Last Wednesday, the Ontario Auditor-General (AG) released a damning interim report on the Laurentian insolvency. Because of its interim nature – the AG does not think it likely her office will finish a full report before the Legislature is prorogued for the June election – it does not do justice to the subject. However, it does make three specific claims, which I think are hugely important and could pave the way for some key resignations at Laurentian.
For some time, I hoped that the Auditor General would shed light on two key issues: why was the university unable (unwilling?) to access the Desjardins line of credit which previously provided the university with up to $25 million in liquidity, and what happened during the negotiations with the Government of Ontario with respect to a relief package prior to the declaration of insolvency. The answers matter because they would determine whether in January the institution was insolvent and without other recourse except bankruptcy, or whether President Haché and the Board of Governors deliberately “drove the bus over the cliff”, acting (or failing to act) over the course of several months in such a way as to deprive the university of choices other than insolvency. The AG says very clearly it was the latter.
Here are three claims quoted in full:
- Laurentian did not have to file for CCAA protection; it strategically planned and chose to take steps to file for creditor protection in the Ontario Superior Court of Justice on February 1, 2021. As Laurentian’s financial situation grew increasingly dire, the university did not follow the normal broader public sector precedent by making comprehensive and clear efforts to seek financial assistance from the Ministry. It instead focused on advocating to elected officials and their staff, on the advice of external consultants. In August 2020, Laurentian raised the potential of CCAA to the Minister of Colleges and Universities but did not clearly define how much financial assistance was required from the province to avoid a CCAA filing. An explicit request for funding to the Ministry was not made until December 2020, at which point the ask was significant and the timeline for intervention was short. Had it sought to work earlier and more transparently with Ministry staff, had it not prematurely paid off and relinquished its line of credit in 2020, and had it accepted the temporary funding assistance that the province ultimately offered, Laurentian would have had sufficient time for its financial situation to be reviewed jointly with the province and a go-forward plan put in place.
- An external law firm that was working with the university on other business first introduced the concept of the creditor-protection process in 2019 to senior administration. We believe that serious consideration of the concept lay dormant until the spring of 2020, when Laurentian made the decision to actively pursue creditor protection.
- Guided by external lawyers, external financial consultants and government-relations specialists, the President of Laurentian and certain Board members, strategically pursued restructuring under the CCAA. This chosen path appears to have enabled Laurentian to limit the full disclosure of financial and operational information to the public and other stakeholders, such as the faculty association and the staff union. It appears that Laurentian’s external auditors were not made aware of the CCAA plans, and as such, Laurentian’s financial statements ultimately did not clearly disclose to stakeholders the university’s imminent financial risk. [AU – I’m sure KPMG appreciated this line].
The problem with the report is that it does not produce any documentary evidence to back up these claims. The AG has access to thousands of documents which we do not, and presumably she has read them and formed an opinion on them. So, the question is really: do you trust this AG to make reasonable judgements? She has a history of hatchet jobs – for instance the utterly unjustified attack on OSAP back in 2019. And there is at least one clear error in her portrayal of Laurentian’s financial position in 2021 (in this report she fixates on total debt, which as I pointed out back here was never really the problem: Laurentian had long-term debt under control, it was specifically short-term debt and short-term liabilities that did them in). Nevertheless, the case she makes for how insolvency occurred is plausible, and it’s not in contradiction with other known facts. I’m inclined to believe the gist of what she has presented, which is that Haché and co. did indeed deliberately drive the bus over the cliff.
Many in Sudbury have believed this since the beginning. For a long time, I resisted this conclusion mainly because it was not clear who because I couldn’t see whose interests this would serve (yes, I know, there are lots of conspiracy theories about cui bono – the Ford government, other university Presidents, etc. – but these are all basically fantasies about The Man). I mean, just look at it from Haché’s POV. A guy like him probably only gets one shot to be a President. Presumably he’d want a legacy, something to build, something to be proud of. What would make him drive the bus over the cliff?
