Bill Morneau

Canada’s WE Scandal: Whose Fault Is It?

In April 2020 the federal Cabinet approved a sole-source contract with a charity called “WE” to distribute close to $1 billion to pay students for “volunteer” activities.  On July 3 the contract was cancelled.  If the contract was justified it should not have been cancelled.  If the contract was not justified it should not have been awarded.  Either the decision to award the contract or the decision to cancel it had to be wrong – unless you are in politics. 

Both Prime Minister Justin Trudeau and Finance Minister Bill Morneau have had close family ties to this charity, but did not recuse themselves from the Cabinet meeting deciding on the contract.  This raised serious ethical issues, now being investigated by the Parliamentary Ethics Commissioner.  Virtually all the media have been highly critical of the conduct of both of them.  Some have also criticized the public service, which the PM said had recommended both the program itself and awarding the sole-source contract to manage it to WE.

As Globe and Mail columnist Andrew Coyne wrote, with more than a touch of sarcasm:

“At this point, all we have is a rat’s nest of mutually beneficial relationships between the Liberals, the Trudeau family and WE, an organization which, in its cultish internal management and happy-face external messaging, resembles nothing so much as the Liberal Party. Senior Liberals raise funds for WE. WE hires their kids, and promotes the party leader. The leader, once in power, directs public money back to WE.

Keep it up, however, and one day this all might turn into something of a scandal.”

Is this scandal the public service’s fault, or that of the two politicians, or all of them?  Read on.

Did the Program’s Approval Make Sense?

No, it did not.  The volunteers would not really be volunteers, but would be paid, between $1,000 and $5,000, depending on the number of hours volunteered. For every 100 hours, a student was eligible for $1,000, which is $10/hour — less than the minimum wage.  And astonishingly, teachers would be paid up to $12,000 (more than twice as much as the student maximum) merely to recruit student volunteers from their class lists.

The PM insisted that it was the public service that had recommended the program, and that had identified WE as the only organization capable of delivering it.  The claim that only WE could administer this program was disputed by some critics who said that other organizations could also do so and had more experience.

“There are many strong, reputable charities with offices in multiple locations across Canada who could do this youth volunteer program well,” Ann Rosenfield, editor of the Hilborn Charity eNews, which covers fundraising and non-profit management, said in an email to CBC News.

Volunteer Canada, the United Way and Community Foundations of Canada are all logical partners, she said.

There is also reason to doubt that the public service actually initiated the idea that led to its recommendation to Cabinet.  As Andrew Coyne wrote:

Let’s just revisit that process, first. Far from a disinterested recommendation – indeed, “decision” – of the “professional public service,” as the Prime Minister first claimed, the program appears to have originated largely in the minds of the Kielburgers [the co-founders and current leaders of WE]. The brothers were pitching something similar-but-different to various cabinet ministers, we now know, in early April, weeks before the unveiling of the actual grant details, which precisely matched those in the revised proposal WE submitted the same day….

The civil service seems to have been cast as unwitting go-betweens, gauging the Kielburgers’ interest in plans they had already discussed with ministers, then submitting recommendations to cabinet for decisions that would seem to have already been made. …

Was WE a Reasonable Choice as the Sole Recipient?

I have nothing against sole-source contracts.  Although a competitive offering process should be the norm and sole-source contracts should be the exception, sometimes there are good reasons for that exception.  Sometimes a request for proposals is a waste of time and money.

In my law practice I never won a retainer in a competitive process, even when I once intentionally offered ridiculously low hourly rates just to see what would happen.  For reasons that were never explained, the government usually chose the same law firm.  Eventually I stopped bidding because the preparation of a proposal was costly, and it became obvious that the government had decided who it was going to retain beforehand, with the bidding process just going through the required motions.

Although the senior public servants have claimed that they did their due diligence research prior to recommending WE, there is reason to doubt that they looked very deeply.  Information is now emerging that WE had recently replaced its entire Board of Directors, had breached its banking covenants as reported in its audited 2019 financial statements, and had recently laid off most of its employees.  There were also reports that the actual contract was not with WE, but with a related company that had no assets.

In a July 24 article in iPolitics Alan Freeman wrote:

“In the end, this is a story about how a charity with close connections to top leaders of the Liberal Party made an unsolicited pitch in early April for funding of a youth entrepreneurship program worth no more than $14-million. The plan was rejected but, miraculously, after a few well-placed calls and Zoom meetings, that same charity was literally handed a program 65 times as big. Not a bad consolation prize. (The contract has since been canceled.)

What really interests me is what the public service did to protect the Government of Canada, taxpayers and the public interest from what was clearly a disastrous decision — to hand responsibility for a $912-million government program to an organization with questionable governance, shaky finances and little track record except as a glitzy marketing organization and event organizer for charitable causes. All this and without a competitive process.”


What Did the Public Service Do Wrong?

According to Alan Freeman:

Judging from the appearances before the House of Commons finance committee of senior public servants from leading government departments, including Finance and Employment and Social Development Canada and the Clerk of the Privy Council [Ian Shugart] himself, we’ve been poorly served. ….

Whether one agrees with Freeman’s judgement depends upon what role we expect the public service to play in preventing their political masters from engaging in unethical conduct.  In my view, Freeman overstates the responsibility of public servants and understates the responsibility of political leaders themselves.

