October 11th, 2016
Island Corridor Foundation
Association of Vancouver Island & Coastal Communities
Daniels Report: Re ICF Review
The assignment of the AVICC was for a high level financial and governance review of the Island Corridor Foundation (ICF). The AVICC hired aKd consultants to conduct the review. The report was presented to the AVICC Executive, regional district chairs, CAOs, ICF RD member representatives and directors.
Although the report has not been formally transmitted to the ICF Chair and Directors a special meeting of the Board was held to review the recommendations.
Summary and Conclusion…aKd Report
“The governance structure was initially designed to ensure a balance of representation and power among First Nations and Regional Districts, as well as to allow for charitable status so that a tax receipt could be provided to CP and Rail America to compensate them for the transfer of the land. The structure is therefore important and generally appears to be doing the job originally intended”.
The author states that the governance structure was established to accomplish three primary objectives:
- To limit the owners’ (members) financial exposure and liability both in running a rail line and in owning and maintaining a land corridor of this size;
- To limit political interference in a complex structure involving regional governments and First Nations;
- To take advantage of charitable status, a requirement for the initial transfer of the corridor.
“No one interviewed expressed dissatisfaction with the structure of the organization per se. Suggestions were made for working more effectively within the existing structure with minor changes to the bylaw”.
It is unfortunate the author did not more fully discuss the first two points and explain the appropriate process for ICF members to bring issues of concern before the ICF Board of Directors while limiting members financial exposure, liability and political interference.
The ICF Chair and CEO met with the author for 2.5 hours in a ranging discussion with no details of issues presented. The Chair did offer to meet again with the author before his report was finalised to answer questions he may have or for him to seek clarification to ensure his report was factually correct. Had he done so there would not have been the factual errors or misunderstandings found in his report. This is truly unfortunate.
The ICF is implementing a number of the recommendations. The advice concerning communication and a director’s inability to report because of the Schlenker decision will help in providing a common approach amongst the five regional districts and the regional ICF directors.
Recommendations & Responses
Recommendation #1: That the ICF Board appoint members-at-large from the public based on a strategic evaluation of skill sets that will provide added value to the Board.
Skill sets for the appointment of ICF directors will be developed. The skill sets will take into account the unique First Nation and Regional membership of the ICF and the articles of the Foundation.
Recommendation #2: Regional District issue
Recommendation #3: That the ICF Board amend section 4.1 of its bylaw to allow public attendance at the Annual General Meeting.
The ICF Annual General Meeting will be open for the public. This was approved at the July 2016 ICF Board meeting.
Recommendation #4: That the ICF Board amend its bylaw to designate a portion of each regular meeting as open to the public.
Anyone wishing to address the Board on a specific matter can make a written request to do so. Due to the nature of the business discussed at Board meetings it is not practical to incorporate an open portion for the public to attend. For the record no one has asked to attend. The ICF will look for other opportunities to engage the public.
Recommendation #5: That ICF schedule one regular, annual, presentation to the five Regional District Boards focusing on the past years accomplishments and objectives for the coming year.
The ICF will prepare a formal annual report for the AGM and circulate it to all members. By invitation the ICF has attended Regional Board meetings and council meetings and will continue to do so. The ICF will also be pro-active in inviting all Regional Board directors, First Nation councillors and local government councillors to the AGM. The AGM includes the presentation of the financial statements by the auditor; a report of legal business by the ICF solicitor and reports by the ICF co-chairs, the CEO and the president of Southern Railway. The minutes and reports of the AGM will continue to be posted on the ICF website. The ICF has requested the AVICC schedule a regular ICF workshop at the annual spring conference as well.
Recommendation #6: AVICC issue
Recommendation #7: That ICF structure its Board agendas and minutes to allow for public, non-confidential portions of the minutes to be posted on their website and that section 7.7(c) of the ICF bylaws be amended to allow for such distribution.
The ICF publishes Board Meeting Notes after each board meeting. The Notes are circulated to all member First Nation councillors, regional board directors and local government councillors and 3500 ‘Friends of the Corridor’ and are posted on the ICF website.
