No. Nothing like that. There is a grand total.
It is interesting to note that on that occasion the officials of the company did not have with them documents to support their statement that the companies holding these stocks were "in all sorts of business"-investment people, insurance companies, and so on. My colleague the hon. member for Nanaimo, when this bill was before this committee of the whole house on the last occasion, placed on record a list of some 12 or 15 companies which hold shares in Trans Mountain. Not one of them is an insurance company; not one of them is an investment company. They are all in the oil or pipe-line business.
That is hardly playing fair with a committee of this house or with parliament. When this matter was last before us I was at the point of drawing attention to the strange phenomenon that the two main officials of the company who appeared before our committee had not compared notes as to the information which was in their possession. The president of the company, Mr. Morrison, was asked about the share holdings of the directors of the company, and he said on page 54:
I know how many a certain number of companies have. But I have no knowledge whatever of how many individual directors may have.
However, on the very next page, under questioning by my colleague the hon. member for Mackenzie, Mr. McQuarrie said:
Part of my duty is to check each year to see if each director is properly qualified. According to the list which I had on April 5, 1956, at that time one director owned two shares; another owned 5,000; one owned 202; another, 102; another 302; two owned some 2,000, and another one owned five.
Mr. Morrison, however did not know how many shares the directors held; indeed he said:
That is the first time I ever heard this.
It seems strange indeed that these two principal spokesmen of the company appearing before our committee had not compared notes as to the information they had concerning their own company.
I draw attention also to the fact that this company has stated repeatedly-in its explanatory note to the bill, through those who spoke for it in the Senate, through the hon. gentleman who is sponsoring the bill in this house and through those who appeared in the committee-that its purpose is to secure a wider distribution of the shares of the company among the general public. Yet on page 44 of the minutes of proceedings
and evidence the company's president, Mr. Morrison, admitted that additional shares would not be issued; and there are other indications that there is no intention on the part of the Trans Mountain company's shareholders, either companies or directors, to dispose of any of their shares after they have been split. In other words it seems to us quite hollow-this suggestion that splitting the shares five for one is advanced for the purpose of achieving a wider distribution of those shares.
In addition to these instances of lack of fairness with parliament there is another matter which we feel is particularly serious, and I say quite frankly that we have this additional information only because we have delayed the passing of this bill, only because with the passage of time certain information which had not reached the light of day when the company was before the standing committee on March 7 has now come to light. I ask the sponsor of the bill to read again the minutes of proceedings and evidence, as he must have done many times during the past few weeks. He will note that the witnesses, the president and the secretary, were very careful to make sure that the information they gave to the committee was dated not later than April 5, 1956. For example, I draw attention to page 55 where Mr. McQuarrie had been asked certain questions. On two occasions he indicated that he was talking about "The list I had on April 5, 1956". It is very interesting to note that when Mr. McQuarrie was pressed by the hon. member for Bow River regarding certain stock holdings he replied:
The stock register is about three inches thick. I did not bring it along. It has about 6,000 names in it.
Is a book three inches thick too heavy to carry? I have one here two or three inches thick that I brought in from the library. If one is interested in a matter and wants to tell the whole story, why not bring it along? As I indicated the other day, it is also rather interesting that the notice to the shareholders concerning the meeting at which the question of this stock split was discussed was not brought along. That is noted on page 63 where Mr. McQuarrie says:
I wish we had brought the notice. A letter went out to each shareholder, along with the notice. I have not got a copy of that letter with me.
My point is that if the committee had had the notice and the letter calling that special meeting, the committee would then have learned of any other items that were discussed at that special meeting, and if the witnesses had brought to the committee the stock register hon. members would have been in a position to ask questions with respect to
whether there were any more shares out since the date of April 5, 1956, which was the date the witnesses gave as the deadline beyond which they were giving no information.
The fact is that an annual meeting of this company was held on April 18, 1956, in the city of Vancouver but nothing that trans-spired at that annual meeting on April 18, 1956, came out at the meeting that was held in this building on March 7, 1957. Surely it was relevant to the affairs of this company to bring before this committee any important decisions that had been taken at the annual meeting on April 18, 1956. I now tell this committee that at that meeting on April 18, 1956, the shareholders approved of the issue of several thousand options to purchase shares. The decision to issue these options had been made by the board of directors in October, 1955, and according to the Financial Post "Survey of Industrials" for 1956-and it is also indicated in Moody's "Transportation Manual" for 1956-4,900 of the options that were approved at the annual meeting in April, about which we were told nothing in the committee, were issued to persons who turned them into shares at a price of $38,625. These sales were made in 1956.
