Sandford Borins

Sandford Borins, Ph.D.

Sandford Borins is a Professor of Management at the University of Toronto. He writes, blogs, and teaches about narrative, information technology, and innovation.

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November 20th, 2014

Recognizing the Independence of Independent Review Committees: A Budget Proposal to the Minister of Finance

business, Government

Following from by recent blog post making the case that independent corporate overseers are not employers, members of two independent review committees have written to Finance Minister Oliver urging him to include in the forthcoming federal budget a regulatory change that would ensure that members of independent review committees are recognized by the Canada Revenue Agency as self-employed individuals, rather than as employees of the mutual funds family they oversee. The complete text of the letter and names of those who have signed it are below. I encourage readers to comment indicating their willingness to sign the letter.

Dear Mr. Oliver:

Recognizing the Independence of Independent Review Committees: A Budget Proposal

We are writing with a proposal to be included in the 2015 federal government budget, namely recognizing the independence of independent review committees (IRCs) for families of mutual funds. Independent review committees have been established under the Canadian Securities Administrators’ National Instrument 81-107 to review transactions that could involve potential or actual conflicts of interest. This regulatory framework puts great importance on establishing and protecting the independence of IRC members in several ways. IRC members must have no material relationship with the manager of the mutual funds family, the investment fund, or entities related to the manager. The manager cannot unilaterally dismiss an IRC member during his term: that requires a special meeting of the unitholders. IRC members’ fees are paid by the unitholders of the mutual funds rather than by the manager. The independence of IRC members is essential to the integrity of mutual funds as an investment vehicle because unitholders need assurance that their interests are not being sacrificed to those of management, or that unitholders of some funds in a family are not being favoured over unitholders of other funds. Independent review committees were created to hold management accountable in a manner that provides these assurances.

IRC members are in the practice of reporting their income from service on IRCs as business or professional income. Recently, the Canada Revenue Agency has begun to challenge this practice in several cases by ruling that IRC income should be treated as income from employment in service to the manager of the mutual fund. This ruling is based on the contention that membership on an IRC is an “office” as defined in the Canada Pension Plan Act (RSC 1985, c. C-8). This ruling is being appealed within CRA. If the appeal is over-ridden CRA will likely move to require all mutual funds managers to treat payments to IRC members as employment income.

In our view, the CRA is making a fiction of the independence of IRCs. If IRC members are to do their jobs properly they cannot, by definition, be employees because if they are employees they cannot at the same time be independent of their employer, which is the foremost requirement of any IRC member. By treating IRC members as employees, CRA can influence the mindset of both fund managers and IRC members to start acting like employees taking their direction from the manager, rather than professionals exercising independent judgment. For example, as self-employed professionals IRC members can deduct from their IRC fees expenses they think appropriate to performing their job effectively. As employees, they may not necessarily be able to deduct such expenses, so they would ask the fund manager to pay for some or all of those expenses, which would change the dynamic of the relationship.

We urge you to include in the 2015 federal government budget a provision to enhance good corporate governance by recognizing the independence of independent review committees. This could be implemented by having the Canada Revenue Agency issue an interpretation bulletin stating that payments to IRC members for their services are income from business or professional services, rather than employment (T4) income in service to the manager of the mutual funds family.

Thank you for your consideration of this proposal.



Sandford Borins, Chair,

Independent Review Committee,

Chou Associates Management Inc.

Joe Tortolano, Member,

Independent Review Committee,

Chou Associates Management Inc.

Peter Gregoire, Member,

Independent Review Committee,

Chou Associates Management Inc.

Francis Chou, President and Funds Manager,

Chou Associates Management Inc.

Doug Mills, Chair,

Independent Review Committee,

First Asset Funds

Carl Solomon, Member,

Independent Review Committee,

First Asset Funds

Henry Knowles, Member,

Independent Review Committee,

First Asset Funds


November 3rd, 2014

Deconstructing York University’s “My Time” Campaign

Education, Narrative

Given my interest in narrative, I’m always on the lookout for effective or ineffective instances in the media. I look particularly at advertising because of its explicit mission of persuasion.

York University’s “this is my time” campaign – which I’ve now seen in print, on television, and on public transit – has definitely caught my attention. The basic story these ads tell is simple. They present a variety of York students stating their personal visions of the work they will be doing in a future year (2025, 2031, 2039, etc.). The visions are all intended to be innovative and societally focused. They also draw a link to the York program in which the student is now enrolled. They use real names and faces.