Recommendation #8: That the FAQ section of the website be expanded and updated on a regular basis.
The FAQ website page will be expanded and updated on a monthly basis.
Recommendation #9: That Regional Districts use the wording “that (appointee) be confirmed and ratified as the (specific) Regional District’s nominee to be appointed to the ICF Board.”
The ICF solicitor advice:
‘This is a recommendation to the Regional Districts as to their internal process rather than the ICF…
The ICF bylaws have been drafted to conform to the Canada Not-For-Profit Corporations Act, the ICF’s governing statute. The Act provides that members may nominate directors to the board under section 163(5) by making a proposal signed by any “number of members as provided in the bylaws…”
The key distinction is that members’ nominate’ directors rather than ‘appoint’ them. This preserves the legal principle that members must ultimately vote for directors. While in actual practise the process is more like appointment, the bylaws were designed to comply with the principle of election, which is required under the Canada Not-For-Profit Corporations Act’.
However, Regional Districts may wish to ratify their nominee by way of a confirming resolution as per the SMS legal advice.
Recommendation #10: That ICF provide Board members with clear policy guidelines (Code of Conduct), based on the attached legal opinion, indicating the range of matters about which they can communicate to their Regional District Boards.
The ICF will develop policy guidelines for what directors may report to their boards with respect to ICF business. It would be helpful if Regional Boards coordinated a common approach that directors can follow with respect to their participation in ICF discussions at the regional board table.
The ICF solicitor advice:
‘We concur that it seems prudent that a legal opinion be sought on the duties which Regional District directors have under Schlenker, including but not limited to, their duty to exclude themselves from meetings and their ability to relay information back to their regional boards. Given this is an issue arising inside the Regional Districts, we would recommend that this opinion be prepared by Stewart McDannold Stuart on behalf of the Regional Districts…It would be useful if the ICF could review this opinion as an aid to considering the internal disclosure policies tailored to the Regional Districts’.
Currently each regional district has a different approach to how an ICF director can report and participate to the respective regional board.
Recommendation #11: Regional District issue
Recommendation #12: That ICF, with input from all stakeholders, develop a long term strategic plan to be reviewed annually and updated every three years and made public on the ICF website.
The ICF will update the strategic plan as the Board deems necessary. The plans will be posted on the website as they currently are.
Recommendation #13: That ICF seek a legal opinion about expanding the role of the Member Representatives to direct the process of developing a strategic plan for recommendation to the ICF Board.
The ICF solicitor advice:
‘The not-for-profit corporation model was chosen and the ICF articles and bylaws were drafted in a manner so as to insulate and protect Regional District and First Nation members against legal liability arising from operation of a railway and management of the land corridor. The greater the direct role which Regional Districts and First Nations have in the ICF and the further from the classic model of corporate governance the ICF becomes (separation of members from decision making), the greater the risk of members being held liable for the actions of the ICF…
Over and above the importance of separation between the ICF and its members discussed above, there could be direct liability issues resulting from an expansion of the role of Member Representatives. For example, the common law has a principle that to the extent that persons take on the role of duties commonly seen as that of directors (such as setting policy goals) they will be deemed to be and will assume the liability of directors. Indeed this principle is even codified in British Columbia under section 138 of the BC Business Corporations Act. The de fact to director principle is a concern for individual Member Representatives as well as the Regional Districts and First Nations who are the members. In short, to the extent that these parties take part in the direction of the ICF, they may become liable for its actions. Given this was one of the most significant concerns in setting up the ICF, it is one which we would strongly caution against.’
The ICF will work to expand stakeholder engagement in the updating of the strategic planning process.
Recommendation #14: That ICF make public a comprehensive business plan that addresses the strategic priorities of the ICF and the key components required to achieving a viable rail service on Vancouver Island.
The plan is to be updated and presented at the AGM and will outline the skills and components we have found in our rail operator that are necessary in achieving a viable rail service. The plan will be posted on the ICF website.
Recommendation #15: That a review and update of the business plan be conducted annually and reported to the members at the Annual General Meeting.
The plan is to be updated and presented at the AGM. The plan will be posted on the ICF website.
