Playing hardball the J.D. Irving way

Third in a six-part series on one of Canada's richest families: The House of Irvings.

As self-inflicted political scandals go, the firing of Dr. Eilish Cleary must rank as one of the most head-scratching on record.

Cleary was New Brunswick's highly-regarded chief medical officer, investigating health issues facing the province's citizenry. Hired in 2008, Cleary even traveled to Africa on two occasions to help in the battle against the Ebola virus.

But last November, the Brian Gallant government put Cleary on leave. And then in early December, they terminated her without cause (government officials initially told the media it was a personnel issue, but would give no specifics). David Coon, the sole Green Party MLA in the New Brunswick legislature, has seen Cleary’s dismissal letter and insists “there was never any reason given to what happened to her.”

And Cleary – who’s since reached a settlement with the province and quickly hired by the federal government – told the CBC she was never informed of any personnel issues either.

The firing triggered an uproar, with the provincial NDP demanding an independent investigation. “I think the big thing that we have to ask now is – who ordered this?” asked NDP leader Dominic Cardy in December. Nineteen current and former public health and medical officers from across the country wrote a letter supporting Cleary, with one of its signatories being Dr. David Butler-Jones, Canada's former chief pubic health officer. The Canadian Association of Physicians for the Environment condemned the firing, as did Globe and Mail columnist André Picard.

So why was Cleary terminated?

At the time of her dismissal Cleary was working on a study on the health impacts of glyphosates, one of the most popular herbicides used in the forestry industry – including by J.D. Irving, which controls the largest forestry company in New Brunswick. Commonly known as Round Up, glyphosates are sprayed on forests to kill hardwood trees, making it easier to grow softwood trees, which many forest companies covet.

Yet glyphosates have been labeled by the research arm of the World Health Organization (WHO) as a probable carcinogen and have been linked to the decline in New Brunswick’s deer population. Some wondered if her study would provide ammunition for critics of the herbicide. After all, in 2012, Cleary had penned a report on the “social and community health risks” of shale gas development in the province – a study embraced by opponents of fracking.

The Irvings, on the other hand, support shale gas development. Moreover, when her shale gas report was completed, the then-Tory government initially considered burying it.

Many New Brunswickers I spoke with were quick to point to the influence of the Irving family – and specifically, J.D. Irving Ltd., the company controlled by Canada’s fourth richest man, billionaire James K. (JK) Irving (and #240 on Forbes’ list of world billionaires).

“In my thirty years here there have been three or four occasions when incoming governments have started out wanting to reform the relationship (with the Irvings), but they all seem to give in at the end,” says Bill Parenteau, a historian at the University of New Brunswick (UNB) in Fredericton, “and the Gallant government was much faster than any of the other ones.”

Moreover, David Coon says Cleary was not the only controversial personnel change made by the Gallant government this past winter. He discovered the director of the province’s wildlife branch was put on leave and then transferred out of his job too – someone whom Coon says lobbied for old growth forests to be preserved for wildlife (which can conflict with the interests of forestry companies). “I’ve said publicly and in the legislature this appears to be a pattern to me that public servants who, for one reason or another, might be seen by this government as a problem for them – they get moved or turfed,” says Coon. He believes this is because the government wants to muzzle anyone who could be seen as opposing the Irvings’ corporate interests.

The Gallant government, meanwhile, refuses to answer any questions about these matters – and, in fact, has limited media access to reporters to the premier and his caucus.

So far, no evidence has emerged that J.D. Irving played any role in the firing of Cleary, directly or indirectly. And when the CBC ran a story in December about Cleary, noting in passing J.D. Irving’s use of glyphosates, the company’s reaction was swift and pointed, calling it a “sensational story” and that “CBC presented an unsubstantiated conspiracy theory as fact,” implying that “J.D. Irving Ltd. is or was involved in some sort of conspiracy against Dr. Cleary because JDI uses glyphosates.”

Nevertheless, J.D. Irving has a long history of pressuring governments to hand over concessions - and of intimidating critics in academia, the media and politics. “New Brunswick is a client state,” argues Parenteau, “where you have a dominant natural resources processor who controls the resources and has more influence over natural resource policy than the government.”

A company that takes no prisoners

In 2009, when the three Irving brothers - JK, Arthur and Jack – split up the Irving empire their father KC had built (which by then was made up of as many as 250 companies), JK ended up with J.D. Irving, the forestry, shipbuilding, transportation, food processing, retail and media division that is based out of Saint John, NB.

