CPPIB urges Senate not to change infrastructure bank’s governance rules

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The Canada Pension Plan Investment Board is weighing into the Canada Infrastructure Bank debate for the first time, urging Senators not to follow the advice of some experts who say the bank's governance should be modelled after the CPPIB.

As the manager of more than $317-billion in assets, the CPPIB is Canada's largest pension fund. It is also among the many large institutional investors that the Liberal government hopes to attract as partners in Canadian infrastructure projects through the bank.

In a letter sent this week to the Senate, the bank's senior managing director, Michel Leduc, said the differences between the CPPIB and the infrastructure bank mean that they require different forms of governance.

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"Crown corporations are not homogeneous; the optimal balance between public accountability and commercial autonomy must differ as a matter of public policy from one to another," Mr. Leduc wrote.

The Canada Infrastructure Bank Act is included as part of C-44, the Liberals' omnibus budget bill, and the Senate began its public debate of legislation Tuesday evening.

Senators are facing heavy pressure from the government to pass the legislation before the summer recess. Finance Minister Bill Morneau and Infrastructure Minister Amarjeet Sohi have bolstered their public advocacy of the bill in recent days, while former pension executive Jim Leech, the government's senior adviser on the issue, wrote an essay this week in support of the legislation's current governance rules, which are a point of contention.

Following a recent prestudy of the bill's infrastructure sections, the Senate banking committee concluded it was "not convinced" the proposed governance provisions of the bank strike the right balance between the need for government oversight and bank independence.

The conclusion was in relation to concerns that the infrastructure bank will be vulnerable to political interference. Some experts have challenged the fact that the bill would have bank executives serving at the pleasure of government – meaning they could be fired by cabinet at any time. Some have argued the legislation should state that executives can only be fired with cause, as is the case with the CPPIB.

The CPPIB's governance structure was specifically suggested as a model for the bank by Mr. Morneau's advisory council on economic growth. Andrew Claerhout, an infrastructure specialist with the Ontario Teachers' Pension Plan Board, also told senators during a committee appearance that he would prefer to see a governance structure for the bank that is similar to the CPPIB.

However, the letter from the CPPIB pushes back against that view.

"In the case of CPPIB, duties relate to making investments funded exclusively from contributions made by employees and employers; our narrow commercial purpose is to seek a maximum rate of return; and direct and equal accountability to 10 shareholders (nine provinces and federally). These distinguishing characteristics compel striking a different balance," Mr. Leduc wrote.

As expected, Independent Senator André Pratte gave formal notice on Tuesday of a motion to divide the more-than-300-page omnibus budget bill in a way that would remove a new proposed law called the Canada Infrastructure Bank for further study in the fall. The senator's motion has not yet been put to a vote.

Mr. Pratte has said his amendment is aimed at delivering a message to the government that it should not include such substantial measures in an omnibus bill, because it makes it significantly more difficult for Parliamentarians to give the initiative a thorough review.

That argument appears to have substantial support among senators, and Mr. Pratte said he may have enough votes for his motion to succeed. The government side is expected to challenge the motion on procedural grounds.

Interviews with senators this week suggested a high degree of uncertainty as to what will happen in the coming days regarding the budget bill.

Independent Senator Yuen Pau Woo, who is sponsoring the budget bill in the Senate, said in his opening speech that Senate concerns over governance are "legitimate." However, he noted that the legislation includes a five-year review, which could allow Parliament to make revisions if necessary.

Mr. Woo said he agreed with the view that it is important for the bank to have appropriate oversight, but that the government should "jolly well" have an oversight role given that it will be the bank's only shareholder.

"Are we really in a position to micromanage that balance in this chamber?" he asked.

On the issue of opposing omnibus legislation in order to allow for more detailed study, Mr. Woo said "there is very little grounds for splitting the bill" because the Senate held several committee hearings specifically on the bank.