Recommendation #16: That the CEO’s annual performance review include an evaluation of progress toward measureable benchmarks in the strategic focus areas and business plan objectives set annually by the Board of Directors of the ICF.
The CEO’s performance is reviewed by the Board of Directors
Recommendation #17: That the ICF Board ensure the business plan includes a strategy to address the financial issues noted in the 2015 Notes to the Financial Statements.
The financial notes are reviewed annually with the auditors and the update of the business plan will include the update of the five year budget. The ICF Board ensures that all assets of the corporation are protected and all legal agreements are reviewed by the ICF solicitor.
Recommendation #18: That all financial transactions for line and crossing maintenance be shown in the annual budget as revenue and expense amounts and billing be managed by the ICF.
This is not revenue or expense of the ICF and cannot be included in the ICF budget as per generally accepted accounting principles. The maintenance of railway crossings is work Southern rail performs and is paid directly by the respective road authority. This issue was addressed by Southern Rail at the local government liaison tour and meeting. This was not an issue of concern and attending members seemed to understand the process and billing for crossing maintenance.
*Several jurisdictions formally declined to attend the liaison meeting: RDN, Nanaimo and Lantzville
The report would have been more constructive if the 40 people interviewed had been listed and what their specific issues were. This would have helped the ICF better understand the nature of the criticism, particularly since the recently held local government liaison meeting was well attended and so positively received.
It also would help readers better discern the authors understanding of the issues identified and whether there were other agendas being pursued.
It is noted the author did not speak with the ICF financial officer, or the auditors. It is surprising they were not contacted when the author was doing a high level financial review. This is also the case with the ICF solicitor who also was not consulted with respect to the governance review and the corporation bylaws.
Another glaring omission is the fact the rail operator, Southern Rail, was not consulted. It is absolutely imperative the ICF have a rail operator. The rail company’s input concerning rail sustainability and their relationship with the ICF would have offered an important perspective that has been left out.
Although the terms of reference were vague the author was instructed to;
- Clarify and confirm the issues, concerns and frustrations prompting the review;
The City of Langford was the proposer of the resolution yet there is no reporting of their issues. This omission leaves readers not knowing what prompted the resolution or that the ICF Board had three times offered to meet with the Mayor of Langford to address his issues. He never accepted the invitations.
- Review current bylaws and system structure to ensure the owner’s (members) of the corridor are properly represented and their interests protected
The author never consulted with the ICF corporate solicitor or any of the community groups directly involved with the ICF
- Conduct a high level review of the ICF budget and 2015 financial statements
The author never consulted with the ICF Financial Officer or the ICF auditors
- Determine if the ICF’s performance and accomplishments to date have been reasonable and if it is meeting the owner’s (members) expectations.
To this point the report is silent on;
- the award winning Nanaimo Heritage Station restoration & renovation & fundraising campaign lead by the Young Professionals of Nanaimo
- the completion of Phase I of the Courtenay Heritage Station renovation being done in cooperation with Courtenay and Strathcona Rotarys and the City of Courtenay; and work to begin on Phase II when Heritage Canada gives approval.
- the renovation planning underway of the Duncan Heritage Station with the Cowichan Valley Historical Society and the City of Duncan
- the new Via Rail operating agreement
- the SVI subsidy agreement for the Via service
- the $7.5 million provincial funding approval
- the $7.5 million federal funding approval
- the four regional districts funding agreements
- the ICF/SVI daily working relationship
- the ICF/SVI Long Term Operating agreement
- the rail/trail guidelines for the corridor
- the trail construction along the corridor
- the Hallowell Trail agreement (Esquimalt FN, Songhees FN, CRD, View Royal)
- the Alberni Pacific Railway Maclean Mill tourism train operation
- the ICF/APR Alberni Sub management agreement
- the Nanaimo Port Authority/SVI Cruise Ship Excursion Train
- the establishment of a permanent ICF office
- the creation of a comprehensive website
- the improved annual operating financial position of the ICF
- the full repayment of the CPR loan – $125,000
- the management of land use agreements
- the fact Regional Districts do not contribute operating funding to ICF
- the fact Regional Districts do not contribute funding to rail maintenance
- the fact local governments do not contribute operating funding to ICF
- the local government permissive tax exemption agreements
- the corridor utilization by member organizations for utilities
- the fact First Nation governments do not contribute operating funding to ICF
- the SVI First Nation Conductor/Engineer Scholarship Fund
- the First Nation Trackman Training & Employment Plan
- the First Nation Safety Sight & Sound Barriers Plan
The author noted this was a high level financial review that the consultant conducted himself and with qualified outside sources that have been left unnamed. The ICF notes that neither the ICF Financial Officer nor the ICF auditors were consulted thus the lack of understanding of the ICF financial statements and the following errors or omissions.
