The Hand-over

by Elaine Dewar

  “Did you sign the Unanimous Shareholder Agreement?” I asked.

  “Can’t recall,” he said.

  This was amazing forgetfulness, unbelievable forgetfulness. Yet I’d always thought of Doug as an honest person. I pulled out my copy of the Unanimous Shareholder Agreement and showed it to him. I showed him his signature.

  But then, instead of badgering him, I let him off the hook. Why? I like Doug, which is the reason why reporters should not interview friends and colleagues, it’s too hard to maintain objectivity, too hard to move in and grill when you should. Instead, I laid out what I knew and how I knew it. I told him the size of the tax credit receipt, the value created in the new M&S by the transfer of assets for shares with First Plazas. I showed him that agreement too, I showed him his signature.

  “I’m impressed at the value of $22 million,” he said, as if this number was brand new to him. And he did have a surprised look on his face. And yet he’d signed the document in which this value was set out. Which meant he must have known as well how much Bennett’s tax credit receipt was for, and how much Random House had paid for 25% of M&S’s shares. It was math so simple even I could do it.

  Why are you impressed by that number? I asked.

  While M&S had certainly acquired rights to some big books, he said, “the drawback was it was very hard to make a profit in a given year. Twenty-two million seems like a lot of money.” On the other hand, he didn’t know what publishing companies are deemed to be worth.

  Did you see M&S’s financial statements?

  He said he did see the financial statements and the budget for the year.

  And do you remember what net sales were in 2000? I asked.

  “No, can’t recall,” he said. Though there were also monthly financial reports supplied by Random House, he said, his colleague Krystyna Ross, then the general manager of M&S, would be better able to talk about them. He advised me to look her up. The financial matters really weren’t what he focused on. On the other hand, from the time he became Publisher of M&S, after Adrienne Clarkson left in 1988, he could say that every year was hard, and his chief reaction to the sale/ gift in 2000 was “relief, another few years to make a go of it.”

  Did he know that Random House paid $5.3 million for its 25% of M&S? I asked.

  No, he did not.

  Did he remember McClelland & Stewart, the company he was running, paying $1 million to First Plazas at the end of the first year of the new arrangement?

  He did not. “Going back 10 years,” he explained. “I cannot remember barrel loads of cash… The circumstances are that every year it was hard work to get a profit… Some years we did and some we didn’t. We were trying to meet the budget every year.”

  What do you think net sales might have been in 2000? I asked again. I was thinking if I took that number and multiplied by 1.25, as Ronald Scott had suggested was a way to value a publishing company, that would be one way to measure the real value of new M&S. It would, or it would not, equal $22 million, and that might tell me something important.

  “I was thinking $4 million or $5 million for annual sales,” he said.

  Multiplying that by 1.25 came nowhere close to $22 million. It came close to $5.3 million though, what Random House had paid for its quarter of the company—and effective control.

  And what about the debt, the size of the debt? I asked. Do you remember the company being in debt to the tune of about $3.1 million in 2006?

  He thought a debt of $3.1 million in 2006 “sounds about right,” but he was no longer in charge by then. “You’re aware of Doug Pepper’s background,” he asked.

  What about a debt of $16 million in 2011?

  He looked stunned.

  “A $16 million debt is a surprise,” he said.

  He seemed miserably uncomfortable with these questions and his inability to answer them. I told him that Arlene Perly Rae had responded the same way to similar questions, and that she’d explained that, like her, he had mainly been interested in the books, not the business.

  He was pleased to admit that what Arlene had said of him was “absolutely true.” He’d relied on Krystyna Ross to take care of all of that, he said, and though she was not a board member, he even took her to board meetings to explain things to the other board members.

  But that first year, 2000, I said. What can you tell me about it?

  “I thought we made a profit in the first year,” he said. “We won just about every prize going. [Margaret Atwood’s Blind Assassin won the Booker that year.] I worried the directors would think publishing was easy. We had a spectacular fall season, won lots of prizes and the sales that went with that. To make more than a $1 million profit would be spectacular. We used to say, my God, if [we were] doing this well in another country we’d be rich and [could] afford new shoes.”