The recruitment message is that students at York are in programs that will help them do important and exciting things at the height of their careers. Somewhat paradoxically, “my time” doesn’t mean today or the day after graduation, but ten or fifteen or twenty years from now. The sell, of course, is for students to apply to York. If the sell is targeted, it is to the elite students who are especially innovative, the ones who want to design their own curriculum to support their own vision – the students that every university wants to recruit.

Contrast York’s ads with two standard tropes for student recruitment. One emphasizes the entry level jobs of its graduates, which is what government statistics normally track. Ads that feature entry-level jobs speak to personal ambition, while York’s ads speak to societal contribution. York’s are much more inspirational. The second trope highlights a university’s most successful alumni. These ads leave unanswered the question of precisely how an individual’s education thirty years ago contributed to the success she achieved later in life. York’s ads, by featuring current students and their visions looking forward, draw that link much more clearly.

York’s ads have won a number of awards for educational marketing. I think the awards are well-deserved. And they demonstrate to me, once again, the persuasive power of innovative story-telling.


October 21st, 2014

Watch Great Movies. Tell your Story. Learn Management. (MGSC12)

Education, Narrative

MGSC12 (Narrative and Management) is not your typical management course. It’s based on the now well-recognized idea that telling stories is a fundamental aspect of being human, and that well-told stories can be immensely persuasive, particularly in a management context.

MGSC12 begins by introducing a set of powerful concepts about story-telling, such the structure of archetypal stories about managers, cinematic plot structure, the roles of narrator and protagonist and the relationship between them, and Erikson’s model of the human life cycle. The course then applies these concepts in a number of ways.

We use some superb contemporary movies about managers both as examples of the art of story-telling and as cases in effective or ineffective management. You can think of these movies, and the way we use them, as business cases, with the difference that they employ moving images, and are authored, acted, and produced by people who are the best in the business.

The movies we watch are either up-to-date or classics. Some examples: The Social Network, the story of the origins of Facebook for which Aaron Sorkin won the Academy Award for best screenplay; Wall Street, a classic movie for which Michael Douglas won the Academy Award for best actor; Inside Job, an Academy award winning documentary about the global financial crisis; Margin Call, J.C. Chandor’s high-acclaimed first movie, also dealing with the financial crisis; Zero Dark Thirty; and The Fog of War, an Academy Award winning documentary about the life of former US Secretary of Defense and World Bank President Robert McNamara. He was probably the smartest MBA ever, but his intelligence didn’t prevent him from making some colossal mistakes.

In a typical week, you watch the movie before class and we then discuss it in class. Often we use table work. I divide students into groups, assigning each group a question to discuss for 15 minutes, and then ask a member of the group do a short presentation summarizing their discussion.

I also have two assignments giving you an opportunity to tell your story, one about the significant turning points in your life and the other focusing on your interactions with a particular organization (a Coop placement for example). We’re in the course together, so I’ll tell my story too.

You’ll emerge from MGSC12 with a much better understanding of how to tell persuasive stories in a management setting, and you’ll also watch quite a few thought-provoking and inspiring movies.

I will teach MGSC12 winter semester this year on Wednesdays from 11 to 1 and I look forward to showing you how story-telling and movies can form an essential part of your management education. Maximum enrolment for the course is 35 to facilitate class participation, and there are still some places available.


October 19th, 2014

When I Crossed Thorong La


I’ve been reading accounts of the freak blizzard and avalanche at the Thorong La (Pass) on the Annapurna Circuit a few days ago and feeling deep sadness for those who perished sotragically. It also reminded me of my own crossing of Thorong La on October 17, 1984, exactly thirty years ago.

Looking at my photo album of the Annapurna circuit trek brought back numerous memories. Our group – three trekkers, a guide and a porter – reached Manang, the point of departure for crossing the pass from east to west. It turned rainy in Manang, so we spent an extra day waiting for the skies to clear. The town was over-crowded with several hundred other trekkers also waiting. The weather improved and we made it to Thorong High Camp, where we spent a very cold night preparing to cross. We were up before dawn, walking step by step in the thin cold air.

We reached the pass fairly early in the morning, as evidenced by pictures of me in a parka, woolen hat, and heavy gloves at the two cairns that marked the pass. Beside the second picture I had written “made it, but cold!” I have pictures of our first views of the breathtaking Dhaulagiri Range on the other side of the pass. The sky was deep blue, with a cloud floating off in the distance, the mountains visible both above and below it.

