Over the past decade millions of dollars from the Canadian Commercial Workers Industry Pension Plan have been invested in hotel businesses in which certain UFCW officials and CCWIPP Trustees are Directors. Do pension plan members have reason to be concerned? For whom is opportunity knocking? Recently, one of the contributors to the MFD forum posted these words:
"The administrator of a pension plan must exercise care, diligence and skill in the administration of a pension fund that a person of ordinary prudence would exercise in dealing with the property of another person. This is known as the "prudent investor" rule. If the administrator has professional or specialized skills, then the administrator must apply the relevant knowledge that the administrator possesses or ought to possess by reason of his or her profession, business or calling to the management of pension funds."
The rules regarding the "prudent investor" apply to members of a pension committee or board of trustees that is an administrator. These words are excerpted from a report called "Prudence, Patience and Jobs, Pension Investment in a Changing Canadian Economy", a publication of the Canadian Labour Market Productivity Centre (CLMPC), and describe the common law concept of the "prudent investor". This concept is at the foundation of pension regulation in Canada. Simply stated it means that persons responsible for pension funds must exercise a high standard of care with respect to those funds since they are, in fact, other people's money.
Our legislators saw fit to impose a high standard of care on pension administrators because of the enormous amounts held in trust by pension funds and the impact of investment decisions on the standard of living of hundreds of thousands of retired workers. Important also is the fact that, while the money in pension funds belongs to the workers, pension administration is a complex matter and few workers are in a position to tell, from one day to the next, whether their funds are being managed wisely.
Extensive information has been posted on this site recently concerning some seemingly unusual investments made by the Canadian Commercial Workers Industry Pension Plan (CCWIPP) and other UFCW pension funds. If this information is correct (and a good deal of it appears to be supported by a documentary record) then it would seem that monies from these funds have been put to uses that go well beyond ensuring the financial security of retired workers: They have, for instance, been used to assist in the purchase of bankrupt hotel properties in which CCWIP directors have an interest, to "acquire" bargaining rights for workers at those properties, to entice union officials to tow the party line and to reward officials of other unions for their efforts in facilitating mergers of those unions with the UFCW.
Of all of these creative investments, none is more disturbing and worthy of examination than the CCWIPP's and, by extension, the UFCW's investments in the hotel industry. The scale of the investments along with the degree of risk involved, the convoluted circle of corporate entities used to facilitate the movement of funds and the calculating "business-like" approach of the union to "member acquisition", make this decade-long adventure in the accommodation industry a worthy subject for scrutiny by CCWIPP members, UFCW members and those of us with an interest in the evolution of democratic, member-focused unions.
What's Going On?
Over the past decade senior officials of the UFCW and the CCWIPP have facilitated the investment of millions of dollars from the pension fund to a number of hotel businesses in which either UFCW officials or CCWIPP Trustees are Directors. Workers at some of these hotels are UFCW members. In some cases, they are managed by a hotel management firm where again, UFCW officials are Directors and the UFCW Pension Fund is a majority shareholder. Through a series of intermediary companies called I.F. Propco, funds move from the CCWIPP into the hands of entrepreneurs in the hotel industry. I.F. Propco companies are controlled by former UFCW National Director, Cliff Evans and Howard Preston, an employer trustee on the CCWIPP Board.
How It Works:
A well-documented example of the CCWIPP-Propco-Hotel Company investment scheme unfolded in Toronto when a hotel known locally as "The Triumph" went into receivership and closed its doors in the summer of 1991. The Triumph was purchased several months later by a company called Kelloryn. Kelloryn's purchase of the hotel was made possible by $15 million in mortgage financing obtained from the CCWIPP. Loans of $7 million and $8 million were facilitated through I.F. Propco 14 and I. F. Propco 16 respectively, in 1992 and 1993.
Prior to opening for business, Kelloryn entered into a franchise arrangement with the Howard Johnson's chain. It also retained a hotel management firm called AFM (Accomodex) to manage the operation of the hotel, including its labour relations. A week or so prior to its opening, Kelloryn Hotels Inc. (a business in which then just-retired UFCW National Director Cliff Evans, was a Director) entered into a collective agreement with UFCW Local 206. The hotel's newly-hired workforce were required to join Local 206 and were told by management that the UFCW had a financial stake in the hotel.
