Report finds failures in governance at Ridley Terminals

Multiple failures in governance at Ridley Terminals Inc. are laid bare in a special report by the auditor general of Canada.

The report, made public April 24 on the Crown corporation’s website, points to significant dysfunctions in management. These “significant deficiencies” include irregular hiring practices and salary allocations for senior executives; a lack of board oversight on key issues, including environmental requirements; and a failure by senior management to get the required government approval for the AltaGas Ltd. diversification project.

Between 2005 and 2017, the report covers a tumultuous period in the company’s history. Faced with a declining global market in coal, the terminal has seen decreasing revenues and chronic issues filling senior executive positions in the past 13 years.

Those positions were finally filled in February with three new appointments and one re-appointment by Transport Canada. Based on the auditor general’s findings, the Ridley Terminals will have their work cut out for them.

“We accept and acknowledge the findings of the auditor general’s report,” said board of directors’ chair Mike McPhie. “We’re working closely with Transport Canada to design and then implement an action plan to address the issues raised here.”

Irregular hiring practices

Ridley Terminals waited for Transport Canada to fill its CEO position, but requiring leadership hired someone on contract who fulfilled the equivalent role.

But unlike public companies, where senior management have a significant amount of leeway in hiring senior executives, Crown corporations are governed by the Financial Administration Act. Senior executive positions and salaries are pre-determined by the act, which requires that the board of directors and the CEO be appointed by Transport Canada, not by the corporation’s board members.

The board hired a president and chief operating officer who could act as the company’s CEO without needing to go through the formal appointment process. Two were hired this way, including Marc Dulude, the current president and COO of Ridley Terminals. That person was hired on contract, which allowed the board to pay them a higher salary, similar to what they’d be receiving in a similar position at a public company — not the salary that, according to the provisions of the act, they should be receiving.

Board chair, McPhie, said for the terminal to attract the kind of talent required to help the company remain afloat during the economic turbulence of the past 13 years, they needed to offer a higher salary than the one mandated for a CEO by the federal government. How much exactly is not disclosed in the auditor general’s report.

“The salary mandated by the Financial Administration Act is the equivalent of what it would have been in the mid-1980s,” he said. “A salary assessment was done following a search of appropriate individuals. The salary range for the position is well within market norms and is less than the equivalent positions at the Port of Prince Rupert or the Port of Vancouver.”

Yet the report found RTI did not have an established salary structure for its executives benchmarked against those in similar industries and sectors, including other Crown corporations. Instead, said McPhie, RTI contracted Korn Fairy, a hiring company, to find an appropriate candidate and determine an appropriate salary.

Transport Canada was aware of the contract position. In an emailed statement, Transport Canada said RTI had a fiduciary responsibility to manage the terminal, even without a Transport Canada appointed CEO, as required by the Financial Administration Act. Consequently, from 2008 onward RTI hired several Chief Operating Officers on contract to fill the duties of a CEO.

Ridley Terminals still doesn’t have an official CEO.

Creating unauthorized new jobs

During the same period, the board also created a new position for a VP of Corporate Affairs without following the search process required by the Crown corporation’s hiring policy. Instead, the board of directors approached Colin Metcalfe, a senior policy advisor to James Moore, who was Stephen Harper’s minister responsible for British Columbia.

At the time, in August 2015, the Harper government was in its final throes and Metcalfe’s job, along with the government, was about to end. A job was made for him instead.

The decision to hire Metcalfe came from RTI’s board of directors, of whom several had donated to Harper’s Conservative government — including the interim chairman who had donated $7,125 between 2004 and 2014.

The position was created on contract and is not a formal part of the Crown corporation’s governance structure, which is why Metcalfe’s salary isn’t publicly disclosed.

McPhie said that the position was necessary for the company to remain afloat. The Crown corporation and Transport Canada had reached an impasse.

From 2014 to 2017, Transport Canada had refused to approve the company’s annual corporate plans. As a Crown corporation, RTI is required annually to submit a corporate plan for the next five years to Transport Canada. The department reviews the plan and, finding no issue, gives its formal approval to RTI to follow the plan. If Transport Canada has an issue with the plans, they will withhold approval until they can resolve the issue with the company.

“That was a time where RTI was under pressure, but there were no lay-offs or subsidies,” McPhie said. “The position of VP of Corporate Affairs was created to support the work of the board, and to help move dialogue with Transport Canada forward.”

Yet the auditor general’s report reveals that the board failed to fulfill most of its responsibilities for at least the first three years Metcalfe was employed between 2015-2017.

Failures in oversight and AltaGas

In the 33-page report, more shortcomings were outlined including failing to monitor RTI’s compliance with environmental regulations, not keeping minutes for board and committee meetings, and not having a clear plan to protect its assets if the global coal market collapsed.

But what is notable is that RTI signed a 20-year contract to sub-lease part of the terminal to AltaGas Ltd. for its liquid gas terminal — without the required approval by Transport Canada.

In August 2016, Transport Canada advised RTI that it could not sign binding documents with AltaGas because, as a Crown corporation, RTI needed to seek formal approval for the project from Transport Canada. That approval was not granted until late 2017 when Transport Canada approved the company’s backlog of corporate plans.

READ MORE: AltaGas ahead of schedule

In 2016, the Treasury Board told RTI that it had not yet obtained approval for the project through official avenues. Regardless, RTI continued to move ahead with the $500-million project, which is expected to be operational by early 2019.

But McPhie maintains that RTI could not justify holding back on the project while it waited for formal approval from Transport Canada.

“The five-year plans were submitted but weren’t approved. In the end of the day, there’s a business that needs to be run and we had the possibility of a major investment from something that will have lasting benefits for a long time,” he said.

Transport Canada did not comment directly on its inaction to prevent RTI from going ahead with the project, stating simply that it expects Crown corporations “will manage their affairs responsibly and in compliance with legislative and policy requirements and that their governance is sound, transparent, and accountable.”

Ridley Terminals Inc, Special Examination of the Auditor General of Canada by Marc Fawcett-Atkinson on Scribd

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