Three shareholder groups have launched separate legal actions against the Tribal Councils Investment Group (TCIG), seeking everything from disclosure of shareholder agreements and financial statements to the appointment of an investigator, and thereafter possibly a receiver.
The latest disclosure out of the litigation, that KPMG resigned as auditor of the First Nations-owned investment firm in 2007 after being denied the opportunity to address its board of directors about issues of officer, director and employee compensation, is disturbing. But more alarming, if allegations in the affidavit of Sharon McKay, chief executive officer of Keewatin Tribal Council, are to be believed, is the firm's topsy-turvy corporate governance.
Directors are charged by law with the management of a corporation or supervision of the management of it. Front and centre as part of a director's fiduciary duty is the obligation to review financial statements and scrutinize the findings of a company's auditors.
If, as alleged, the TCIG's chief executive officer, Allan McLeod, asked Ms. McKay not to open a registered letter then-auditor KPMG sent her as a director, and instead send it unopened to the TGIC, she was requested to do the opposite of what at law she's obliged to do as a director. Likewise the other directors, whom it's alleged were all sent a letter from KPMG and who reportedly acceded to Mr. McLeod's request to forward their letters, unopened, to the TCIG. There were, in fact, two letters in the registered-mail envelope. One requested a meeting with the board to discuss compensation paid in 2006. The other was KPMG's resignation after being refused a meeting with the board to discuss its audit.
Ignorance of a corporation's financial affairs, and worse yet, wilful blindness about them by a director is not a strategy the law regards kindly. A judge looking at that strategy would be inclined to hold a director personally liable for any resulting harm to the corporation's business. But a director should never be put in a position where she's asked to stick her head in the sand and disregard representations from a corporation's auditors.
The only way directors can carry out their duties and make sound decisions for a business is to be fully informed. The TCIG, however, apparently operated under a corporate culture that fostered the very opposite.