Increasingly, it seems to me that in fact what happened is that sometime soon after COVID hit, Haché simply found it too difficult to imagine how he could build something at Laurentian. No doubt, he inherited a bad situation, and decisions and events in 2018-20 made it worse. And so, he (aided by outside consultants, and likely encouraged by at least a few Board members) conceived of a different kind of legacy: being the man who “saved” and “rebuilt” the university through tough medicine. But if (repeat: if) this was Haché’s intent, why carry out the “saving” part in ways that deliberately made the re-building part more difficult? Why time the insolvency to do maximum damage to your student intake? Why destroy every relationship with faculty and community through secrecy, deception, and top-down, hack-and-slash restructuring?
None of this ever made the slightest sense, which is why I was disinclined to view Haché’s motives in this light. But now I have come to the view that driving the bus over the cliff in the name of rebuilding was indeed an intentional strategy: he was just too short-sighted/incompetent to see that playing this game would make his longer-term goals impossible. And I don’t just mean this in the sense that he saddled this institution with tens of millions of dollars in unnecessary short-term costs – lawyers, consultants, interest-rate swaps, etc. – that he probably did not foresee when he started down this path (it will be interesting, once the dust settles, to get a better sense from previous Board members how much of these costs they anticipated when Haché urged this option on them). I mean he seems not to have understood how the secrecy and deception would destroy his moral right to participate in the rebuilding, particularly once it became clear – as it did this past week – other options were available. Like a rookie chess player, his opening moves were bold, but they sabotaged his end-game.
Let’s be clear, it’s not just with respect to faculty and staff that he has a problem: it’s creditors, too. Anyone on the unsecured creditors list who read the AG’s report is unlikely to be inclined to cut Laurentian – or the court-appointed Monitor, Ernst and Young – much slack (Ernst and Young strikes me as being in a particular conflict of interest here: Monitor’s are supposed to act in creditor’s interests, and yet the AG is now saying that prior to being appointed Monitor, EY was advising the debtor to act against creditors’ interest by deliberately and unnecessarily maneuvering the institution into the CCAA process). What might have looked like a smart move to get out of debt 15 months ago now looks disastrous. This also explains why Laurentian might have tried to evade transparency for all this time: because a true picture of the institution’s (possibly mendacious) motives and actions would make subsequent dealings with creditors that much more difficult.
So now here we are. If it is true that alternatives existed, and Haché ignored them; if it is true that Haché was a naïf who got rolled by an unnamed law firm and Ernst and Young (who have since sucked out over $20 million from the organization that could have gone to other purposes), and if it is true that the whole CCAA process was a simple choice to both bilk creditors and to bust the union in the pursuit of some phantasmagorical institutional rebirth, then it’s awfully hard to see how Haché can maintain the moral right to lead the institution into its rebuilding phase.
If any of this is true, he needs to go. And the sooner the better.
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Overall, I agree with this, but a couple of points:
– I’m curious as to your thoughts on the AG’s OSAP report. My own reading of the report and the criticisms of it that I’ve read, notably those raised by OCUFA, suggests to me that a key point made by the AG was missed — that relevant data collection mechanisms were insufficient. One of the recommendations was to increase data collected to include data on graduation rates of OSAP recipients, something that struck me as an obvious defiency before I’d even gotten to that point in the report. Indeed, the report does err when the AG implies that the increase in recipients without an increase in enrollment suggests students with means accessing the system, as this increase in recipients could result in increased student retention and graduation rates, a possibility that cannot be explored without the recommended improvements in data collection.
– In the case of EY, I propose the alternative that EY was not acting against the interests of major creditors when advising the maneuvering toward the CCAA process, but rather against the interests of their client, Laurentian. It strikes me as something of a corporate raider scenario, where EY stands to gain through the extraction of fees through the process and major creditors could stand to gain from the gutting of the institution and the proposed privatization of its property holdings. Indeed, the major creditors involved, in their roles as financial institutions, stand to benefit from the exposure of Laurentian’s vast green spaces to residential development. The question is, would such potential future gains in new revenues outweigh the revenues that would have been generated through interest on LU’s debts had the institution maintained solvency.
It would be interesting to do an analysis of the role of Alan Harrison inbefore and after the CCAA process occurred. His role in a similar attempt at McMaster and his closeness with Hache may provide some insights.