Michael Smart and Nick Mahoney
We identified over 4000 recipients of the Canada Emergency Wage Subsidy that are part of large corporate groups with at least $600 million in assets. This list includes 190 companies owned by Canadian billionaires, including the Thomson, Irving, Rogers, and Péladeau families, and 1829 companies in foreign-controlled multinational enterprises. These and other examples in our data suggest that CEWS funds may not be well targeted.
In the week before Christmas, the Canada Revenue Agency (CRA) quietly released a list of the names of over 330,000 employers that received CEWS payments in 2020. In this brief Commentary, we report on CEWS recipients that are members of large corporate groups.
The Canada Emergency Wage Subsidy is an expensive program, forecast to cost over $100 billion by next June, and it has been controversial. Although CEWS subsidies are tied to employer payrolls, payments are received by firms, not by workers. In two previous commentaries at Finances of the Nation, we have suggested that CEWS is likely saving relatively few jobs during the pandemic. All firms experiencing any revenue loss are eligible for payments, and most employees of those firms would still be employed even if CEWS were abolished. The program is therefore not targeted to save jobs in a cost-effective way.
If CEWS payments are not going to prevent job loss, then they are simply increasing firm profits. It may be desirable to provide liquidity to small businesses at risk of failure during the pandemic. But here too CEWS is not well targeted, if funds go to business with ready access to capital markets and sufficient funds to weather the current storm. Recent articles in the media have illustrated this point by listing public companies that reported receiving CEWS payments, while paying special dividends or repurchasing shares. While there is no good reason to prevent subsidy recipients from paying dividends, these occurrences do highlight the failure to target CEWS to firms most in need of funds.
These articles leave the impression that CEWS funds are being spent in a scattershot way. Some have even suggested that large companies should refuse CEWS payments as a matter of corporate social responsibility – as some large companies in the United States did when a similar wage subsidy program existed there in the first half of 2020. Perhaps they should – but far better if the government ensured that public funds were well spent in the first place.
To assess the cost effectiveness of CEWS, or perhaps to judge the corporate ethics of recipient companies, we need to know more about who the recipients are. Previous media articles relied on voluntary disclosure of CEWS receipt in filings of public companies, but most companies are privately held and do not make such disclosures. The list of CEWS recipients released by CRA is comprehensive, but it includes only the name of the company, without additional information needed to understand who really gets CEWS.
To learn about large companies receiving CEWS, we linked[1] the CRA registry of CEWS recipients to Statistics Canada’s Inter-Corporate Ownership (ICO) database, an authoritative index of who owns what in corporate Canada. ICO covers every individual corporation that is part of a group of commonly controlled corporations with combined assets exceeding $600 million or combined revenue exceeding $200 million, plus other corporations with at least $1 million in foreign-source capital. ICO identifies groups of Canadian companies with common control and their foreign parent companies, and it records the country of residence of each company in the group.
Companies in the ICO are part of large enterprises. Most CEWS recipients are in contrast small businesses, not included in ICO. In all, we identified 4170 unique companies that received CEWS which are part of ICO enterprises, or just over one percent of all CEWS recipients. (Of course, large enterprises likely receive a much larger share of CEWS payments. Based on other data released by CRA, we know that about 30% of total CEWS payments went to applicants with 250 or more employees.)
A complete list of the matched recipients is available to explore and download here. Large CEWS recipients are in different sectors of the economy than others. About 33 percent of those we identified were in wholesale or retail trade sectors, compared to about 15 percent in the general population of CEWS recipients. In contrast, a higher proportion of applicants in the construction and other service sectors are small businesses, not covered by the ICO data.
By definition, CEWS recipients linked to the ICO have ready access to capital markets to deal with capital needs and buffer against revenue shocks. Owners of some of these companies are also rich. In all, we found 190 CEWS recipients companies owned by individuals in the 2017 list of billionaires created by Canadian Business magazine.
Table 1 CEWS recipients owned by billionaires on the Canadian Business Top 100 list
The list of these companies and their owners in Table 1, includes many familiar names. The Irving family, with $7.4 billion in estimated net worth, controls 23 companies that have received CEWS. The Quebecor group of the Péladeau family (net worth $1.8 billion) controls 14 recipients, including the TVA television network and other media companies. The Thomson family group (net worth $41.1 billion) controls 12 recipients, including retail, aviation and manufacturing companies, and of course The Globe and Mail. Other names on the list include Rogers, Reisman-Schwartz, Shaw, Pattison, Desmarais, Bombardier, and many more.
Table 2 CEWS recipients owned by S&P 500 companies
Of the CEWS applicants we linked to ICO, 1829 were controlled by foreign-resident parent companies, and 2341 were Canadian-controlled. Many were part of complex multinational enterprises. Table 2 lists an important subset of foreign-controlled recipient companies — those owned enterprises listed in the S&P 500 index, which are among the largest capitalization companies in the United States. There are 39 CEWS recipients owned by S&P 500 companies, including 11 owned by Berkshire Hathaway, a large multinational conglomerate controlled by multibillionaire Warren Buffett.
At least 893 CEWS applicants have affiliates in tax haven jurisdictions, including 198 of the Canadian-controlled applicants. (The actual number is higher, since ICO only includes information on the immediate foreign parents of Canadian companies, not all companies in the multinational enterprise.) Of course, owning assets in tax havens is not illegal, and it has no direct bearing on how CEWS funds are spent, but it is an indicator of the financial sophistication of the enterprises involved.
In all, these data paint a picture of a small fraction of CEWS recipient companies that are part of large, well-capitalized corporate groups. If CEWS subsidies are not saving many jobs, then funds are simply contributing to corporate profits, and ultimately to the incomes of shareholders. To understand more about the impact of the $100 billion being spent on CEWS, we will require more information on recipients than has been released thus far. The government could start by releasing the total amount received by each applicant, and the number of employees supported.
[1] We linked the two databases based on company names, using fuzzy string matching techniques. Where names did not match exactly, or where there were multiple companies with the same name, we investigated further using internet searches to identify a unique owner of each company matched in the two databases.