Governors’ Orientation

1. Governors’ Orientation

2. Pierre Giroux Facilitator Paul Owens Steven Iczkovitz Partner, Borden Ladner Gervais LLP Plan Manager & CEO, CAAT Pension Plan

3. CAAT Pension PlanBoard of Governors’ Orientation Paul Owens Plan Manager & CEO February 10, 2008

4. Plan Overview • CAAT Pension Plan: Colleges of Applied Arts and Technology Pension Plan • Covers 24 Ontario Community Colleges • Established in 1967 • Administered by OMERS up to 1995 -- liabilities: separate plan -- assets: commingled • Independent: January 1, 1995 • Transfer of assets and administration -- January 1, 1996 4

5. Plan Overview Membership Active 17,999 Deferred Pensioners 1,058 Pensioners 10,392 Total29,449 Average Age 48 Average Service 12 5

6. Plan Overview • Standard Public Sector Design • Defined Benefit: 1.3%/2.0% • Integrated plus Bridge Benefit • Contributory: 10.1%/8.3%/10.1% • Employer Match • Surplus/Deficit Sharing • Early Retirement Provisions • Automatic 60% Survivor Pension • Indexed to 75% of CPI 6

7. A Jointly Trusteed Plan EmployerEmployee Consultant Colleges Ontario Executive Committee OPSEU/ OCASA Sponsors (4) Sponsors (4) Trustees (6) Trustees (6) 7

8. Asset Structure Assets $5.4 billion (31/12/07) 100% External Management 17 Managers (11 new since 2004) Canadian Equities 16% International Equities 27% U.S. Equities 15% Bonds 39% Infrastructure/Other 3% 8

9. Fund Performance 9

10. Return vs. Risk Achieving higher returns is the expected result of assuming more risk, but … Assuming more risk does not guarantee higher returns, they too often result in higher losses. We must strike the right balance. 10

11. Major Factors Affecting Funding Position Good Bad Long-term interest rates -- Nominal Increase Decrease -- Real Increase Decrease Fund returns Above 6% Below 6% 11

12. Initial Actuarial Results Funding/ Going ConcernSolvency ($ millions) 1/1/05 $90 surplus $141 surplus 1/1/06 $545 deficit $289 deficit 1/1/07 $585 deficit $64 deficit 12

13. Experience in 2007 • Volatile fund performance • No major improvements in Long Term Interest Rates • New asset mix policy: Alternatives from 5% - 20% 13

14. Funding Policy On June 21, 2006, agreement reached to: • File 1/1/05 valuation with a $90 million surplus using projected unit credit method • Develop Funding Policy On September 27, 2006, agreement reached to: • Adopt Funding Policy • Increase contribution rates by 1% on January 1, 2008, 2009, and 2010 • Make indexation in respect of service after 2007 contingent upon affordability 14

15. Contribution Rates Rate above YMPE 1/1/03 7.6% 1/1/04 9.1% 1/1/08 10.1% 1/1/09 11.1% 1/1/10 12.1% Contribution Rates -- Integrated with CPP: 1.8% less for earnings between YBE and YMPE 15

16. A one percent increase in contribution will cost the System $10 million a year • Impact of increased contribution: Cumulative, $ millions Fiscal Year 07/0808/0909/1010/11 To the System 2.5 12.5 22.5 30.0 To Mid Size College .1 .5 .9 1.2 • Plus higher employee contributions will put pressure on wages and on a college’s ability to attract and retain staff 16

17. 2008 COLLEGES ONTARIO CONFERENCE GOVERNORS’ ORIENTATION PROGRAM Steven Iczkovitz

18. What is Corporate Governance? • "Corporate governance is the system by which … corporations are directed and controlled. • The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation…and spells out the rules and procedures for making decisions on corporate affairs.

19. What is Corporate Governance? • …it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance“. • OECD April 1999 • “Corporate governance is about promoting corporate fairness, transparency and accountability" • J. Wolfensohn, 1999

20. Agenda • Establishment of Colleges • General legal duties of governors • Specific legal duties • Personal liability for corporate acts & omissions • Risk management • Best practices

21. Legislative Framework -The Act The Ontario Colleges of Applied Arts and Technology Act, 2002(the “Act”) • proclaimed in 2003 • regulations establish Colleges • requires board of governors • establishes authority of Minister of Training, Colleges & Universities (“Minister”) • establishes Council

22. Authority of Minister Minister may - • issue binding policy directives impacting how Colleges carry out their objects or conduct their affairs • intervene in the affairs of a College

23. Binding Policy Directives Governors should be familiar with directives, including - • Governance and Accountability Framework • Conflict of Interest • Banking and Investments • Purchase, sale or Encumbrance of College Property

24. Governance and Accountability Framework “The board of governors of a college is to govern effectively and is accountable to the citizens of Ontario for the successful achievement of this mandate in view of the financial support provided by the province.”

