EDC

In defence of the EDC

June 6, 2000

Patrick J. Lavelle, chairman of the board of the Export Development Corporation, responds to Patricia Adams.


Please see the original article The secret of EDC’s ‘success’.

Responding to a critical Post article, EDC chairman Patrick Lavelle says the Crown export corp is considered a model for other countries, and is moving to address its shortcomings.

In early May, at the invitation of the president and CEO of Ex-Im Bank of the United States, I attended a conference of trade finance experts from around the world who gathered in Washington, D.C., to celebrate the 65th anniversary of the founding of that historic organization.

What struck me about the experience was that Canada’s Export Development Corp. was very much on the minds of many of the featured speakers and participants. This attention, it turned out, was largely a tribute to EDC’s outstanding success. While it was Ex-Im’s birthday, a lot of attention went to how Ex-Im could be more like EDC.

This struck me curious amid the constant din of the Ottawa Citizen and the National Post, who seem determined to turn EDC into the U.S. Ex-Im Bank, a money-losing agency that is a lender of last resort and a non-competitive trade component of the U.S. government.

While the focus was on Ex-Im Bank, many of the participants at the conference were aware of the domestic criticism of EDC on environmental, disclosure and human rights issues. They were mystified as to why Canadian critics seemed intent on discrediting an agency that is considered a model for other export credit agencies around the world.

I am now in my third year as chairman of EDC. Prior to this I served as chairman of the Business Development Bank of Canada during a period when BDC was transformed from a money-losing lender of last resort into a profitable agency of change for small and emerging businesses. The EDC I knew then was already ahead of the curve in responding to the commercial market, and has progressed steadily since then into a world-leading export-financing agency.

During the past three years, the agency has been under intense public and parliamentary scrutiny. The EDC legislation passed in 1993 provided for a third-party review (starting in 1998), which was conducted by the law firm Gowling, Strathy & Henderson.

The following year, the Auditor-General undertook a special review of EDC, giving it a clean bill of health. Most recently, both the House of Commons and the Senate held public parliamentary hearings on the EDC mandate.

The legislative review found much to praise about EDC’s operations. It also made certain suggestions for reform that were fair and understandable, particularly on environmental, disclosure and human rights issues. All these issues were already on the EDC drawing board, and significant progress has already been achieved.

While the review was in progress, certain media and NGOs initiated a barrage of EDC criticism that has been distorted, unfair and smacking of malice. EDC welcomes a dialogue with Canadians as long as the critics look at both sides of the issues before rushing to judgment.

EDC is a Crown Corporation, wholly owned by the government of Canada. Its capital base is funded by taxpayers, it pays no taxes, and it borrows on the power of the federal government. On these issues there is no dispute. The EDC has never lost money in its 56 years of operation. It has retained earnings of close to $1-billion, equal to the government’s original contribution, and has filled a gap in the market in trade finance.

EDC has developed an exceptional presence globally in trade finance, has developed a unique incentive-oriented culture within a government environment, and has consistently been driven to change and adapt by the global competitive pressures facing Canada’s exporters. It has also worked to expand its customer base aggressively to include Canadian small and medium-sized businesses.

No organization is perfect, and EDC is no exception. It is useful for the public to know what steps have been taken to respond to the critics and how the organization continues to adapt to Canadian and global pressures.

When I became chairman in January, 1998, management had already initiated a series of discussions with exporters, in conjunction with a third-party team of environmental experts, to develop an environmental framework for EDC. The board of directors eventually approved this framework in the spring of 1999. It is posted on EDC’s Web site, and represents a first step in bringing our standards up to a level that not only will satisfy all our critics, but also will respond to the real problems we face in a responsible and commercially viable manner.

On disclosure, the EDC has been a leader among government agencies in providing taxpayers with full financial accountability that closely mirrors private-sector organizations that conform to the requirements of the Ontario Securities Commission or the U.S. Securities and Exchange Commission. The Auditor-General consistently recognizes EDC’s efforts in this respect. The board is currently reviewing a new disclosure framework that will balance the public’s right to know and the customer’s need to protect its competitiveness.

On the human rights issue, I am somewhat baffled by the critics. We clearly take our lead from the government and respond according to the guidelines given to us by the Department of Foreign Affairs and International Trade. As a board, we are clearly aware of the importance the government attaches to human rights issues, but nonetheless, we are committed to ensuring our response to government directives in this area is fully taken into account by the board and management.

The governance issues at EDC have received less attention. The 1999 annual report devotes five pages to our progress in implementing governance guidelines for Crown corporations issued by Treasury Board and reflective of the changes implemented after the Dey Report on corporate governance in the private sector.

For my part, I would like to set the record straight on some issues regarding EDC’s board of directors. All the directors are appointed by the shareholder (similar to the private sector) and serve three-year terms. They must comply with rigid conflict-of-interest guidelines and annually sign a Code of Conduct that was introduced by the board in late 1998. These guidelines are at the leading edge in the public sector, and far outstrip anything I have encountered in the private sector.

Most observers of EDC tend to forget that it is both a Crown corporation and a financial institution, and is therefore driven by both the government and its 5,000-plus customers. The corporation must walk a fine line between its public policy mandate and commercial objectives. On the one hand, we owe appropriate disclosure to the taxpayers; on the other, EDC’s clients want private sector-type respect for client commercial confidentiality. We are attempting to achieve this balance without compromising either.

The board has enormous fiduciary responsibilities commensurate with the size of the organization (more than 800 employees), business volume (exceeding $40-billion) and EDC assets (more than $19-billion). In a manner of speaking, this is a Fortune 500-type organization, and in the interest of taxpayers (the real shareholders), it is run like one, ensuring that best practices are followed in operations, risk management and human resource development. This is yet another side of a complex organization that the public may not be aware of.

As I have already indicated, we welcome public dialogue as long as EDC’s actions are judged on full and fair disclosure of the facts within the proper context. The public deserves nothing less.

Patrick J. Lavelle is chairman of the board of the Export Development Corp.

Categories: EDC, Export Credit, News

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