The ICF is in a strong financial position having grown annual revenues to over $500,000. Assets are $335,389,514. The Nanaimo Station mortgage of $1.1 million has been reduced to $951,920. CIBC has a first charge over the Selby Street station property only, not over all of the ICF assets as the author stated.
The SVI loan repayment plan is part of the ICF/SVI Long Term Operating Agreement. There is no general security agreement clause in the LTA.
The CPR ‘donation’ amount is a flow through from Telus for the fibre optic line agreement that is included in the original asset agreement with ICF.
The above significant errors underscore the authors misunderstanding of the financial affairs of the ICF and create a very serious misrepresentation of the facts to the reader.
Errors & Omissions
- The ICF assets are $335,389,514.
- The CIBC charge for the Nanaimo Station mortgage is limited to the amount outstanding.
- ICF holds non rail related parcels of land that could be used, if necessary, to cover risk exposure.
- The charge over the property does not limit the ICF from obtaining other financing if needed.
- The Long Term Operating Agreement with SVI will not have a general security agreement.
- SVI will pay several millions of dollars to ICF in track license fees.
- ICF land use revenues will continue to increase in the future
- The CP ‘Donation’ to ICF is a flow through paid by Telus for a fibre optic line; this forms part of the original asset agreement.
- Credit and liquidity risks are minimal.
- There are no funds committed to the Alberni Station, (this is owned by the City of Port Alberni)
- Transport Canada & BC Safety Authority regulations would make it problematic for municipalities to maintain railroad crossings themselves
- SVI crossing maintenance fees conform with Canada Transport Authority fee schedules.
Context (Errors & Omissions)
- There are numerous opinions of how the ICF developed. A more common theme centres on the CPR wishing to close down the line. Rail America was a secondary player that took over the Alberni sub and that portion of the Victoria sub running from Parksville to Nanaimo. This would appear to be the more authentic version of events than what the author describes. This is supported by the fact that the first agreement for the transfer of
those parts of the corridor not controlled by Rail America was first negotiated with the CPR and then the Rail America agreement followed later.
- Cowichan Tribes was a main supporter and initial funder in developing a plan to protect the corridor.
- There are 11 First Nations,(not 8) supporting nominees to the Board
- The author does not understand the role of ‘Member Representatives’ and confuses this as a members committee which they are not. Consultation with the ICF corporate solicitor would have provided the author an accurate understanding of the role of ‘Member Representatives’.
- The member representatives do not elect the Chair or the Vice-Chair
- The Office Administrator is not the corporate secretary.
- “The Board of Directors may, by resolution, make, amend or repeal any bylaws that regulate the activities or affairs of the Corporation”. It would have been helpful to the reader if the author had also included the entire section applicable to 14.1… “Any such by-law amendment or repeal shall be effective from the date of the resolution of directors until the next meeting of members where it may be confirmed, rejected or amended by the members by ordinary resolution”. By omitting the underlined portion of this section the author has left the reader with the false impression the directors can make by-law changes without the members’ approval.
The ICF Board of Directors is made up of elected and professional people that include current Mayors and former Mayors and Chiefs, First Nation & local government councillors, land manager, economic development officer.
The Directors take their responsibilities very seriously and work closely with the CEO to ensure the ICF is managed according to the Articles of the corporation.
The Directors have complete confidence in the CEO to manage the daily affairs of the ICF.