The trail down from the pass was steep and dusty. It took several hours to get to Muktinath, the first town on the other side, and I remember my calves burning. The air, however, became warmer and easier to breathe. I have no pictures of this part of the trek, the exertion requiring my full attention. Not surprisingly, it was here where the trekkers perished last week; this trail would have been impassible when covered in several feet of snow.

In Muktinah we visited an ancient temple sacred to Hindus and Buddhists. I woke early and took a photography of Dhaulagiri I, the highest peak in that range, gleaming in the sun above a line of shadowed hills, as the valley below was still in darkness. This photo in blue, black, and white is, I believe, the best I ever took. When we left Muktinath, I took a photo looking back at Thorong La, showing the mountains on both sides of the pass, and the steepness of the descent from the pass itself into Muktinath.

In the mid 1980s Nepal was much more isolated than today. There were no lines of communication with the outside world except at Manang, on the east side of the pass, and Jomson, a four hour walk down the Khali Gandaki valley from Muktinath. At that time, the loss of life from an avalanche and blizzard on the Thorong La would have been much worse than today.

Trekking the Annapurna Circuit trek was a wonderful experience for me, with dramatic vistas, moments of connection with and understanding of civilizations entirely different than my own, and the intrinsic reward of three weeks of arduous walking. A decade later, I did the Everest Base Camp trek, and found it equally rewarding.

My heart goes out for the families of those who perished due to a freak misfortune. Nothing in life is riskless, but the risks of the Annapurna Circuit trek are not great. The world is sometimes inexplicable, cruel, and unjust.


October 9th, 2014

Independent Corporate Overseers Are Not Employees

business, Government

There are thousands of Canadians engaged in the important work of corporate oversight. The best known group are corporate directors. A second, less well known, corporate oversight role in Canada is independent review committees (IRCs) for financial institutions. IRCs for mutual fund families have the role of reviewing transactions involving potential conflicts of interest, such as transfers of securities from one fund to another in the family, or the purchase of securities issued by the manager of the mutual fund (for example a bank). This blog is a wake-up call about a potential threat to their independence.

The Canada Revenue Agency (CRA) treats corporate directors as employees of the corporation. The basis in law for this is that the Canada Pension Plan Act lumps them together with judges, MPs, senators, MLAs, lieutenant governors, and other people elected or appointed in a representative capacity as “officers.” Looking at the list, the glaring anomaly in it is corporate directors; all the others are employees of the state. The role of a corporate director is to provide independent oversight of a corporation, and treating them as employees undermines their independence. The Internal Revenue Service in the United States, in contrast, treats directors as independent contractors, and directors report their earnings as income from self-employment.

Members of IRCs, as far as I can determine from conversations with colleagues, report their fees as self-employment income. The rationale for our doing this is that we are providing independent arms-length oversight in conflict-of-interest issues for the mutual funds family. As one of my colleagues has pointed out, the key word in “independent review committee” is “independent.” The Canadian Securities Administrators’ National Instrument 81-107, which governs IRCs, stipulates that IRC members “have no material relationship with the manager [of the mutual funds family], the investment fund, or an entity related to the manager.” This restriction rules out employees.

The CRA has approached the mutual funds family on which I serve on the IRC, and, likening us to corporate directors, decided we are employees of the mutual funds family. We are appealing this decision under the current law. It may well be that we are a test case, and that if our appeal is not accepted CRA will make the same ruling for every other IRC in Canada.

In our view, the CRA is making a fiction of the independence of IRCs. The government, therefore, is sending IRC members a mixed message. Our governing regulations say we are independent, but CRA says we are not. By treating IRC members as employees, CRA can influence the mindset of both fund managers and IRC members to start acting like employees taking their direction from the manager, rather than professionals exercising independent judgment. As self-employed professionals IRC members can deduct from their IRC fees expenses they think appropriate to performing their job effectively. As employees, they may not necessarily be able to deduct such expenses, so they would ask the funds manager to pay for some or all of those expenses, which would change the dynamic of the relationship.

A better approach would be for the definition of “officer” in the CPP Act to be changed to explicitly exclude members of IRCs. It is in the interest of good corporate governance for IRCs to be independent in every possible way, including having earnings taxed as income from self-employment rather than having earnings taxed as though we were employees.

If the definition of “officer” in the Canada Pension Plan Act were changed to exclude corporate directors, then that would not only remove CRA’s rationale for taxing IRC members as employees instead of independent contractors, but it would do the same for the much larger group of people who serve as corporate directors. Promoting the independence of corporate directors in that way is good public policy.

Corporate overseers, whether directors or members of IRCs, are not employees. If we were, we would not be independent. Since we are not employees, we should not be taxed as employees.