Monday, March 31, 2014

Norm on CFAX1070 with Ian Jessop 3/31/14

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Pushing back on the pushback

Reprinted from August 2013:

Anonymous reader argued through earlier comments that comparisons between BC Investment Management Corporation and Washington State Investment Board are inappropriate "apples and oranges." The person attempted to justify huge increases in executive compensation because "Much of the compensation is based on results over the past 4 years." This question was also posed, "What are the long-term returns of both organizations."

First, I'll deal with long term returns. Since 2005, BCiMC averaged 7.2% annual rate of return while WSIB averaged 8.5%. With invested funds amounting to a hundred billion or so, over nine years, the difference in income amounts to roughly $10 billion.

Washington's investing agency was ranked by Pew Research fourth in the USA for combined funding of its 13 pension programs. Despite WSIB paying about 1/4 of the wage costs of BCiMC, the State Treasurer reported,
"The Washington State Investment Board has averaged over 8 percent annual return on pension funds for the past 20 years – which makes it the number one performer among all public pension investors in the nation."
No wonder the BCiMC apologist objected to comparisons with our nearest neighbour.

Are salaries established based on results? Apparently not for the most senior executives of BCiMC. In 2010, the five highest paid received $3 million and the rate of return for the year was 16.3%. In 2013, the fortunate five earned $5 million — that same amount paid the top 35 earners at WSIB — and the rate of return in BC was 9.5%. In the two most recent years, while returns averaged 7.7% (against the four year average of 10.6%) the guys in the corner offices had remuneration jump by 50%.

There is another matter of interest in the 2013 annual report of BCiMC. It is a note to the audited financial statements that says,
"Minimum lease payments based on current and new lease agreements in effect as at the periods below are as follows: 2012 $3.9 million; 2013 $30.6 million." That extraordinary increase is explained by management in this fashion:
"Jawl Properties, our landlord, is developing a mixed-use building that includes office space to accommodate our planned growth. Work on the site adjacent to our existing offices began in 2012."
Sharp readers will recall that Jawl Properties was involved with BC Ferries when that organization decided it needed higher status premises with better views of the ocean. I wrote Luxurious new offices and enduring gratitude in 2011. It contained this:
"In 2008, the company announced plans to move into 90,000 square feet of a building at 800 Yates Street then under construction by Jawl Properties. B.C. Ferries sold its long time head office building, 53,000 sq.ft. at 1112 Fort Street, to the Jawls for $11 million. By sheer good fortune, the new owners quickly found another tenant: Elections BC.

"According to Note 12 on the BCF 2011 Audited Financials, the lease of new offices in downtown Victoria is for fifteen years, with four renewal options of five years each. The lease agreement includes payment of building operating costs and property taxes but other terms are undisclosed.

"In addition to signing a long term lease before completion, BC Ferries lent the Jawls, developers of the $100 million property, $24.2 for fifteen years, secured by a second mortgage of the property.

"What does BC Ferries get out of this? Certainly, it gets substantially more luxurious executive offices, almost twice the size of those in the old building. They also earn enduring gratitude of the influential Jawl family, people who style themselves as the largest private owners of premium offices and industrial space in the capital. Their properties include Cordova Bay Golf Course, Mattick’s Farm, Sayward Hill and Selkirk Waterfront. They are, of course, substantial contributors to the BC Liberal Party."
I find it strange that, while BCiMC operates in many cities as a major landlord and has accumulated $18-billion in real estate assets, it made good business sense to become rental tenants of the BC government's favourite property developer.

As I've said repeatedly, BCiMC is an enterprise with massive assets that operates without effective oversight. There are indicators of wrongdoing in the small pieces we can examine but the real opportunity for abuse is hidden from view. That relates to where and with whom these people invest the $100 billion dollars under their control. The directors that could hold management to account are instead porcine feeders at the same trough.
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Saturday, March 29, 2014

Don't read this, it's none of your business

In comments on the preceding article, a subject emerged that was apart from the beginning one but is worthy of separate examination. This is another iceberg type situation: much does not meet the eye and we can expect it will melt away with little trace and be replaced by another with similar attributes.
Why would the British Columbia Ambulance Service/PHSA withhold the results of a costly legal investigation into the conduct of two very public figures: their CEO and COO, who have just resigned under a shroud of "mystery" after 3 months on paid administrative leave? This whole situation is highly unprecedented.

