The Hand-over

by Elaine Dewar

  Of course, it would be better all around if this story had been told by a reporter with none of these connections. But in the years since McClelland & Stewart, “The Canadian Publishers,” ceased to be, no such person has stepped forward, though the M&S handover set off an under-the-table rewrite of Canada’s cultural policies. Ten years later, hoping for a brand new political day, the Harper government did a more formal review of the book policy but backed away from acting on its findings.59 Another rethink-and-renew process has been initiated by the government of Trudeau the Younger in the sunshine of its brand new political day. Everything is on the table, the Canadian Heritage Minister Mélanie Joly, has said.60 It might have been more honest to say that this has been the case since 2000, when the M&S gift/transaction got Ottawa’s quiet approval. One of the law firms where Joly once worked (Stikeman Elliott) pointed this out on the law firm’s blog in 2014.61 The authors of the post advanced the theory that the policy had been dead for some time, itemizing each deal that went through ministerial scrutiny without a hiccup. They then invited foreign investors to consider making new forays into previously—but no longer—forbidden terrain, Canadian publishing.

  Finally, burrowing into the M&S story showed me why it is dangerous to assume that vital laws are being enforced just because they are on the books, and why our access to information laws must be revised and the cloaking provisions in the Investment Canada Act62 must be revoked. Thanks to Canada’s remarkable and ridiculous propensity for treating matters of great public interest as secrets, flexible minds have found many ways to get around the public will without any of us being the wiser. Brilliant ways. Remarkable ways. You have to admire the cleverness, if not the result.

  But, you ask, can you trust me to tell this story fairly?

  You’ll have to be the judge of that.

  1

  Citizens Beyond Suspicion

  Any reporter can confirm that some questions are like the tide, they pull the unwary into a sea of a story from which there may be no return. Questions about one’s own trade are particularly dangerous, but any reporter will also confirm that danger has the greatest allure. That’s why that red flag waved at me by one canny Canadian publishing professional dragged me into this book. Blame him. I do.

  It was spring, 2015. A federal election was coming. I’d been saying for some time to anyone who’d listen that Canada’s national book publishing policy was dead: for one thing, in spite of hundreds of millions spent, and forty years of effort, the leading Canadian book publishing company had ended up in the hands of the foreign-owned mega-publisher which dominates the industry world wide. How did that happen was the question that kept coming at me. The reporter in me bellowed: find out! Good story!

  But how? Many had tried, and many had failed due to the fact that the relevant documents remained safely hidden behind the secrecy rules of the Investment Canada Act and the Access to Information Act. Also, I was unnerved by the whiney person in the back of my head who kept whispering that any investigation in this area would finish off whatever was left of my career.

  Nevertheless, that May I found myself hemming and hawing through what I told myself were just pre-interviews with people more knowledgeable than I am about the publishing business. I’ll publish what I find where no one will read it, on my blog, I assured myself.

  I did take note that those people who agreed to talk to me in those early days did not want to be quoted for fear of losing their livelihoods. But that was another good reason to inquire. Fear infests any marketplace dominated by a few big players who can squash anyone fool enough to make the wrong noises. In such circumstances, almost everyone walks very softly and carries no stick whatsoever. A dominated marketplace is an unhealthy one: didn’t my livelihood depend on a healthy market for Canadian stories?