  I was pretty sure that Doug Gibson had been able to afford new shoes whenever he wanted them from the moment he went to work for Avie Bennett in 1986, which was probably why I told him then that the U of T had written down the value of the gift twice, the last time to zero.

  Did you know about the write downs? I asked.

  “Not aware of any of the write downs,” he said.

  Of course, by the time of the first write down, he had already been pushed out of the President/Publisher’s job. However, he did insist that when he was the President/Publisher, his editorial control was never compromised. He would tell me later he was not even challenged when he decided to shut down Macfarlane, Walter & Ross. No one asked him to do that. “This is on me,” he said. There was no conspiracy to kill the competition: he did it because they were losing money, a lot of money, and he couldn’t see anything on their list of projects to come that would make that “curve” turn the other way. He’d done it between board meetings, and just announced it to the board. They’d made him justify it, but they hadn’t stopped him.

  So then Doug Pepper came on board, I said. Tell me about that.

  He smiled. Not a happy smile. More like a grimace. There was a board meeting, a lengthy board meeting with an in camera session, he said. The next day he had a meeting with Avie Bennett who said “‘we think it’s [time for] the Douglas Gibson days to end, continue working on the Douglas Gibson Books and we will find a new Publisher, and he mentioned Doug Pepper who I barely know. He’d gone to Crown, a Random House company [in the US], for a number of years, so [he was] off the scene.”

  The relationship with Pepper was “correct. He behaved politely and recognized it was difficult, a relationship with the guy he’d replaced.”

  This happened early in 2004. At that point, he thought that John Neale also left and Doug Foot joined Brad Martin as a Random House representative on the M&S board. He knew it was 2004 because he was 61 at the time and in 2008 in the late fall when his 65th birthday came up, Pepper “wrote a polite note that my contract was not to be renewed.” He was fairly sure the company was not doing well by then. [Of course it wasn’t, nobody was doing well by then except Goldman Sachs. The worst recession since the Thirties had arrived with a bang that September, right after the University failed to call the ‘put’ that had been extended to July, 2008.] “It was hard not to personalize it and my dismissal caused a lot of dismay in [the] author world so a number of authors jumped elsewhere.”

  When I asked him about the non-compete clause in the Unanimous Shareholder Agreement, he said that was never used in his day. “Since those days, things have tightened hugely in Random House so competition between imprints is tightly regulated.”

  I asked a question that had niggled at me for some time. I’d wondered if Arlene Perly Rae had been placed on the M&S board as a kind of bouquet to a Liberal government that had allowed this scheme to go forward. I’d wondered if her presence was both a thank you and a guarantee that M&S would publish certain Liberals’ political books, such as Bob Rae’s third book, and Sheila Copps’ second m
emoir in 2003. Rae’s first two books had been published by M&S in the middle 1990s when he was reinventing himself after the Ontario NDP government’s electoral defeat in 1995. He published his third book with M&S just before he announced his intention to run for the leadership of the Liberal Party, after which Arlene Perly Rae stepped down from M&S’s board. Rae’s last book was published by M&S four years later, in November, 2010.

  “I’d regard it as coincidence that M&S published Rae’s books with Arlene on the board,” Gibson said, “because he was an attractive, well-selling author. I would see Arlene’s presence as coincidence.” And the same was true of Sheila Copps. There was no board pressure to publish her, or not to publish her.

  “We had a proud record of publishing political books from all over the political spectrum. Mulroney, Trudeau, Crosbie. Sheila was a saleable commodity and I was happy to publish her. And that was me,” he said.

  I raised again the extraordinary level of debt accrued by M&S between the years when he last saw the financial statements in 2004 and the sale of the University’s shares for $1 in 2011. I explained that the ‘put’ and debt provisions of the Unanimous Shareholder Agreement he’d signed had made it very unlikely that any Canadian publishing company would ever offer to buy M&S’s shares from the U of T. I explained that if the University sold its shares, the contract specified that the debt to Random House would have to be repaid immediately and $16 million was a lot to repay immediately.