Apparently, there is at least one other person involved. The issue of "privacy" has been used by government spokespersons as the reason for this withholding of information to the general public.

AGT revealed the troublesome details of this "situation" before his blog went down. I doubt there is one paramedic who doesn't know the "intimate" details.

Carl Roy, newly appointed President and CEO of the Provincial Health Services Authority hired and oversaw both Michael McDougall CEO,and Les Fisher COO. In paramedic circles, Fisher's lack of management experience was seen as a glaring deficit. Roy's seeming lack of due diligence empowered these senior managers to conduct their "private business" with questionable supervision, as witnessed in the separate issue of AG's Doyle's audit which revealed a shocking lack of quality control, finances, and outcomes re the Air Ambulance.

Marcella Bernardo of CKNW has called this "mystery" a scandal:
"The chair of the Provincial Health Services Authority says he can’t disclose exactly why Les Fisher and Michael MacDougall quit, but Wynne Powell admits the investigation into questionable behaviour continues."
'He says, “Well, the investigation is closed in regards to those two individuals, but the aftermath of the investigation is still under way…. It was a personnel matter that individuals had a choice in how they acted.”
No severance in BC Ambulance Service scandal
My response to the comment:
There are more scandals hidden in the province's administration of health services. The government action on Therapeutics Initiave was not fully explained nor was the mistreatment of numerous health researchers who were suspended or terminated.

Pharmacare discovered it and large private insurers like Pacific Blue Cross could save millions by refusing coverage to numerous medicines prescribed by doctors, unless the province granted "special authorities" on a case by case basis. To get one of those, a doctor must negotiate with Victoria and many requests are turned down. Doctors may charge patients for making requests for special authorities or, more likely, they'll turn to second, third or fourth drug choices that are covered or the patient pays 100% of cost, despite having prescription insurance. (This is in addition to the name brand vs generic issue.) Insurance companies are relieved of millions while patients pay extra without any reduction in premiums.

At the root of these situation, as it is with air ambulance service, is the Liberal policy of pandering to a handful of companies that contribute big dollars to politicians and expect large payments from the public treasury in return.

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Thursday, March 27, 2014

Not a puffball comparison

A Vancouver Sun article recently offered a few outdated items about salaries paid to executives of the British Columbia Investment Management Corportion (BCimc). It was a public relations piece devoid of detail, dictated to a Postmedia stenographer. That was followed with a letter to the editor from a pension investment industry insider, not identified as such by the Sun, who gave unreserved applause to BCimc managers.

A source tells me that senior investment executives in Victoria again enjoyed large wage increases in the fiscal year now ending so they're trying to spin news that BC's highest paid civil servants are in fact underpaid.

If we had an energetic and inquiring corporate press, citizens would have much more knowledge about workings of the group that manages British Columbia pension funds. Regular readers won't be surprised that I write again about BCimc and that my work isn't aimed at giving comfort and support to Doug Pearce and colleagues.

As with ferries, neighbors offer a reasonable comparator for the evaluation of a public BC organization. Washington State Investment Board (WSIB) manages a fund of $90 billion while BCimc has $100 billion in its coffers. The Americans run a very tight ship and have dispensed with fancy offices and even fancier remuneration and expense packages. The top five WSIB executives earn less than a quarter of BCimc's top five. If I could show you details of the top 20 at each shop, the fraction would be even lower.

Other than leading the world in bitumen and beaver pelts, Canada appears to lead the way in salaries paid to public sector mandarins. The BBC offers a full list of the UK's top-paid civil servants. According to The Telegraph newspaper, last year's highest paid public official in Britain was Ian Nolan, an investment manager who earned £330,000 a year, about one third of Doug Pearce's total remuneration.

Clearly, the BC government has no risk of losing senior officials to European or American recruiters.