  Still, it rattled me that those few who talked to me off the record had to screw up their courage even to do that. One agent I’ve known for decades refused to confirm even off the record that there had been a meeting of leading literary agents to consider the anti-competitive situation in which they found themselves mired. It was getting damned hard to sell book rights at reasonable prices, especially to the multitudinous imprints controlled by Penguin Random House Canada. In the past, its various imprints had competed against each other for agents’ offerings. That’s why earnings for agents and authors had been lush in the 1980s, reasonable in the 90s, fair in the 00s, but rarely any of the above in the last few years. The alternative buyers for bigger budget books in Canada were the two other Canadian subsidiaries of major foreign companies: HarperCollins Canada and Simon & Schuster Canada. Simon & Schuster was new and quite small. It had been permitted by the Minister of Canadian Heritage to enter the Canadian publishing business in 2013,63 just in time to publish Prime Minister Stephen Harper’s hockey book.64 HarperCollins was shrinking. It had dispensed with its Canadian distribution warehouse business and the position of CEO, last filled by the legendary publishing executive, David Kent. No need for a Canadian CEO when distribution is moving to the US, said one of its executives without even bothering to explain how it could move to the US when the law forbids that.65 As for the Canadian-owned publishers, they offered advances so low that an agent’s share wouldn’t keep him/her supplied with wine sufficient to drown sorrows, let alone pay staff and rent.

  And then there was that former book editor, recommended to me as a possible source, who had been made to sign a non-disclosure agreement when let go from a job in a major foreign-owned publishing house. Why? It was hardly news that editors were losing their jobs. The publishers’ announcements on that score appeared in email missives extolling the virtues of executives given new titles after corporate rearrangements—otherwise known as cutbacks. These notes made their way around the circuit with considerable regularity.66

  In those early off-the-record interviews, I tried to pinpoint when Canadian book publishing began to collapse on itself like an origami version of a black hole. I knew that smart people had been running for the exits for the last few years, closing their publishing companies—sometimes ahead of the bailiff, sometimes not—leaving the agency business to learn a more useful trade, or setting themselves up in New York. Statistics Canada data showed that total revenues earned by foreign-owned and Canadian-owned companies combined had shrunk from $2.1 billion in 2006 to $1.7 billion by 2014. Things had gotten very tough after the recession of 2008: but the more people I talked to, the more the year 2000 seemed to have been the beginning of an ending. As with any black hole, first came concentration, then the implosion.

  Concentration became intense in 2000 when Chapters, then the dominant bookseller in the country with more than about 65% of the market sewn up, set up a wholesale/distribution system called Pegasus and began to squeeze publishers for larger discounts.67 After Christmas 1999, Chapters returned unprecedented numbers of unsold books to publishers while also holding back payments that had been owed to some for as long as two quarters. Several publishers were pushed to the brink of bankruptcy.68 As these issues became public, Chapters’ share price fell like a rock—from a high of $35 in early 1999 down to $7.95 by mid 2000.69 All of this engendered a set of hearings by the Parliamentary Standing Committee on Canadian Heritage to find out what in hell was going on in book publishing. Few Canadians paid much attention, not even writers in the throes of finishing a book (such as me), possibly because the important information was imparted during in camera sessions by people afraid to rat on the big boy in public.70

  The Committee published its report in June, 2000. I doubt many noticed that either.71 However, the book world did pay attention on June 26, 2000, when the University of Toronto announced that Avie Bennett, the long-time owner of McClelland & Stewart Ltd., was donating to the University 75% of his company’s shares and Random House of Canada was purchasing the remaining 25%. In a side deal, Random House signed a multi-year contract to market and administer M&S. A press conference was held to
explain it all.72 The gift/sale was scheduled to come into effect on July 1, Canada Day.

  You had to admire Bennett’s chutzpah. Who else would have had the nerve to sell a big chunk of “The Canadian Publishers” to a foreign-owned competitor on Canada Day, and give the rest to a university? On the other hand, the date might have been picked to keep the fuss to a minimum. There is no more forget-about-the-news-get-me-another-beer-day on the Canadian calendar than July 1.

  Most of the University’s students and faculty were on vacation, on sabbatical, or just wallowing in the joys of summer. University of Toronto President Robert Prichard, who had advised U of T’s Governing Council to accept the gift, became President Emeritus the same day. The new President would not take up his position until the fall. The paperwork to close the deal would be completed under the University’s summer executive authority.73

  The setting for the press conference conveyed an aura of great cultural authority.74 It was held in the U of T’s Simcoe Hall, a Federalist/Beaux Arts-style carbuncle on the faux Roman temple known as Convocation Hall. Simcoe Hall is the location of the University President’s office and Convocation Hall is the site of many important cultural events as well as the bestowal of degrees.