Now aged 88, and the eldest son, JK is worth (US) $7-billion and has been described as intimidating and quiet, impatient and intelligent. A talented business leader, he’s known for his modest tastes. “There’s nothing flashy about his world,” wrote John DeMont, in his 1991 book “Citizens Irving”. JK lives in Rothesay – the affluent suburb of Saint John, and DeMont says he inherited his father KC’s “puritanical streak, eschewing booze and tobacco.” He donates money to environmental causes and established a charity to finance the education of low-income students.

J.D. Irving is a privately-held company, and where its ownership is controlled is murky. The company’s assets were once held by a trust in the offshore tax haven of Bermuda (today, of 11 Irving family-owned companies listed in Bermuda, at least one – and likely others – are controlled by J.D. Irving). Today the company says the company is controlled in Canada by Canadians citizens, although refuses to be more specific or explain when they moved control back to Canada.

The conglomerate is run by JK’s two sons, Jim and Robert, who act as co-CEOs. Robert lives in Moncton, where he manages the company’s food, tissue paper and some of its transportation holdings. There he’s active in the city’s charity scene and president of the Irving-owned Moncton Wildcats hockey team. Generally Robert keeps a low profile.

Jim, on the other hand, is the public face of the company, and currently at the center of controversies surrounding his ties to the Trudeau government (see part 1 of our series) and questions over cost and quality of the navy ships his company is building for the federal government.

Jim is also regarded, along with his uncle Arthur, as the most polarizing and intimidating figure within the Irving clan. One New Brunswick businessman, who has negotiated with him, and spoke on condition of anonymity, likens Jim’s demeanor to a coyote on the hunt, “wondering how to get you.”

Jim is apparently unpopular among his cousins too. As the eldest of KC’s grandchildren, he didn’t get along with Kenneth Irving, Arthur’s oldest son. When there was an attempt during the 1990s to have all of the cousins co-manage the empire jointly, one source says Jim chafed with this set up and the effort failed.

There’s also no love lost between Jim and John Irving Jr., one of Jack’s sons (and the only one of KC’s grandkids with an MBA, in this case from Harvard), who now runs the family's construction division. Apparently when John tried to work at J.D. Irving during the ‘90s, Jim eventually made it clear his cousin was not welcome. “John was always in conflict with Jimmy,” says one family source, “always, always, always.”

Jim’s oldest son, Jamie, is vice-president and publisher of Brunswick News Inc., a company owned by JK that controls the family’s newspaper holdings – including every English language daily newspaper in the province.

While its hard-nosed approach has proven profitable for J.D. Irving, it has also generated critics and controversies, in particular over the company's influence on government policy. “If you look at the big picture, everywhere you have seen governments declined in their ability to control policy,” notes Don Bowser, an international expert on anti-corruption and transparency who lives in Nova Scotia. “Corporations everywhere have gotten more of a say in how regulations are made. But it’s been particularly acute in New Brunswick where the Irvings have essentially taken over all policy-making – while the governments have gotten weaker and weaker.”

Going after the political class

This past February, David Coon stood up in the New Brunswick legislature and asked a question of the minister of natural resources. Coon is pretty much the only politician in the province willing to challenge the Irvings and their clout.

On this particular day he asked the minister whether Jim Irving and J.D. Irving had invested $461-million as they had promised when they signed a forestry agreement with the province two years earlier – pointing out the company had never actually promised to create any new jobs. “Can the Minister of Natural Resources confirm that Mr. Irving has lived up to his contractual obligations?” Coon demanded.

The minister, Denis Landry, replied he "couldn't respond to you with specifics" and didn’t know how much money had been spent.

Two days later, full-page ads from J.D. Irving appeared in all of the Irving’s daily newspapers attacking Coon (and claiming the company had spent $265-million on its mills), saying “we believe (Coon) has a responsibility to support jobs from sustainable forest sector businesses and suppliers” – although Coon had said nothing to suggest he felt otherwise.

While J.D. Irving now says they ran the newspaper ads to correct "the allegations made by Mr. Coon", the attacks on Coon were no accident. The forest strategy agreement the company signed with the province in 2014 was highly contentious.