Part of the BC Liberal spin is that wise heads in Victoria are doing such an extraordinary job, adding value over and above targeted amounts. (Moving targets, as usual.) Truth is that in three years ended March 31, 2013, BCimc averaged 9.5% per annum. Not bad, but our friends at WSIB earned 12.7 p.a. in the three years ended June 30 2013.

Had BCimc earned that higher rate of return, funds income over three years would have been $10 billion higher. You won't be reading that at a Postmedia newspaper. Nor will you read that directors of the BC organization, unlike Washington counterparts, are paid handsomely for quiet attendance at a handful of meetings each year.

Another worry is that a cash rich company with ineffective oversight and almost no transparency or public accountability is ripe picking for unscrupulous villains. Rogues often work in gangs. There's a horde of high paid officers at BCimc - twelve vice-presidents plus a chief operating officer and a chief executive officer. WSIB's top officials are an executive director and a chief investment officer. Even their chief financial officer rates a salary under $200,000.

Restraint in the Land of Not-Net-Zero

Note: In 2007 and 2008, CEO Doug Pearce had average earnings of $662,775. In 2012 and 2013, Pearce averaged $1,421,535.

In 2007 and 2008, VP Lincoln Webb had average earnings of $283,764. In 2012 and 2013, Webb averaged $941,354.

In 2007 and 2008, British Columbia Investment Management Corporation averaged earnings of 11.85%. In 2012 and 2013, BCimc averaged 7.7%

The sign on the boardroom door should read,
"Heads we win. Tails you lose."

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Tuesday, March 25, 2014

Days of restraint, austerity and net-zero

There was a time in British Columbia when creative and ambitious people aimed to be involved in productive entrepreneurialism. Perhaps manufacturing, construction, resource extraction, distribution or other activities that created and delivered products to consumers. The roles are still valid but focus of the most ambitious people has shifted from production of tangible goods to the endless refining and shuffling of intangibles. They see big money in peddling advice and influence, not from from making and selling products.

This fact really hit me when I observed sessions of the Braidwood Inquiry and Cohen Commission of Inquiry with their near endless lines of lawyers, patronage seekers and other beneficiaries. Neither examination was about seeking truth or conducting actual inquiry, it was about the symbolic process of apparent investigation within a system dedicated to spin doctors, lawyers and bureaucrats. Millions of dollars spent; little of value created. Had government mailed $20 million to random households across the nation, Canada's economy would have been more effectively stimulated.

Of course, my notion grew stronger as I examined the financial management of British Columbia's public affairs. Whether or not it is Pavco, BC Ferries, BC Hydro, BC Investment Management, public/private partnerships, health administration, etc., it is clear that taxpayers are badly served. So too are people dependent on delivery of efficient and effective public services and most of the public servants who do the work.

However, efficient management is not the aim of modern government. In BC, the present objective is to deliver wealth into the hands of friends and supporters and punishment to the backsides of the rest. For important insiders, days are good; salaries, pensions and expense accounts grow. Double and triple dipping abounds and insiders bounce from being regulators to being regulated, from being facilitators to being facilitated, and back again. Sweetheart deals become business as usual and people at the top know good things come to the quiet and the patient. No one speaks out for fear of losing opportunity.

In 2000, controversy reigned when the spendthrift NDP allowed its Deputy Ministers a 2% increase, bringing the salary of the highest paid bureaucrat to $152,000. In today's dollars, that is the equivalent of $198,000. Under Christy Clark's leadership, BC's five highest paid public servants today average well over $1 million each with Doug Pearce, head of the province's investment agency, highest at $1.6 million. Incidentally, the highest paid civil servant in the UK, also the chief investment officer, earns one third Pearce's income.

Outside the dome of privilege, the herd is left on its own. Pay more, expect less, get less. That's the role for most of us in the modern economy.

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Sunday, March 23, 2014

Salute to a man we can all admire

Many readers here and at other new media sites know Ian Reid through The Real Story. We've witnessed his brave struggle against an unrelenting health challenge and when RossK and I visited him in autumn, Ian hoped he might share one more Christmas with family and friends.