Freeman went on to say:

Instead of the prime minister’s close involvement with WE ringing alarm bells and prompting him [Shugart] to ask for details of Trudeau’s relations with the charity, our top public servant figured he didn’t have to do anything more. What he didn’t know could hurt him. Under questioning, Shugart admitted having no clue that Trudeau’s mother and brother had been paid $300,000 by WE. …

Then he added the kicker, that he was making no judgement on the decision of Trudeau and Morneau not to recuse themselves. Why not? Does the Clerk of the Privy Council think that the public interest can ever be served when senior cabinet members decline to recuse themselves if there are conflicts that both have apologized for?

Asked by Tory MP  Pierre Poilievre whether anyone in the public service had raised any red flags about WE’s financial integrity, financial sustainability or governance, Shugart responded, “the answer, as far as I know, is no.” …..

And how is it that the top public servants never wondered why the board of WE Charity had recently resigned and been replaced or why it reported in its 2019 financial statements that it had breached its bank covenants?

Then, after Shugart’s appearance, news emerged that the government hadn’t actually signed the agreement with WE Charity itself but with a shell company called WE Charity Foundation, set up last year to hold the charity’s real estate assets but actually holding no assets at all.

Freeman is mixing together two distinct issues: (i) whether WE was a suitable sole-source contract recipient and (ii) whether the two ministers had a conflict of interest.  The first issue is clearly the responsibility of public servants assigned to check the suitability of the recipient of hundreds of millions of public money.  The second issue is not their responsibility.

The two senior ministers, having been in government for several years, are experienced people who must have understood what they were getting into by approving WE.  They know Canada’s Conflict of Interest Act personally, as both have been held to have breached it in the past, Morneau once and Trudeau twice.  While public servants could help to flag potential ethical issues for ministers, it is the politicians and their staff (who are not part of the public service) who have the duty to manage their ethical issues properly.  It’s not like they had never heard of WE before, or had forgotten its close relationship with their family members and themselves.

The public service can be expected to offer politically impartial, prudent advice, and to carry out their minister’s lawful instructions.  But it is not their job to monitor or supervise the ethical conduct of politicians.  Ian Shugart is not Justin Trudeau’s ethical nanny.

What Did the Politicians Do Wrong?

There was a third minister involved, Bardish Chagger, the Minister of Diversity and Inclusion and Youth.  Her department was responsible for preparing the Cabinet proposal and conducting the due diligence on WE.  It is highly unlikely that Chagger was unaware of the very visible relationship between the Trudeau and the Morneau families and WE.  If she warned the other two ministers of their conflict of interest risks they must have ignored her warning.  If she had failed to warn them that is unfortunate, but they are each responsible for their own conduct. 

Both Morneau and Trudeau have apologized for having participated in the Cabinet meeting that approved the WE contract instead of recusing themselves.  But members of the public who are not familiar with the concept of ministers recusing themselves will probably just accept these apologies, especially in the middle of a pandemic.  What is more likely to capture public attention is the $41,000 in travel fees WE spent to take the Morneau family to other countries.  Hours before he was due to appear before a parliamentary committee Morneau announced that he had inadvertently forgotten to repay this, and had just written a cheque for $41,000.  The media were all over him, and there is increasing pressure on him to resign.

Both Trudeau and Morneau should have recused themselves.  This was more than a technical mistake, it was unethical.  That said, if they had recused themselves WE would in all likelihood still have been awarded the contract.  As Chagger’s department had prepared the proposal she and her Assistant Deputy Minister would probably have appeared at the Cabinet meeting to support it.  Because of Trudeau’s and Morneau’s close relationship with WE these two senior ministers would be expected to favour the approval, even in their absence.  For these reasons, recusal would not have been enough to make a difference; more was required.

Quite apart from the close relationships and the financial and political benefits WE had provided to both the Trudeau family and the Morneau family, the closer look at the contract that the parliamentary committee and the media have given suggests that the whole idea was really dumb.  It was privatizing an activity that was already being carried out successfully by the public service.  There was no necessity to privatize it.  As well, WE was struggling, both financially and organizationally, giving the appearance that this was more of a massive rescue package for WE (which could have been paid up to $43.5 million for its administration) than a student aid program.  When (or before) the proposal for WE got to the Cabinet, Trudeau and Morneau should have opposed it for its lack of merit. 

I Draw No Conclusion Yet

The Prime Minister has agreed to testify this week before two different parliamentary committees. Other witnesses include his chief of staff, Katie Telford, WE co-founders Marc and Craig Kielburger, WE chief financial officer Victor Li and former WE Board chair Michelle Douglas. If this testimony provides justification for the WE contract, something we have not seen to date, then these explanations should be persuasive.  There should be no rush to judgement until after we have heard from them.  However, their explanations had better pass the smell test because thus far the smell of scandal lingers in the air.

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3 replies »

  1. Andrew, In my experience in the federal public service, it was always considered an official’s duty to provide a Minister with the best advice possible concerning the merits of a proposed program and expenditure. That included an objective assessment of the costs and benefits, advantages and disadvantages and risks of the proposed initiative. It was always recognized that Ministers are the final decision makers, and that it was their privilege to accept or reject the advice that they received from the public service. It was generally not the public service’s practice to place a false gloss on proposals already decided by Ministers that were clearly ill considered. In my view, this case has many lamentable aspects, but one of them was the poor judgment of the senior federal officials responsible, which I can only attribute to the much increased politicization of the senior public service over the last 20 years.

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  2. Andrew,
    Thanks for the analysis.
    I believe Morneau also repaid WE ~$50,000 prior to this all coming to light…. so ~$91,000 in total. Sounds like a pretty good trip!

    Like

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