Even though the forest industry’s share of New Brunswick’s GDP has been declining for decades – accounting for only five per cent and about 12,000 direct jobs today – forests are a motherhood issue within the province. As noted in part 1 of this series, the provincial government actually spends more on forest management than it earns from royalties garnered from this sector.

J.D. Irving controls almost 4.4 million acres of combined Crown and its own forests (or about 25 per cent of the province’s entire land mass). They also own three paper mills and eight sawmills.

In 2012, the Tory government of David Alward introduced a new forestry strategy which preserved habitats for wildlife, held the line on allowable cut for softwood lumber, and even lowered the amount of hardwood that could be harvested. “It was a reasonable compromise - except for Jim Irving,” says Coon.

The previous year, J.D. Irving organized a petition campaign aimed at MLAs, claiming hundreds of jobs were at stake if the provincial government reduced allowable cuts of some types of trees. After the new strategy was unveiled in 2012, J.D. Irving’s director of forestry relations, Robert Fawcett, expressed the company’s displeasure, saying two mills would remain closed, and they would not proceed with planned investments. “We are not going to be able to invest in our facilities today until we hear a more certain number in terms of the wood that is going to be available for those facilities,” he said

Jim Irving began lobbying the government. In a terse letter he sent to Alward in early 2013, he complained about the government’s desire to keep conservation areas at 28 per cent – and made it clear jobs were on the line if the government’s plan was not altered. “Without the necessary wood supply, we will have to reduce the size and scope of our mill modernization and investment plans,” he wrote.

The lobbying worked. Bruce Northrup, the natural resources minister who’d introduced the strategy, was replaced that fall (Irving had complained about Northrup in his letter). And then, in March of 2014, Alward introduced a new forest management agreement: this one reduced conservation areas by five percentage points, down to 23 per cent, while JDI would receive 62 per cent of the additional wood fibre annually released from Crown lands. It also said it would permit the amount of softwood cut from Crown land to increase by 20 per cent. The province’s agreement with J.D. Irving, which was to last 25 years, guaranteed the company specific amounts of wood it could harvest – but did not bind the company to any specific job creation (the government claimed the deal would create 1,700 jobs).

The day after the agreement was announced, J.D. Irving said it planned to make new investments in its mills, totaling $513-million. (The company also notes "that no other Canadian jurisdiction requires the industry to post bond against its performance.")

But the sudden about-face by the Alward government proved unpopular. “I know some people in the Conservative Party well enough to know when Alward…announced it to the cabinet some people in the cabinet got up and were so mad they stormed out,” says Andrew Clark, former president of the New Brunswick Federation of Woodlot Owners.

A poll done that summer by researchers at UNB showed that 61 per cent of New Brunswickers opposed the Alward government’s strategy (An Irving-sponsored poll showed people were more favourable). And the population made the Tories pay for this and other issues: that fall, the government lost the general election, replaced by Brian Gallant’s Liberals. Yet the Gallant government has not scrapped the agreement either. Says Parenteau: “The Irvings and the large traditional forest producers have the ear of the government every day and it’s just a matter of wearing them down.”

Forest plan creates few jobs

Did the forestry agreement end up creating jobs in New Brunswick? In J.D. Irving’s newspaper ads, they said they created all of 542 jobs (far from the 1,700 the government promised).

Rob Moir, an economist at UNB in Saint John, and Garth Hood, a Fredericton-based house designer, decided to investigate the issue. In an article published in 2014 in NB Naturalist, they argued job creation by the Irvings was minimal at best. “The goal of JDI is to make profits,” they noted. “JDI is not in the business of creating jobs or generating revenues for the province.”

One of the yardsticks Moir and Hood used to measure job creation was employment intensity – defined as the number of direct jobs in the forest sector divided by the amount of wood harvested. Comparing New Brunswick with other Canadian provinces and US states, they found that employment intensity in New Brunswick was the lowest among them all – and would drop even lower after the new forest strategy was implemented (the second lowest was Maine, where J.D. Irving is also the dominant forestry company). In short, they found New Brunswick creates the fewest jobs for the amount of trees chopped down.

In the end, Moir and Hood estimated the new forestry management agreement might create all of 500 new jobs – and it was unclear how many were permanent. “Employment intensity in the forest product sector has been declining in New Brunswick for the last few decades,” they noted. “The government’s new Strategy only enhances this trend.”