The price on the market of Trans Mountain shares during 1956 varied, of course, but in January it was $46, in February $47, and in March it was running around $51. In other words, the people who got these options, which were decided upon by the board of directors in October, 1955, and approved by the annual meeting in April, 1956, got shares in this company at a price which at the time they bought them was less than the market price.
After the annual meeting in April, 1956, at which time approval was given to the 4,900 shares which had been sold between October, 1955, and April, 1956, approval was given to still further options. May I make the point here, that all of these options were to certain key employees and not to the general public.
My hon. friend comes before the house and says that the aim of the company is to bring about a wider distribution to the Canadian public. We have been told about the
1,500,000 shares issued out of the treasury, but deep, dark secrecy was maintained with regard to these options that were made available to key employees, to personnel and management, on the basis of which a handsome profit has been made as the result of the stock splitting technique.
I happen to have on my desk a very interesting article from the New York Times of March 24, 1957. The title is "Prices Anticipate Splits of Shares". It is an analysis of what happens to stocks when companies decide on
stock splits. It points out that the time when the value of shares appreciates really commences when the rumour first gets out that a stock split is going to take place, and the time when the appreciation takes place and values accrue runs from the time the rumour leaks out that it is going to take place through the time when the directors decide on it, through the time when the shareholders decide on it and up until the time when the split is actually approved. The article is based on the experience in some 28 different stocks that were analysed by Mr. Burton Crane, a writer in the New York Times.
I submit that what this company was doing in this whole piece was to go in for the stock-splitting technique by letting rumours out that it was going to happen and by sending out notices to the shareholders so the rumour would spread still more, and the result was that the market price of these shares went up and up. That was fine for those who held stock but it was a particular bonanza for those on the inside who were being given these options about which not a word was said before the committee on railways, canals and telegraph lines when these people came before the committee on March 7 of this year.
I would point out that one of the reasons we are now in possession of this information is that we have exercised our right to debate this matter and have exercised our right, if you will, to delay it. In the meantime there has come to light the annual report of Trans Mountain Oil Pipe Line Company. It is for the period ended December 31, 1956, and I am sure that whatever is in the material contained in the annual report for the calendar year 1956 must have been in the possession of these gentlemen who were before our committee on March 7, 1957, but of course no reference was made to it.
However that annual report has now been published. It bears the date of April 4, 1957, but is for the period ended December 31, 1956. I have not yet been able to obtain a copy of it. I am informed that it is not yet available in Ottawa but it is available in Toronto. By long distance telephone only today I have been able to get some of the information contained in that annual report. I dare say my hon. friend who is sponsoring this bill may have a copy of it. I hope he has, and if he has I hope he will agree that the information contained in that annual report should be given to the house even though it was not given to the committee when it met on March 7, 1957.
I urge again that hon. members read the evidence taken before that committee, as I have read it two or three times. When you 82715-211
read it, after you get hold of this information that there were these options and these additional shares, you then begin to realize how cleverly these witnesses avoided getting into that field by giving the committee information on the question of shares only up to April 5, 1956. I repeat that it was in March, 1957, that these gentlemen were here, but the latest information given to the committee was information up to April 5, 1956. As I say, if they had had the stock register with them these other questions would have arisen and it might have been possible for members to get this information.
The shares that are being optioned out to key employees at the present time, and that includes any directors who are also employees of the company and on salary, have been granted at $82 per share. At the present time they are selling on the market for something of the order $115 to $120. So there again you have a special profit being made available to these key employees, including any salaried personnel engaged in the management of the company.
I must say this to hon. gentlemen around who know the practice in these companies. I recognize that this is standard practice, this business of splitting shares and this business of granting options to employees and to management personnel at a price less than the market price. But when a company is coming before parliament and asking parliament to bless a manoeuvre of this kind I suggest that it is the moral responsibility of that company to let parliament know what is happening. Oh, they did not make any misstatements with regard to this matter. They carefully avoided getting anywhere near it; they carefully avoided the question of shares that had been issued since April 5, 1956, and they carefully avoided getting anywhere near the question of any decision about shares that had been made at the annual meeting of April 18, 1956. Indeed, they carefully avoided even mentioning the annual meeting that was held in Vancouver on April 18, 1956.