  “Are you suggesting that Random House was deliberately running up the debt?” he asked.

  I said I wasn’t suggesting anything until I looked at the financial statements. But did it make sense to him that a debt of that size could have piled up in six years?

  He said he couldn’t see how.

  “Question,” he said, pointing a finger at me. “How many books were published in the last year? In the 1990s it was about 100 books a year. Take a look at the 2003 and 2004 catalogues. [But I couldn’t. There are no post-2003 catalogues to be found in any Canadian library, not even at Library and Archives Canada which is supposed to hold them. PRHC website’s catalogues start at Fall 2011.] Then, as you know, after I left the company, it shrank and shrank. Editors [were] fired. We had 50 [staff] under me. Now what is it—about 10?”

  What he meant by his question is this: as the number of books published went down, and staff was let go, costs should also have gone down. Debt should have gone down too. But on the other hand, revenues would also have dived. So should the debt have climbed like that? Or not?

  He thought it shouldn’t have. He also thought the government simply wasn’t enforcing undertakings, its Policy, or the law anymore. “Look at Torstar’s sale of Harlequin. It illustrates how the government is very reluctant to get involved.”

  I could see that I would get nothing more out of Doug Gibson. I was being asked to believe that he’d either forgotten everything I wanted to know, or, he’d paid no attention in the first place. He was very determined that I should accept the latter explanation as the truth. We were on our way out of the coffee shop when he asked me if I’d spoken to Avie Bennett.

  Of course I have, I said. I explained that Bennett had refused to tell me the size of the tax credit.

  That’s when Doug said that he’d seen Avie himself.

  Significant pause.

  When? I asked.

  “Three weeks ago, at that old folks place he’s moved into,” he said.

  I knew Bennett was living in an assisted living residence. I even knew which one because my mother lives there too. I’d run into Bennett at a Sunday brunch, dining with Diana, his assistant. He was so gallant to my mother when I introduced them that she asked him if he played bridge. He’d played one afternoon as her partner.

  “How did you find him?” I asked. I thought Bennett’s memory had been just fine at the bridge table, but Doug had brought this up for a reason. Calling it an old folks’ home was a subtle way of saying that Avie Bennett’s memory might not be reliable when it came to certain details, although the previous summer Doug had assured me that Bennett was just fine, still going to work every day and I should ask Bennett all the questions I had about this gift and sale. “Are we talking about his memory? How did you find it?”

  Doug made a slippy-slidey gesture with one hand, as if to say, it comes and goes.

  Right, I said, that’s why I’m relying on the documents the University gave me, documents that they could have withheld. Sometimes I wonder why they gave them to me at all. The fact is, I’m so used to people refusing my requests, I don’t know how to take yes for an answer.

  He laughed, and said goodbye, and went on his way.

  Two weeks later, I was told the FIPPA #2 documents were ready.

  15

  FIPPA #2

  The envelope was much thinner this time. Inside, the cover letter said the University had combed through its files and come up with 45 pages of records “responsive to your request…” However, it had decided to produce only 42 of them. Though the University had included a one-page memo protected by solicitor-client privilege in the package, the University had withheld another three-page memo “which contains legal advice that is exempt under FIPPA section 19.”

  And they hadn’t given me all the financial statements, either.

  Please note that the University had access to financial statements of McClelland & Stewart Ltd during the relevant time period [the 11 years during which the University owned 75% of the M&S shares] but now only has the 18 pages of financial statements that are being disclosed to you in its custody or under its control.318

  That was interesting language: “had access to”; “under its custody or control.” This meant that the financial statements probably exist, but are stored elsewhere by someone else. Somehow this reminded me of the legal advice given to Random House and to me so many years before—that I should leave my working manuscript of the Reichmann book at Random House’s offices, lest the court demand I turn it over. By 2006, the FIPPA had been extended by law to include Ontario’s universities. Without looking at the financial documents provided, I made a bet with myself that the financial statements produced would only cover years before 2006. And I figured that the three-page memo they’d withheld must have had to do with the failure to call the ‘put.’

