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Behind closed doors: A look inside the Laurentian scandal

Behind closed doors: A look inside the Laurentian scandal

In the months leading up to Laurentian University's 2021 decision to seek creditor protection, senior administrators were quietly soliciting the advice of outside legal and financial consultants on how to navigate a legal process under the Companies’ Creditors Arrangement Act (CCAA), legislation that is designed primarily for private corporations and not publicly-funded institutions.

The contentious move came after years of mounting deficits caused by rising administrative costs.

But the unprecedented decision to seek creditor protection, according to an interim report by Ontario's auditor general Bonnie Lysyk, was both unnecessary and reflected weak oversight on the part of the university's board of directors. "As part of the effort to move forward," she wrote, "Ontarians also want and deserve answers to some tough questions. Among them: how did an Ontario university that is significantly taxpayer-funded and accountable to the public end up in a dire financial position? And was its use of the CCAA an appropriate response?"

The university's collective agreement with the Laurentian University Faculty Association (LUFA) contained a "financial exigency" clause, to be triggered specifically in such situations. Instead, Laurentian administrators resorted to the CCAA process, resulting in the cancellation of more than a third of the Sudbury institution's programs, the suspension of the collective agreements, and the termination of almost 200 faculty and staff — while lawyers and accountants retained by Laurentian were paid $24 million.

Under a process overseen by a court, Laurentian's creditors —including its two unions — are voting this month on a proposed plan of arrangement.

"What the Auditor General's preliminary report made clear, and what [has] increasingly emerged, is how much this was not a sudden crisis, but [rather] the result of kind of a protracted failure of governance," observes Memorial University anthropologist Robin Whitaker, who is CAUT's vice-president and chairs the working group on governance. "There's a really important role for CAUT to play in ensuring that other academic staff associations and unions work to proof our own institutions against anything like that happening."

The conditions at Laurentian may have been unique, or at least highly anomalous. However, Whitaker says there's good reason for academic staff associations to take a hard look at whether traditional practices of collegial governance — the division of academic decision-making and administrative governance — are robust enough to withstand external pressures. These include provincial funding cuts, performance-based funding, the increasing reliance on the high tuitions charged to international students, and a drift towards a more private sector managerialism. "The pattern of corporatization in post-secondary institutions is at odds with the notion of collegial governance," says Whitaker. "Is the system working as it's supposed to work?"

Academic staff associations say that the process of fortifying the system of collegial governance entails a range of fixes, from policy and legislative reforms to changes in collective agreement language that will ensure greater accountability and transparency.

CCAA Reform

"It was our position since the very beginning that the CCAA proceedings were totally inappropriate for a post-secondary, not-for-profit institution," says LUFA president Fabrice Colin." The financial exigency [provision] that was in existence in the collective agreement should have been invoked at that time."

According to a legal analysis by Virginia Torrie, an associate professor at the University of Manitoba's Faculty of Law, Laurentian's use of CCAA is certainly unprecedented; other large public entities, such as hospitals, municipalities and school boards, have never reached for this tool during financial crises. Nor, she says, was the law, as originally envisioned, intended to be used this way. "It was meant to be very narrow," she says. "It's commercial insolvency legislation. There's not really a precedent to apply this [law] in a sensible way to a public university."

Torrie, the co-author of a legal report for CAUT, argues that the federal government must move quickly to amend the CCAA to preclude its use by other public institutions that are facing financial crises.

Others agree: "The CCAA has to be amended to exclude public sector organizations from filing for bankruptcy, or at least universities and other post-secondary institutions," says Robert Kristofferson, president of the Wilfrid Laurier University Faculty Association (WLUFA). "This situation should never have been allowed to happen."

Financial exigency clauses in collective agreements

Most academic staff association contracts include provisions that apply when institutions are facing financial crises. But in the aftermath of the Laurentian insolvency, there is a growing awareness that the language in collective agreements may not be sufficient to prevent end-runs by administrations. The report prepared for CAUT includes 32 recommendations for a new model for financial exigency clauses that includes details on how they are triggered, reporting responsibilities, and the establishment of financial exigency committees.

Tom Fenske, Laurentian University Staff Union’s president, says that financial exigency provisions must be accompanied by other measures to ensure that employee organizations have complete access to university finances and decision-making bodies. He says union reps should have voting members on all committees that oversee the institution's operations and finances, as well as the hiring of consultants. "That's going to be a lot of work for a lot of people," he says. "But that's the transparency that we need."

Independent evaluation of financial statements

In the years leading up to the insolvency, Fenske points out, Laurentian's senior administrators, its finance committee, its board of governors and even its external auditor were assuring the university's unions that the books were balanced, when in fact they were not even close. "Unless the unions and association get forensic audits every single year, why would we expect differently? So where's the accountability for that?"

At Wilfrid Laurier, says Kristofferson, the association has stepped up an earlier practice of preparing its own assessment of the university's financial statements. Until last year, a WLU professor of accounting, who happened to be the WLUFA president, did a review of his university’s financial situation. This year, that review has been expanded significantly, and is now conducted by a committee with three chartered professional accountants, a professor of finance, and a professor of economics.

He says a few other academic staff associations have begun publishing their own analyses of the institution's financial statements.

"I think that academic staff associations really would benefit from having a committee on university finance that assesses the financial health of the university on a year-by-year basis, because there is inevitably a discrepancy between the claims that universities across Canada make about their financial health, and what their financial statements appear to show."

Segregating funds

The true state of Laurentian’s finances were partially concealed for some time by the university's practice of pouring grants from research institutions, like the Social Sciences and Humanities Research Council, into general revenue. The revelation that those funds were "appropriated by the university [were] pretty shocking," says Min Sook Lee, president of the OCADU Faculty Association.

She points out that Laurentian had a strong emphasis on Indigenous research and scholarship, and in fact used that academic orientation to promote its approach to decolonization. "Monies that came to support Indigenous research and curriculum are being appropriated," she says. "How do you put words to that? It's like a new re-colonization of Indigenous intellectual property."

More generally, Lee and others say that a key element of collegial governance in the post-Laurentian world must include financial controls that ring-fence this kind of funding to ensure it flows through to the scholars who applied for such grants.

From closed to open doors — collegial governance

Perhaps the most important lesson from the Laurentian crisis is the importance of fostering transparent, collaborative relationships between administrators, boards, and employee groups.

Administrators and boards need to be prepared to make this approach to governance standard practice, adds Laurentian’s Fabrice Colin. "What we've learned from the crisis is that decisions about the future of institutions shouldn't be made behind closed doors."

For Whitaker, the issue comes down to first principles. "The primary reason for public universities is the academic mission. That's why collegiality is so important, because without the participation of the people who are most interested and most knowledgeable about what it means to deliver that, we're not going to achieve what it is that we're here for."

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