Crown corporations span the country with operations equivalent to 7 percent of Canadian GDP but their performance could be improved by following a blueprint for good governance, says a new report from the C.D. Howe Institute.
In Finding Jewels Among the Crowns: Optimal Governance Principles for Canada's State-Owned Enterprises, Glen Hodgson provides a blueprint setting out a rigorous approach to governance as well as specific governance instruments to help Crowns reach their full potential as business-oriented enterprises.
Crown corporations, or what are often called state-owned enterprises, are ubiquitous in the lives of Canadians, with activities ranging from producing, transmitting and distributing electricity, to selling alcohol and cannabis, to providing public transit, to managing ports, to delivering mail, to managing financial services. Federal, provincial and municipal Crowns are the dominant or sole service provider in some market segments, and an important player in many others.
Together, federal, provincial and local Crowns had annual revenues of $162 billion in 2019, although they generated a small collective net operating loss of $400 million. Federal and provincial Crowns had net assets of nearly $1.4 trillion in 2019, and net worth of almost $22.9 billion. These financial data confirm the significant operating scale of Crowns but the operating deficits suggest that, in many cases, robust overall financial performance is not a top priority for Crowns or their various government shareholders.
"Crown Corporations have enormous potential that is not being fully captured," said Hodgson. "Canada's Crowns as a group are operating as break-even organizations with respect to their annual income statements, and their collective balance sheets show only modest net worth being created for their shareholders. Good governance means creating a healthy operating environment where the interests of the shareholder, the organization and ultimately taxpayers are well-aligned and promoted."
The blueprint tackles issues such as defining a Crown's purpose and role, identifying its intended market positioning, establishing its legal mandate, defining the role of a lead minister, and the benefit of a regular review of the Crown's policy and business performance. It also stresses the importance of the central role of the board of directors, Chair and CEO, regular written policy guidance to the Crown from the responsible minister, an annual Corporate Plan prepared by the Crown for approval by the shareholder government, as well as a Borrowing, Capital or funding plan, the occasional use of government directives or Cabinet decisions, and regular audits.
This paper sets the stage for a closer look at individual Crown Corporations by the author in the upcoming weeks.
Glen Hodgson is a Fellow-in-Residence at the C.D. Howe Institute.