  I studied the wording of the letter carefully, trying to figure out if I should appeal to get access to that memo. At first I thought I could at least argue to the Commissioner that since the University had given me other documents protected by solicitor-client privilege, in effect it had waived this privilege entirely and should therefore give that memo to me. But on reflection, I didn’t think that argument would win the day. The FIPPA is designed to give the institutional keeper of information maximum flexibility to determine what to show and what to withhold. What they’d done before would not necessarily shape the Commissioner’s decision on appeal.

  I rifled through the package. As I expected, there was nothing in it that explained directly why the U of T had failed to call the ‘put’ or its alternative, and collect $5 million from Random House or First Plazas. The financial documents recorded no transactions in any year after December 31, 2005 either.

  I’d won my bet, but I was not pleased.

  Among the items enclosed was a memo written by the U of T’s in-house counsel Tad Brown, to Felix Chee, then the Vice-President, Business Affairs at the U of T, dated November 18, 2003. Chee had apparently asked Brown when the University could sell its M&S shares. Brown’s memo explained the University’s rights and duties as laid out in the donor agreement between the University and First Plazas, and in the Unanimous Shareholder Agreement between all the parties. He told Chee that though the agreement between the U of T and First Plazas required the U of T to refrain from selling its shares until July, 2003—after which it could do as it pleased—the ‘put’ clauses in the Unanimous Shareholder Agreement said that t
he University could not exercise the alternative ‘put’ if it had previously disposed of “any” share of M&S or “any rights in respect thereto.” In other words: if the University sold even one M&S share before July 1, 2005, it would forfeit the right to ask for $5 million in cash from Random House or First Plazas. And there was only a narrow window during which the University could call the ‘put’—the thirty days between July 1 and July 31, 2005. Brown also explained that any decision to sell the shares had to be made by the Business Board on the advice and recommendation of the President.319

  July is a month during which the University’s administration is in sleep mode. The Governing Council generally does not meet during the summer, (though it did in August, 2004, for an extraordinary vote, see below) nor does the Business Board.320 Special summer executive powers must be voted on in advance by the Governing Council in order for the President to do specific things in the summer. To call the ‘put’ in July, 2005, the University would have had to get its ducks in a row several months in advance. The Chee query may have been the first step toward doing so.

  The next item was Amendment No. 1 to the Unanimous Shareholder Agreement. It repealed the terms of section 5.6(1) of the original agreement and moved the date upon which the alternative ‘put’ could be called by the U of T to the thirty days following the eighth anniversary of the agreement. In other words, the ‘put’ could only be called between July 1 and July 30, 2008. The amendment was dated April 1, 2004.321 That was way too early: why had they put that amendment through sixteen months before it was needed?

  The next item in the envelope was a copy of the share purchase certificate recording the transfer of the U of T’s M&S shares to Random House, dated December 30, 2011. It was signed by Brad Martin and Douglas Foot, acting by then as directors of McClelland & Stewart. It also included the articles of amalgamation between M&S and Macfarlane, Walter & Ross, plus an older bylaw passed by old M&S that was still in force. The amalgamation certificate showed that Macfarlane, Walter & Ross had not been officially swallowed by M&S for more than a year after it was shut down. The amalgamation took place on June 15, 2004, six weeks after the alternative ‘put’ date was changed. This certificate had been signed by Doug Pepper, as the new Publisher and President of both entities, and listed the directors of M&S at that time. They included: Avie Bennett, Felix Chee, John Evans, Brad Martin, Douglas Pepper, John Neale and Arlene Perly Rae322 There was a resignation letter attached from Connie Fullerton that would not come into effect until May 3, 2005.