UFCW Local 206's newly-acquired bargaining rights came as a surprise to Hotel Employees, Restaurant Employees (HERE) and Local 75, which had represented workers at the hotel since 1981. Local 75 promptly filed an application for successor rights with the Ontario Labour Relations Board. In 1993, the OLRB granted Local 75's application on the basis that the business had not substantially changed in character from the one operated by the former owners. This setback, however, did not dampen the UFCW's enthusiasm for this and other hotels.
In 1994 a decertification petition, helped along by UFCW Local 206 representatives, was filed seeking to oust the HERE local. During the course of hearings into the petition the OLRB subjected the UFCW-CCWIPP-Propco-Kelloryn relationship to considerable scrutiny. Concluding that the UFCW's significant stake in the business and the "special treatment" accorded its representatives by management were enough to cast the voluntary nature of the petition in doubt. The Board dismissed the petition on this basis and considerable high strangeness followed. Ultimately the hotel was acquired by the UFCW and in 1996 HERE was "raided" by the Textile Processors union. After successfully winning a representation vote the Textile Processors merged with the UFCW later that year.
A similar series of events unfolded in 1993 in Ottawa where, once again, a bankrupt hotel was purchased by Kelloryn, mortgage financing was provided by the CCWIPP and a collective agreement signed between Kelloryn and the UFCW which, as a condition of employment, the hotel's new workforce were required to join. As had happened in Toronto, this member-grab was challenged by HERE Local 261, which had held bargaining rights at the hotel for years. Unlike Local 75 however, Local 261 never had its day in court, agreeing rather to a two-way representation vote with UFCW Local 206, which it lost.
During the 1990's, other Kelloryn Hotels sprung up across Canada but with heavy concentration in Southern Ontario. Although a public record of the financing of these hotels is not available, it is known that during this period a significant number of Propco's were incorporated. Both the Propco's and corporations that owned the hotels had among their officers former UFCW National Director Cliff Evans. Assuming that the relationship between the hotels, the Propco's and the CCWIPP is the same as the one documented so well in the Triumph case, we can assume that millions of dollars continued to flow from the CCWIPP to various hotel businesses in which Evans had a stake during this time.
During this period also, the CCWIPP (UFCW Pension) became the majority shareholder in AFM Hospitality Corporation. AFM is a hotel management company that holds the Canadian franchise rights for a number of hotel chains including Howard Johnson's and Ramada Inns. UFCW Local 175 President, Wayne Hanley, is a member of AFM's Board of Directors and was, for a period of time, Chairman of the Board. At many of these hotels, UFCW Local 175 represents the workers with an unusual tripartite role: bargaining agent, financial backer, and employer.
The presence of the same characters in different roles, ie: lender (CCWIPP), borrower (the hotel companies) and broker (Propco), suggest that what we are witnessing here is an arrangement whereby CCWIPP funds are circulated among a select group of businesses controlled at least in part by CCWIPP and UFCW officials. (Cliff Evans, retired Canadian National Director is Chairman of the CCWIPP Investment Committee. As far back as 1992 he was also a Director in the various Propco's and at least some of the Kelloyrn Hotels that were recipients of loans from the CCWIPP. Howard Preston, a CCWIPP trustee is also a director in various Propco's. Eugene Fraser (whoever he is?) is on the Board of AFM and a Director in the various Propco's. Wayne Hanley, President of UFCW Local 175, is a Director and was for a time Chairman of the Board of AFM Hospitality in addition to his position on the CCWIPP Board.)
So What's the Big Deal? Is this a problem? Well, we don't really know. It is possible that these are great investments and are generating a healthy rate of return for CCWIPP members. On the other hand, it's possible that these are high-risk investments that benefit the business people on the receiving end of the money and are of little value to CCWIPP members.
The critical questions are:
- How prudent are these investments?
- Whose interests do they serve?
- hat is this pattern of investing doing to the values of the union and its ability to represent the interests of its members?
1. How Prudent are These Investments?
It would seem that investing in bankrupt hotels in the middle of an economic recession involves more than a minimal degree of risk. Even in the best of times, the hospitality industry is volatile, highly competitive and among the first to be affected by economic downturn. How much has been siphoned out of the pension fund in the form of loans to hotel operators (let's not forget that $15 million was invested in the case of the Triumph Hotel alone)? What were the terms of these loans? What has been the return on that investment? How did it benefit CCWIPP members?