“It’s a bad buy off,” says Moir. “The Irvings don't create jobs.” In fact, he argues that investment in new technology in the forestry sector is usually designed to do the opposite – eliminate jobs. “I stand by my research which they don't create as many jobs as they say they do,” he adds.

J.D. Irving has questioned the methodology of Moir and Hood's study, and note it was not peer-reviewed and claim it fails to take into account eight critical data inputs that would have shown a higher number of jobs are created for the timber harvested.

"(We are) sure you will agree that selective inputs to support a pre-determined conclusion fail to provide a comprehensive, accurate picture," the company said.

NB Power subsidizing J.D. Irving's mills?

“The whole thing is a major scam,” Greg Hickey is saying to me on the phone from his home near Fredericton. “I think the ratepayers of New Brunswick deserve better. And look who it’s for – it’s for the Irvings.”

For 37 years, Hickey worked as an engineer for NB Power, the province’s public utility, before retiring in 2008. A few years later, Hickey began wondering if the utility was subsidizing the forest industry’s mills through something called the Large Industrial Renewable Energy Purchase Program (LIREPP), introduced by the Alward government in 2012.

NB Power says LIREPP is designed to buy renewable energy generated by its largest customers. Indeed, many of the wood mills in New Brunswick burn biomass and generate electricity for their own plants. They also buy power from the grid.

But after perusing the utility's documents, Hickey came to the conclusion that the mills are not, in fact, selling any renewable energy to NB Power at all. "(No electricity) enters the system (from the mills)," he says. "It's all horseshit. It's all a big lie. It has nothing to do with renewable energy."

Instead, Hickey says that the LIREPP program is a way for NB Power to offer power to the mills at a discounted rate.

Last summer, Hickey appeared at a hearing before the New Brunswick Energy and Utilities Board in Fredericton after NB Power applied for a two per cent rate increase. There he grilled a panel of the utility’s executives. What alarmed Hickey was his belief that average ratepayers were subsidizing large forest companies, who were buying power from the utility at a lower cost because of LIREPP.

"Let me point out to you that NB Power produces nothing under this program," Hickey testified. "NB Power receives nothing under this program. The complete transaction takes place within the mill switch yard. Nothing has changed from before the program was brought into existence on the first of January, 2012. It defers no generation on NB Power's side. It's strictly a subsidy. And if you look at the whole set up, you would even question whether they would have to be connected to the NB Power system to get the cheque... It appears that the mills don't even have to be interconnected to receive the subsidy. And I find it rather ironic as a ratepayer that NB Power is appearing before this Board asking for a rate increase while they are cutting the cheque for the mills."

None of the NB Power executives, nor two representatives from J.D. Irving present at the hearings, countered Hickey's analysis.

In fact, Hickey has determined that in total, the discount in electricity offered to the forest companies since 2012 amounts to an estimated $138-million. Says he: “No matter how you look at it ratepayers are being taken to the cleaners.”

J.D. Irving is a beneficiary of the LIREPP program, with at least two of its companies being eligible facilities.

Marie-Andrée Bolduc, a spokesperson for NB Power, admits that Hickey is correct in that "the power (from the mills) does not enter the grid. It doesn’t need to as it’s being used on site." But she says if the forestry companies didn't produce power on their own, the utility would have to provide it for them. She defends LIREPP by saying it encourages the production of renewable energy in the province, helps protect jobs in small communities and, for a relatively small sum, protects energy produced by some of its large customers. She says LIREPP helps keep mills open, thereby ensuring NB Power did not to have to fill the shortfall if they were closed.

Meanwhile, J.D. Irving said in a statement that "NB Power provides no financial assistance (to the company). All power bought and sold is at fair market rates."

Warring with private woodlot owners

J.D. Irving is also accused of helping impoverish New Brunswick’s private woodlot owners.

Private woodlot owners account for 30 per cent of the province’s forests, providing wood to seven forest products marketing boards.

In recent years, major mills have closed in northern New Brunswick, while the remaining mills have faced plummeting prices as the U.S. housing market collapsed and Canadian dollar strengthened. By 2007, harvests from industrial freeholds exceeded private woodlot harvests for the first time ever. Many private forest landowners could not operate profitably at prices offered by the mills. Over the past two decades, their market share has fallen from about 25 per cent to 10 per cent.

The mills, including those owned by J.D. Irving, are supposed to buy wood from the marketing boards, of which a certain proportion are mandated to be supplied by private woodlot owners.

