it, I give up. I'm never going to write a blog entry again. My blog entry on the Brennan interview of Sorbara is similar but yours is soooo much better written. All I have for comfort is the knowledge that I used the phrase "fiduciary duty" correctly in a sentence.

Sigh, I'm depressed. I'm just going to rock back and forth now in a semi-catatonic state chanting "fiduciary, fudiciary" to myself for a few hours. Sadly I doubt anyone will notice the difference, except that I've chosen a new word.

Joan Tintor said...

Yes, Andrew, Porter was the PC candidate in St. David in 1985. Funnily enough, Barbara Hall was the NDP candidate. Scott had unsuccessfully challenged PC MPP Margaret Scrivener in 1981.

Back then Porter was an active Tory. Frank Marrocco was the law partner of then-party president David McFadden. I don't hear about them much in party circles these days so I didn't refer to them as Tories.

James said...

Here is an interesting 1990 article on Greg Sorbara and how he found a way around his own government's law to give his residential tenants huge rent increases when he was the Minister of Labour.