When Rob Prichard was hired by MGM Resorts to help lobby for a casino in downtown Toronto, he promptly declared a potential conflict of interest. Not just because he is a chairman of Metrolinx, the regional transit agency that is looking at the impact of a local gambling resort on gridlock. But because he is a director at Onex Corp., a private equity firm that has added its name to a growing list of casino bidders.
Onex’s co-founder, Anthony Melman, took a leave from the board of Ontario Lottery and Gaming Corp. in January. His conflict wasn’t with Onex, from which he retired nine years ago. His problem was that a client of his investment firm, which he runs with Belinda Stronach, is in the horse-racing business. Another Metrolinx director, meanwhile, was forced to recuse himself from casino chatter after his investment bank, TD Securities, was also hired on as a lobbyist for MGM.
The ongoing privatization of OLG, one of the biggest such efforts in provincial history, will call on industry to do everything from finance new casinos and own lottery machines to serve drinks and deal blackjack cards. Not surprisingly, it has become a magnet for the private sector. More than five dozen lobbyists are already jockeying on behalf of real estate companies, gambling software companies and international casino operators.
Managing this tangled web of corporate relations will be key to running a process that has already proven controversial, as players fend off concerns about rising crime and gambling addiction.
No one one understands this better than the man in the middle of the sell-off, Paul Godfrey. The OLG chairman has picked many members of his board, including Mr. Melman, Jason Melbourne, who went to high school with one of his sons, and Dale Lastman, a former director who is the son of former Toronto mayor Mel Lastman. Mr. Godfrey is also head of Postmedia Network Inc., chairs the board of a major real estate developer, and is vice-chairman of Baycrest Centre for Geriatric Care.
“I served a lot of years in public life,” he told The Globe and Mail’s editorial board. “No one’s ever accused me of a conflict of interest.”
The firewall Mr. Godfrey has erected between his dual roles at OLG and Postmedia is the kind of real conflict that’s easy to deal with, say governance experts. The challenge is handling perceived conflicts and whether someone stands to benefit, especially with a restructuring project involving the financing, transportation and entertainment sectors.
“The perceived conflicts are all over the place here,” said Richard Powers, academic director of the directors’ education program at the Rotman School of Management. “The problem is they are often in the shadows.”
Edward Sonshine, the chief executive officer of RioCan Real Estate Investment Trust and a close friend of Mr. Godfrey’s, has publicly opposed a casino in downtown Toronto. Mr. Godfrey is chairman of the board at RioCan, a position he has held for 20 years. He said Mr. Sonshine made a management decision that had nothing to do with the board.
“How much more transparent can you be?” he said. “It shows that there is no internal influence. I didn’t say, ‘Bring it to the board and I’ll lobby the members.’”
Other OLG directors have proactively avoided conflicts. Mr. Lastman, a partner at Goodmans LLP and adviser to construction magnate Larry Tanenbaum, was the only one of eight OLG directors who did not renew his term when it expired in February, 2012.
“It was always my intention to serve only one term of two years, and it was not more complicated than that,” Mr. Lastman said in an e-mail to The Globe.
His timely departure allows him to avoid any conflicts at OLG itself. He also sits on the boards of RioCan and Maple Leaf Sports and Entertainment. Mr. Tanenbaum, the chairman of MLSE, has expressed interest in a Toronto casino project.
Mr. Melman, the former partner of Onex chairman Gerald Schwartz, said it would be like “trying to have your cake and eat it” if he were to have simply recused himself from meetings at OLG while doing business with his client.
“I would love to stay on the board,” he said in an interview. “But it’s not about me and what I can do. It’s about what’s the right thing to do.”
Mr. Prichard said he declared a conflict last year after Torys LLP, the law firm he chairs, accepted a retainer from MGM Resorts International, and has “recused myself ever since from all discussions at Onex about its potential casino and gaming investments.”
He said he has taken “prophylactic steps” to avoid any conflicts by staying out of discussions at Metrolinx related to transportation and a casino as well as any meetings at MGM involving transit planning.
A second Metrolinx board member is also lobbying for MGM. TD Securities Inc. vice-chairman Doug Turnbull said he has asked to be excluded from any Metrolinx board discussions regarding a casino.
There is nothing wrong with having a conflict of interest, say governance experts. It is unavoidable in a small business community. It comes down to how individuals and organizations deal with them.
“How do I know if Paul Godfrey’s decision is a good one?” said Chris MacDonald, director of the Jim Pattison Ethical Leadership Education and Research Program at Ryerson University. “I’m not even competent to judge his decisions, so I’ve really got to trust the process.”
Mr. Godfrey, a prominent Progressive Conservative, was the governing Liberals’ hand-picked choice to repair OLG’s reputation and generate more money from gambling for the cash-strapped province. OLG contributed nearly $2-billion to the province’s coffers last year.
Mr. Godfrey stepped into an agency plagued with problems. He was appointed chairman in February, 2010, six months after former Ontario finance minister Dwight Duncan cleaned house at OLG, including firing the CEO, amid a scandal over expenses.
“I thought he was perfect,” Mr. Duncan said. “I could easily appoint somebody who doesn’t know the gaming industry, who has no possible conflict. But is that in the taxpayers’ interest? I don’t believe it is.”
Editor's Note: Ontario Lottery and Gaming Corp. paid $2-billion to its sole shareholder, the Ontario government, not $1-billion as incorrectly reported. This online version has been corrected.