Moving beyond investing in hotels, what is the CCWIPP doing holding the majority of shares in AFM, a company whose financial performance is, shall we say, less than best-in-class. If hotels are a prudent investment, why not invest in the industry leaders that show consistently higher return on equity? What was the CCWIPP doing last year when it agreed to absorb some $2 million worth of AFM's debt? What is the basis for this investment strategy anyway? The CLMHC report noted earlier indicates that currently, real estate accounts for only 2.4% of pension fund investments, Canadian stocks and bonds account for 69%. While pension funds are invested in a variety of different financial products, plan members have a reasonable expectation that their funds be managed prudently with their best interests in mind.
2. Whose Interests Are Being Served?
A conflict of interest occurs when the private or personal interests of an official or representative collide with those of the individuals or group that he or she is entrusted to represent. The CCWIPP-UFCW-Propco-Hotel Company circle presents a potential for conflict by virtue of the fact that the same players occupy positions with the lender (CCWIPP), the borrower (hotel companies) and the broker (Propco). This conflict of interest renders members incapable of knowing that it is their interests that are uppermost in the minds of the CCWIPP Trustees when those Trustees make decisions to invest funds in businesses in which they have an interest.
Is the decision to loan several million dollars more beneficial to the CCWIPP or to the business on the receiving end? It is unlikely that such a decision can be equally beneficial to both. Beyond the potential for conflict in investment decisions, however, is the conflict of interest that arises when the President of a local is also a member of the board of directors of the company that manages the operations of a hotel at which the local's members are employed. During collective bargaining negotiations, where are Wayne Hanley's loyalties? A good deal for the members will impact the company's bottom line. Whose interests come first? How can members ever be sure? And what about the Propco's? These corporations do not appear to be businesses in which the CCWIPP invests but rather brokers or conduits for funds from the CCWIPP to a specific group of hotels (in which some CCWIPP directors have an interest). One has to wonder why they need to exist at all. Why could the CCWIPP not invest these funds itself? Are the Propco's simply a vehicle used to obscure the investments and possibly to provide commissions for its principals? Given that the Propco's are "beneficially owed" by the CCWIPP, it would seem that members have a right to full disclosure of the activities of the Propco's and their directors.
3. Members or Money - What Comes First?
Less obvious but no less disturbing is the UFCW's apparent preoccupation with business affairs and business culture. This seems to have spawned on the part of its officials, an inclination towards wheeling and dealing with employers and rubbing elbows with the business class [something that stands to alter the union's organizational culture. The co-opting of a labour organization into business culture may shed some light on the way in which "the members" are conceptualized by the union's leaders. Voluntary recognition arrangements with employers in whose businesses the union has a financial stake is a form of "buying members"] acquiring them as part of a financial transaction. This new approach to building the union shows a cold, callous and calculating approach to acquiring members and to the value placed upon them by the union's leaders. In effect, the members have become a commodity [something to be bought and sold with the interests of the union's leaders in mind] the logical extension of the business of business unionism. You have to wonder what correlation there may be between the UFCW's descent into business culture and its sorry track record on behalf of its members during the same decade.
Information posted elsewhere on this site indicates that the CCWIPP is currently in a "correction" phase. This is cause for concern for any member in the plan. Pensions are not an exciting subject for discussion, however, the standard of living of retired workers depends on them. If you have any doubts about this, look around your community for retirees who have either no pension or inadequate pension income. This is not how you want to live the later years of your life. Don't forget that the funds in the plan are your money [not the employer's or the union's. You have a right to expect that it be invested in your interest and to ask questions about how and why certain investments are made. What has been the outcome of the CCWIPP's hospitality investment adventure? Have these investments benefitted CCWIPP members or have they been reckless and opportunistic?
These are the questions you need to be asking.
- The CLMHC is an independent national labour-business organization (the full text of this report is available at www.clbc.ca)
- Hotel Employees Restaurant Employees Union, Local 75 v. Accomodex Franchise Management, Kelloryn Hotel Inc., Ontario Labour Relations Board, April 20,1993, 2424-92R
- Michael McDougal v. Hotel Employees Restaurant Employees Union, Local 75, Ontario Labour Relations Board, March 25, 1994, 2239-93-R
- Workers' pension fund backs hotel chain employer, The Toronto Star, July 3,1993
- Ontario Ministry of Consumer and Commercial Relations records.
- OCCR records and www.ccwipp.org