Today, I met Shamus Reid and asked him to carry greetings to his father. Winter came and departed and I'm glad Ian survived to see again the Akebono cherry blossoms on the streets near home. He also sees the beginnings of renewal of the NDP, the political movement that will be poorer without his sensible counsel.

Of course, time for all of us is finite but we are sad when it seems short for good people loved and respected by many. But then, maybe that condition is victory in the game of life.

The following text was published in November 2013.

* * * * *

It's great the BC NDP honoured Ian Reid this weekend with a life membership and with warm recognition for his long service to politics and public service in British Columbia.

From Bergman's film The Seventh Seal.
What's even better is that our friend was there to enjoy the honour first hand. Scriblerians of BC's blog world have high regard for Ian. That's not just for his skills of analysis and communication and dedication to family, friends and the community, but mostly for unselfishness and uncommon courage and determination to live life fully. He's battled to continue his game of chess well beyond the time others predicted it might end.

A mutual friend and I spent a couple of hours with Ian last weekend and I admit, the man inspires me. He's been through difficult days but we found him remarkably vital, focused on people that are close to him and other things that matter much. Over the past few years, Ian's been generous with information and guidance to me. His earliest advice included a caution to protect independence so that opinions can never be constrained by inapt obligations.

Since I'm in the autumn of my time, I'll always remember Ian Reid and honour him by following the dictates of my own heart.

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Thursday, March 20, 2014

Crony capitalism, part duh...

I don't know that I will bother writing about the detail that I've accumulated in examining convention centre projects in North America and abroad. Regular readers can probably guess accurately at what I might say but I'll show this graph and let readers ponder if it is significant, or not.

BC Liberal trolls will no doubt be sending messages complaining that I'm not accounting for all the innovations used on Vancouver's waterfront. Like, for example, the thousands of rooftop plants and grasses that might completely offset carbon emissions produced by six billion dollars worth of coal we ship across the sea each year. Or, the extensive use of local materials, including Douglas Fir and Hemlock lumber, from trees that otherwise might have had to be shipped to China, thereby contributing to inflationary pressures in that overheated economy.

So, for the extravagant spending, did Vancouver gain a convention centre of extraordinary size?

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Monday, March 17, 2014

Comfort the afflicted, and afflict the comfortable

Finley Peter Dunne is credited with the words above. I have a feeling this direction will be in the minds of more than a few politicos a year or so from now.

That's because Monday night, John Horgan entered the race to lead the BC New Democratic Party. I've exchanged views with John on a number of occasions and remain impressed with his broad knowledge of public issues and, perhaps more importantly, his indignation about unprincipled and incompetent management of public affairs in British Columbia.

John is not dogmatic; he knows that politics, practiced well, is the art of the possible. Thus, he believes that varied interests of a modern economy and social order can be harmonized. I suspect the economy will be job one but it will be managed with regard for more than the immediate moment. Horgan will improve democratic functions in BC, starting in the Legislature where citizen's representatives are largely ignored and underused.

John's reluctance to commit to a leadership race before now was understandable. He's been sitting as an MLA for almost nine years and worked in administrative support positions before winning election. With almost four years before the next election, successful leadership means a time commitment of at least eight, perhaps 12 years. Being at the stage of life that is usually most productive, I suspect John wanted to gain absolute certainty about the right course.

Monday's announcement probably has little to do with other candidates committed or considering. Instead, it is all about one man deciding he's truly ready to commence more meaningful work. It's my opinion that John Horgan has the knowledge, judgment and fortitude to succeed. He will afflict interests that have become extravagantly comfortable.

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Failing upward

In the five years 2009-2013, B.C. Pavilion Corporation, the provincial operator of BC Place and the Vancouver Convention Centre, accumulated deficits totaling $234,178,000 before public contributions (Source: Pavco audited financial statements).

During those same five years, the five highest paid executives of Pavco shared $6,416,446 in bonuses and other non-salary remuneration.

As noted previously, these are the managers responsible for the western world's least cost effective public sports arena and the most expensive public convention space in North America.

Nice work, if you can get it.

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