  It was made clear that day, and in the University’s press release on the gift, that the University’s Governing Council was the recipient of the M&S shares, not the University of Toronto Press. This was weird. The Governing Council, the University’s ruling body, is not a publisher. The Council is made up of University officials along with faculty and student representatives, plus sixteen (out of fifty) worthies who are appointed by the Lieutenant Governor in Council—basically, the Premier of Ontario.75 The Governing Council of U of T is the kind of classy public vehicle which can advance the profiles of prospective and former politicians: an appointment to it is also a means by which big donors can be acknowledged, giving them a title to affix to their c.v.s like gold stars. The University of Toronto is, to put it mildly, a politicized entity, with only a narrow road separating it from Queen’s Park, Ontario’s seat of government. It was created and is ruled by its very own provincial statute. This is why any list of the outside members of its Governing Council reads like a Who’s Who of the English Canadian business/political establishment (see who ruled at the time of the gift of McClelland & Stewart in this end note.)76

  Avie Bennett, M&S’s owner for 15 years, explained the whys and wherefores of his gift. He was getting on—72 years old!—and as his kids weren’t interested in the business, he needed an exit plan, one that, according to the University’s press release, had taken him five years to work out with U of T.77 His problem was that the Investment Canada Act would not allow him to sell the whole company to a foreign entity, yet no Canadian companies had offered to take M&S off his hands.78 According to one of my informants, who was present at the press conference (I was not), Bennett named Anna Porter, of Key Porter Books, and Jack Stoddart, controlling shareholder of Stoddart Publishing, General Publishing, and General Distribution Services, as Canadian publishers to whom he had unsuccessfully offered the company. Porter was an unlikely buyer, as Key Porter was a small operation by comparison to M&S, which was then publishing more than 100 books a year.79 But by 2000, Stoddart’s operation was the biggest Canadian-owned book publishing and distribution machine in the country, so that claim was taken seriously.

  Only the year before, Stoddart had also been the dominant partner in Macfarlane, Walter & Ross (MWR), the publishers of Stevie Cameron’s bestseller On the Take (about corruption in Mulroney’s government), and the major non-fiction hit Boom, Bust & Echo by David Foot with Daniel Stoffman. Boom Bust & Echo would sell a remarkable 300,000 copies.80 By 1999, however, MWR’s cofounders—John Macfarlane, Gary Ross and Jan Walter—no longer saw eye to eye with Stoddart. They had asked him to sell MWR to McClelland & Stewart. Stoddart did the deal with Bennett and got $1 million for his 51% of the company, even though he retained MWR’s very valuable backlist. (A backlist comprises all the books published by a company to which it retains future publishing rights. A good backlist is a continuing source of revenue, in this case a continuing source of a lot of revenue.)

  You had to ask: why had Bennett bought another publishing company even as he was devising his exit strategy from M&S? Was he trying to buy up the competition to make M&S more attractive to a buyer? If so, why leave the MWR backlist on the table?

  If that question was raised at the press conference, no reporter recorded it. People seemed to worry instead about whether M&S would remain Canadian. Reassuring words were uttered by M&S’s Publisher and brand new President, Douglas Gibson. Gibson was the long-time publisher of Alice Munro, so who could be more committed to Canadian literary culture than Doug Gibson? To much applause from those gathered at Simcoe Hall, Gibson praised Bennett’s “astonishing generosity.” In addition, Margaret Atwood issued a prepared statement lauding “Bennett’s ‘thoughtfulness, thoroughness, and integrity’ and encouraging authors to feel confidence in the new arrangement,” according to Roy MacSkimming, who wrote about the transaction in The Perilous Trade.81

  Still, reporters asked what the deal meant for the independence of McClelland & Stewart, The Canadian Publishers, since Random House had bought a quarter of its shares and would handle its sales and marketing. And what about that law—the Investment Canada Act—forbidding foreign-owned companies from buying Canadian publishers without government approval?