But Andrew Clark, past president of the New Brunswick Federation of Woodlot Owners, accuses J.D. Irving of often ignoring the marketing boards and buying wood for their mills directly from woodlot owners. “Successive governments in New Brunswick have failed simply to enforce the weakened law that is on the books,” he says. “We are not supported by the government enforcing the law so we can sit down and negotiate those things. So Irving basically right now is simply dictating ‘I will buy from this guy because he's a good steady producer’... They basically ignore the boards.”

In a statement, J.D. Irving responded that they assumed "your research includes a comprehensive review of New Brunswick mills from private wood producers, which will show that, in recent years, J.D. Irving...has posted the highest volume of purchased wood in its history, buying from hundreds of private wood producers."

Clark also says Jim Irving will threaten the private woodlot owners if they complain. “I've seen it, I have been in the room when Jim Irving has made his threats. ‘If you don't do this we might as well buy our pulp from Brazil and to heck with you guys.’ Or ‘I will shut down my mills and go somewhere else.’… The Irvings play hard ball, and they play hardball with everybody. They do it all the time and they don't apologize for it.”

J.D. Irving, however, says "The statement attributed to Jim Irving has no basis in fact."

Hal Raper, the chief financial officer of Blackville Enterprises Ltd. in the Miramichi, in northern New Brunswick, contends that J.D. Irving's dominant position in the forestry industry has made it difficult for competitors to survive. Raper was once the CFO of Miramichi Lumber Products Inc. which ran a wood mill in that area from 2010 to last year. But while the mill struggled to survive for various reasons, Raper says one cause for its demise was because of J.D. Irving's power and influence in the marketplace. "It's got to the point in New Brunswick where they control so much of the market, there is no fair competition anymore," he remarks.

Controversial shipbuilding contract

And then is there the massive $26-billion contract – the largest-ever commissioned - to build Canada’s navy a new fleet of ships over 30 years, which J.D. Irving was selected to carry out in 2011 at its Halifax shipyard (where it is supposed to create 2,400 direct jobs). The Trudeau government has been reviewing the contract due to various controversies surrounding it.

As noted in part 1 of this series, there are questions over costs, tendering and quality surrounding these and other shipbuilding contracts.

For one thing, it’s unclear how many ships the navy is going to get for all that money (and even J.D. Irving is not saying). Originally, the federal government hoped to get 15 ships built, but that number has been revised downwards to 11 and falling. And the costs keep spiraling upward, with Vice-Admiral Mark Norman, commander of the Royal Canadian Navy, saying last year that the warships will be over their $26-billion budget. In fact, one independent analysis conducted by consultant A. T. Kearney suggested the price tag could eventually balloon to $42-billion.

Another bone of contention is that J.D. Irving was the prime contractor for the design phase – which was never put out to tender. This allows the company influence over designating sub-contractors for the project, and awards the company a cut of their payment. This could be even more lucrative than building the ship hulls. That’s because up to 70 per cent of the cost of the vessels derives from combat systems installed on them. In fact, J.D. Irving’s appointment as prime contractor was met with surprise by the shipbuilding industry.

Meanwhile, one source close to the Irvings points out that that the shipbuilding contract solidifies J.D. Irving's future for decades. “It’s just like clipping coupons for them,” he says. “It has a huge return on it.”

And yet despite this largesse from Canadian taxpayers, J.D. Irving also received $260-million in a forgiveable loan from the government of Nova Scotia three years ago to upgrade its shipyards yard in Halifax – or 85 percent of the cost (the former NDP government defended this by saying $2.8-billion in tax revenues would be generated by the province). Kevin Lacey of the Canadian Taxpayers Federation complained to The Chronicle Herald that taxpayers shouldn’t have had to pay a second time to guarantee local benefits. “Enough is enough,” he said. “Taxpayers have bled enough into this program. They deserve the local benefits, they shouldn’t have to pay $300 million to get them.”

In the end, government money is being given to a company that doesn’t have to reveal its finances, uses offshore tax havens and is secretive, often declining to give interviews to reporters (the company refused all requests from the National Observer). “I am not an anti-realist and I know the Irvings will be here at the end of this,” says UNB economist Rob Moir. “The question is how do we build a more competitive environment where they have to deal with the same issues that everybody else has to. Where they ask for…tax break(s) and don't get it.”

See part 4 of our series: How the Irvings intimidate their critics