25. Governance and Accountability Framework “Good governance requires that policies, processes, and structures be put in place to promote effective operation of the organization and to allow a corporation to fulfill its mandate and meet its objectives.”

26. Governance and Accountability Framework At a minimum, role of the board is to – • establish governance structures • set corporate goals/strategic direction & monitor alignment of operations • take corrective action as necessary • hire & assess CEO performance, delegate accountability to CEO • approve business plan, budget, annual report

27. Conflict of Interest • Governors are expected to - • act honestly and uphold the highest ethical standards • conduct themselves in a manner that will bear the closest public scrutiny • try to arrange their private interests so as to avoid conflicts of interest

28. Conflict of Interest • Exists where a governor – • has personal interests that supersede, compete with or could influence the exercise of his or her responsibilities as a board member • is party to a proposed or actual contract with the College

29. Conflict of Interest • Conflict of interest may be “real”, “potential” or “apparent” • Governors - • must declare & explain nature of conflict at earliest opportunity • may or may not participate in discussion • should not participate in vote

30. Other Applicable Legislation • Under the Act, Colleges are agents of the Crown & subject to - • Financial Administration Act • Freedom of Information and Protection of Privacy Act • Other acts applicable to public sector bodies

31. Financial Administration Act (Ontario) • Prohibits Colleges from giving indemnity w/o prior permission of Minister if indemnity would increase indebtedness or contingent liabilities of Province • Implications for contracts

32. Freedom of Information and Protection of Privacy Act (“FIPPA”) (Ontario) • FIPPA governs collection, use & disclosure of “personal information” (recorded information about an identifiable individual) • [Personal Information Protection and Electronic Documents Act (“PIPEDA”) not applicable except where College engages in “commercial activity”]

33. Corporations Act (Ontario) • Colleges are non-share capital corporations subject to the Corporations Act • Corporation distinct entity from directors & officers which gives governors some protection from personal liability for acts & omissions of College

34. Legislative Authority to Manage Affairs of Colleges • Government may make regulations amending objects, amalgamating or closing and directing programs • Minister has powers noted above • Council (established under regulations under Act), appoints governors, establishes benefit plan for College staff

35. General Legal Duties - Duty of Care • Governors must meet a minimum standard of care in discharging duties • Governor must exercise the care, diligence & skill that may be reasonably expected of a person with the knowledge and experience of governor (subjective test - standard may vary)

36. General Legal Duties - Fiduciary Duty • Encompasses conflict of interest • Requires a governor to act loyally, honestly, in good faith, without personal profit & in the best interests of College • Owed by each governor to College • College’s interest must supersede self-interest

37. Specific Duties (under Regulations made under Act) Governors to – • draft, submit to Minister & make available to public: strategic plan; business plan; annual report; key performance indicators identified by Minister • balance College’s budget • if deficit, seek Minister’s approval & submit recovery plan

38. Personal Liability for Acts & Omissions of College • Failure to deduct & remit taxes • Contravention of occupational health & safety laws, employment standards, building code, environmental standards • Misrepresenting authority, failure to discharge standard of care

39. Risk Management - Indemnification & Insurance • Establishment of & adherence to sound corporate governance practices • due diligence defense • business judgment rule • Indemnification by College (permitted by Corporations Act (Ontario)) • Insurance coverage by College (D&O liability insurance)

40. Best Practices • Be familiar with College operations & responsibilities of key senior staff • Attend board meetings where possible • Thoroughly review financial statements, minutes, reports, etc. • Ask questions

41. Best Practices • Test credibility of advice • Exercise prudence & common sense - keep corporate information confidential & avoid/declare conflicts of interest • Ensure College has C&O insurance & review coverage annually - investigate indemnification

42. Sound Corporate Governance • Governors should establish – • a written mandate for board • a code of conduct of acceptable organizational behavior • policies (& procedure for making them) & review/update them periodically • committees & reporting requirements • performance measures & implement performance reviews • ongoing training to ensure proficiency

43. Steven Iczkovitz Borden Ladner Gervais LLP siczkovitz@blgcanada.com (416) 367-6214