Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

Signage is displayed outside the Home Capital Group Inc. headquarters office in Toronto, Ontario, Canada, on Thursday, May 4, 2017.

Cole Burston/Bloomberg

Imagine this scenario: You're on the board of directors at a Canadian company. The business runs into a problem.

The CEO promptly tells you about the issue and how it's being fixed, and fires the people responsible. You inform federal regulators and your insurance company. Your lawyers, from one of the country's top firms, and your auditors, from one of the largest global partnerships, tell you there's no need to share the information with the public.

You likely listen to that wise counsel.

Story continues below advertisement

And if you did, and you were on the board at Home Capital Group Inc., you ended up in front of the Ontario Securities Commission on Wednesday, paying out $11-million over your failure to disclose material information. You watch the mortgage lender's former executive team head to the penalty box, banned from serving as corporate officers for two years or more.

What just happened at Home Capital makes it a whole lot more difficult to be a director, or senior executive, at a public company. It forces business leaders to second-guess advice they are getting from outside professionals, such as lawyers and accountants.

Executives, boards and advisers are going to respond to the Home Capital settlement by pushing more information out the door. Some will argue this makes for good governance.

But the value of a director, or an executive, rests in part on their discretion. Good governance sees corporate leaders sift through the affairs of the business and only share what's important.

Wednesday's settlement with the OSC makes it clear that Home Capital's board weighed the facts in a tough situation and "acted in good faith by relying on external professional advisers." The market watchdog decided that wasn't good enough.

Home Capital had to accept this settlement without waiting to argue its case before an OSC tribunal. There was a run on deposits in April after the commission said that, in 2015, Home Capital failed to disclose fraudulent applications behind a portion of its home loans.

Losing the confidence of the marketplace is fatal to a financial institution. Home Capital was at the brink, and would have been forced to close its doors long before the OSC allegations would have been tested in front of a tribunal.

Story continues below advertisement

If a tribunal had heard the allegations, a lot of smart, principled people say the company's approach to disclosure would have passed muster. But the war would have been lost long before the OSC battle was fought.

At the end of the day, Home Capital was penalized for keeping mortgage fraud from investors. However, the company did widely share its woes. The OSC settlement details that the company promptly reported the issue to two federal government agencies: the Office of the Superintendent of Financial Institutions (OSFI) and Canada Mortgage and Housing Corp.

Home Capital also spelled out the problem for its insurer, Genworth, and its auditors, Ernst & Yonge LLP. Wednesday's agreement notes that Ernst & Yonge "did not raise any concerns about the financial statement disclosure."

Home Capital's leaders made difficult decisions during a tough time, and Wednesday's OSC settlement showed that they acted in good faith, with blue-chip outside advice. The mortgage lender still got hammered by the OSC.

In the wake of Home Capital's near-death regulatory experience, boards and management teams will err on the side of caution. They will be tempted to set aside discretion, and dump even the most mundane business developments into regulatory filings. Drowning investors in information doesn't help them make good decisions.

Editor’s note: The auditors for Home Capital Group in 2015 were Ernst & Yonge LLP. The auditors were incorrectly identified as PricewaterhouseCoopers LLP in an article published August 10, 2017.
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies