What is Full and Fair?

FICOM is seeking input on the application from Coast Capital Savings to go federal.  One question posed by FICOM is, “Have members been provided with full and fair disclosure upon which to make their decision?”  Members of Coast Capital were asked to vote on a special resolution in November.

“Full and fair” is not a standard or term with a clear definition.  Tax Court of Canada Rules provide one that may assist:  “…the applicant shall make full and fair disclosure of all material facts, and failure to do so is, in itself, sufficient ground for setting aside any judgment obtained on the motion.”  But “all material facts” is also open to interpretation.  Letting that be, were the members of Coast capital provided “all material facts”?

The information sent to members did  speak to several issues that would be of concern to depositors; deposit insurance, changes to select services, promises of expanded online services, etc..  There was a two page discussion of risks.  Notably, the text tells the reader that several risks have been assessed but does not provide details, only assurances that the board/management are confident that all risks are manageable in their opinion.  Only suggestions of a larger business plan are provided.

It should be noted that since no other credit union has moved to the federal jurisdiction, it includes many uncertainties.  This ‘pioneering’ risk was not disclosed.  Insofar as the member-owner’s are approving an action that may place their @$1B in capital at greater risk, what more could have been provided?

The details of what was circulated are no longer online at Coast Capital, it can be found in a ‘case’ document appendices available at governancewatch.ca

  1. Perhaps the ownership & governance provisions of the Bank Act (and other federal laws) could have been compared to the existing provincial provisions.
  2. What are the anticipated costs of the project and the potential losses if it does not complete?
  3. What is the larger business plan and how will the credit union recover the costs incurred in pursuit of ‘continuance’?  If this was a merger several years of projections for the new entity might have been prepared.
  4. How are the federal capital requirements, particularly considering the ten transitional provisions, likely going to affect the credit union? Is there a capital plan?
  5. Are their bonuses or incentive plans which are triggered upon completion?
  6. Did the board seek an independent evaluation of the strategy/proposal and what were the findings?
  7. What was the alternative ‘stay provincial’ option and why was it discounted?

Owners ought to be clear on the potential changes to their member-owner rights and obligations, these are fundamental to democratic member control and accountability.  Owners also need to confirm, in reasonable detail, that the risks are being well managed, and that they can accept the risk to the capital that they are committing.  Indeed, the requirement for owners’ consent to major decisions implies that they have to have business information to make an informed decision.

You may find this video interesting; When Big Co-ops Fail, from the Centre for the Study of Co-ops, University of Saskatchewan.  The paper which is referenced is available from the Plunkett Foundation here.  The research identifies over-confidence, a big gamble, and a lack of board oversight as common, but prominently there is also evidence of a dismissive attitude, even hostility, toward the co-operative business model.

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