I say in passing that we have had in this House of Commons one other case of options about which we had no information, options which were just pieces of paper in the hands of two gentlemen in particular and which, as a result of the action of parliament-against which some of us fought for all we were worth-became extremely valuable. Now we have these people-key personnel or key employees, to use the language of the report that is out, a copy of which we have not yet been able to get-being given options to buy at a price less than the market price. Why is the market price soaring? It is not
just because the company is making high profits, although that is a factor in the picture as well and in that connection there are elements that one must bear in mind. It is also because this company has indulged in this stock-splitting technique, starting with the rumour, then the notice, the special meeting and so on which, as Burton Crane of the New York Times says, has turned out to be a standard way of appreciating the stocks of a company such as this one.
Incidentally, before I touch upon the point I was going to make, may I point out that at page 44, under questioning, the witness- it was Mr. Morrison in both cases-said at two places: "The company is not selling any more shares." That is to be found about a third of the way down the page and then further down again he says "not that additional shares will be issued". I leave it to Mr. Morrison to justify that statement that no more shares were being sold in the light of the fact that these options bad been issued to sell additional shares out of the treasury, out of the 3j million shares that were not issued in the first instance.
To recapitulate the story of this company, may I say that in the first instance 1,500,000 shares were issued and we have been given the breakdown as to those shares as between companies and private individuals. Later on 4,900 shares were issued between October 1955 and April 1956 on the basis of options agreed to in October, 1955. That seemed to bring the total number of shares issued to 1,504,900. When the witness gave the figure, he gave it as 1,504,928 as at April 5, 1956. I cannot seem to account for the other 28 shares but we will not argue about that matter. My point is that since that date, when that was the figure, more thousands of shares have been issued. They had been issued after the date of April 5, 1956, and before the witnesses appeared before the committee. They had been issued out of the treasury and yet the committee was not told about that fact. They said they were not selling any more shares. But they were selling shares to key personnel and they were doing so at a price below the market price, thus enabling them to make a special profit from the gains arising because of the stock-splitting transaction.
The company has said a number of times that it has no thought of making any profit out of this deal. For example, at page 45 of the minutes of proceedings and evidence of the committee, I find Mr. Morrison reported as saying this:
The question of profit in this transaction has never come up on the board.
At page 46 we find that Mr. Morrison was asked this question by and made this answer to the hon. member for Nanaimo:
Q. Well, is there any value whatsoever to the company and to the present shareholders to be obtained from this measure? A. Not that I know of.
Also over on page 48 we find that Mr. Morrison, in answer to the hon. member for Nanaimo, stated this:
There is no thought of making a profit out of it.
When they made those statements these people knew that these options were out. If either of these witnesses is himself a salaried employee of the company he certainly was entitled to these options and probably had them, and was therefore a person who would be making a profit out of this whole stocksplitting manoeuvre.
In order to establish their honesty these men may say, "Oh, but that profit was already made because of the rumour that there would be a stock split, because of the decision of the board of directors, because of the decision of the shareholders, because of the appreciation that had already taken place". They may say that there will be no further profit to them as a result of parliament passing the bill, if it does pass. If they want to take that position, the only answer I make is that what they are doing is asking parliament to bless a transaction the aim of which was to make profit for those on the inside and that, in the light of that fact, these people have not been fair with parliament. That is why we say that this bill should not be passed by this House of Commons.
We make no apology for the delay with which this bill has been met as a result of our close study and our close scrutiny of it. In fact, we think we have done a service to parliament in holding this bill up until we could get all this information which was kept secret, which was carefully avoided by the company's spokesmen, so that we might know the whole story. We say to you, Mr. Chairman, and to the committee that in the light of the evidence to which I have referred we do not accept the statement that the only purpose of this legislation is to achieve a wider distribution of the shares amongst the general public. We say that the purpose of this legislation is to ask parliament to bless a stock-splitting manoeuvre which is of advantage to those on the inside, and that is why we are opposed to this bill.
Topic: PRIVATE BILLS
Subtopic: TRANS MOUNTAIN OIL PIPE LINE COMPANY