  Approved in advance by Ottawa, Brian Bethune of Maclean’s was told.

  And, Bennett explained, he’d chosen Random House to manage M&S’s business because U of T’s Governing Council is not a publisher and Random House is a terrific publisher, the ideal partner. Yet he insisted M&S’s independence from the much larger Random House would be guaranteed.82

  How? Reporters wanted to know.

  The U of T’s story on the gift pointed out that M&S would be overseen by a board of directors with five representatives from the University versus two from Random House. Bennett would represent U of T’s interest as the new M&S board chairman. Douglas Gibson would also represent U of T on the board. Other citizens of sterling reputation would likewise defend U of T’s interest. Maclean’s named them as: former University of Toronto President Dr. John Evans, University of Toronto President Emeritus Robert Prichard, and Arlene Perly Rae, author, book reviewer, and wife of former Ontario NDP Premier Bob Rae. No one in her right mind would question their commitment to Canadian culture. Of course they would ensure that the University of Toronto controlled M&S, not Random House. “You have to be a real conspiracy theorist to see this board as a rubber stamp,” Gibson told Maclean’s Bethune.

  But Bethune must not have been convinced, because he asked how long U of T had promised to hold on to its M&S shares, a critical question.83 Douglas Gibson insisted to Bethune that the terms of the agreement required U of T to hold all of its shares for at least three years, and then only sell them in their “entirety” to another Canadian entity.84

  In sum: the main thrust of the press conference was that Avie Bennett had done something amazingly generous. He had safeguarded M&S’s Canadian-ness by placing it in the bosom of a great Canadian institution, one that would hold it close for many years to come. This long-term commitment was reiterated by the University’s own story on the transaction, in which it described itself as a trustee to “perpetuate McClelland & Stewart’s long-standing contribution to Canadian arts and culture.” That word, perpetuate, seemed to suggest the University would hold M&S for a very long time.85

  Yet questions nagged: how did a contractual requirement to hold the shares for three years fit with keeping M&S Canadian for many years to come? And didn’t this gift/sale represent further concentration of the book publishing business, what with MWR and the children’s publishers, Tundra, nestled within M&S, and with M&S now under the capable arm of Random House? And why would the government of Canada have had anything at all to say about this gif
t/ sale? Random House had only bought 25%, while the University of Toronto was given 75%, which satisfied all governmental requirements concerning Canadian ownership and control of publishing companies. In fact, 75% Canadian ownership and control was then the requirement for a Canadian publishing company to qualify for grants from the Canada Council. It is still the requirement for any publishing company seeking grants from Canadian Heritage’s Canada Book Fund and the Ontario Book Fund.86

  After the press conference was over, prominent people in book publishing were asked for comment. Some expressed depression at the declining state of the Canadian book industry. Some worried that U of T might sell its interest to Random House piecemeal. Jack Stoddart was much more blunt.

  “I think it can be demonstrated very clearly that Random House will have control of this company,” he said.87 So far as Stoddart was concerned, he who controls the marketing and the money controls the company, so Random House had been given effective control of M&S, which violated the spirit of the law. In addition, he asserted that Random House would now control 45% of the Canadian publishing market, which was far too high. Ridiculous, replied John Neale, Chairman of Random House. He insisted Random House only had 20% of the market before this transaction, and M&S had 9%, but that included its agency business which had been retained by Bennett.88 Other publishers told Bethune they admired Bennett for extricating himself from M&S.89 Kim McArthur of McArthur & Company hoped the government would show similar flexibility to other publishers who, as Bethune put it, are “all entombed in the same velvet coffin. The federal regulations that protect them from takeover also make it impossible for them to sell their companies.”90