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Crown corporation faces staff backlash over McKinsey contract, spending decisions

Multimillion-dollar contracts awarded by the Business Development Bank of Canada (BDC) to consulting firm McKinsey, coupled with some unusual spending choices — including a decision to fly a private chauffeur to B.C. to drive the Crown corporation’s president around — are raising eyebrows within the BDC, sources say.

Current and former BDC employees say they’re alarmed at some of the expenses incurred by the BDC under the leadership of president Isabelle Hudon.

Hudon, Canada’s former ambassador to France, was appointed by Prime Minister Justin Trudeau’s government in 2021 to head the Crown corporation. The BDC provides loans, venture capital and advisory services to small and medium-sized businesses across Canada.

Prime Minister Justin Trudeau is greeted by Isabelle Hudon, the Canadian ambassador to France, upon his arrival at the airport in Biarritz, France on Aug. 23, 2019. Trudeau is joining U.S. President Donald Trump, host French President Emmanuel Macron and the leaders of Britain, Germany, Japan and Italy for the annual G-7 summit in the elegant resort town of Biarritz.
Prime Minister Justin Trudeau is greeted by Isabelle Hudon, then Canada’s ambassador to France, upon his arrival at the airport in Biarritz on Aug. 23, 2019. (Francois Mori/The Associated Press)

Hudon is bringing major changes to the organization. The BDC has adopted more ambitious long-term growth targets and is taking on a larger social media profile, even as employment turnover in upper management has spiked.

“It has been a shock to the organization,” said a source with a long record at the BDC.

All of the confidential sources who spoke to Radio-Canada for this report have worked under Hudon, although some have since left the BDC. They spoke on the condition of anonymity, either because they were not authorized to speak publicly on the matter or because they wanted to speak freely about their professional experiences.

Hudon did not agree to a request for an interview. CBC/Radio Canada asked a series of questions of the BDC, which provided written answers.

McKinsey’s ‘strategic review’

One of Hudon’s first decisions at the BDC was to hire a consulting company to carry out a major strategic review of the role and objectives of the Crown corporation over the next 10 years.

A source who was working at BDC at the time said Hudon wanted to “start from scratch.”

The BDC confirmed that Hudon, with the support of her board and management team, was behind the decision to hire an outside consultant — a decision that has caused a stir inside her organization.

“Any incoming CEO must, upon entering office, evaluate the current situation and define the road ahead for the corporation. Which, let’s be honest, will not necessarily please everyone involved,” said BDC spokesperson Phil Taylor.

The BDC invited five consulting firms to submit proposals. After a ranking process, the BDC picked McKinsey & Company, which had worked for the BDC already and has received a large number of lucrative federal contracts.

The BDC awarded a $2.8-million contract to McKinsey for the review in August, 2021. A $2.1 million extension in June, 2022 brought the total value of the contract to $4.9 million.

Sources with long ties to the BDC question the benefits of hiring McKinsey.

Several sources said the decision to hire McKinsey fuelled frustration among employees — because the BDC had carried out similar strategic exercises before Hudon’s arrival. One source said the decision also suggested a lack of confidence in the BDC’s internal expertise.

The sources added the external consultants required large amounts of information from BDC employees. They claimed McKinsey ended up making recommendations that will be hard to put into practice.

“It’s not realistic,” said a source.

McKinsey did not comment on its work on this file. It recently published a statement saying it won its federal contracts through competitive processes and the work represented only a small share of Ottawa’s overall spending on consulting services.

Ambitious goals

BDC is thinking bigger under its new strategic vision. Three times bigger, in fact.

According to a confidential document obtained by Radio-Canada, the BDC wants to roughly triple the size of its pool of entrepreneur clients  — from 73,000 to 230,000 — in 10 years. It’s also looking to boost the value of its current portfolio from $38 billion to $95 billion.

To get there, the BDC is relying in large part on its work with McKinsey.

Among other things, the BDC says it wants to serve small and medium sized enterprises (SMEs) traditionally overlooked by the financial sector in Canada, including businesses run by women, visible minorities and Indigenous people.

The BDC also says it wants to help SMEs mobilize for “the great challenges of our time,” such as the fight against climate change.

WATCH | Treasury Board president open to committee probe of McKinsey contracts: 

crown corporation faces staff backlash over mckinsey contract spending decisions 1

Treasury Board president open to House committee study of McKinsey contracts

12 days ago

Duration 0:31

“We’ll look at how these [McKinsey] contracts have been done and we’ll look at the recommendations,” Treasury Board President Mona Fortier said on Power & Politics Wednesday. “I think we have to be fair and look at what will come out of that exercise.”

The BDC is working on several projects to reach out to SME clients, including a possible effort to automate online loans for SMEs.

“What you are now seeing is an acceleration of ambitions in sectors that were already a priority for the BDC,” said Taylor.

Through access to information law, Radio-Canada obtained three presentations produced in connection with the McKinsey contracts. Most of the key information in all three documents was redacted. The documents contain BDC logos and are not identified as having been made by McKinsey.

BDC sources said they believe the objectives developed during the strategic review will have to be adjusted in response to economic trends that have deteriorated since McKinsey was hired in 2021.

Taylor said the strategic plan was approved by the BDC’s board of directors.

“The planning process is done every year … and takes into account market conditions and economic trends, among a number of variables, and we adjust our operational plans accordingly,” said Taylor.

The $320,000 event

On June 3, 2022, Hudon sat in a grey armchair in the lobby of BDC’s head offices in Montreal in front of an audience of a few dozen employees.

The outreach event — shared online with thousands of BDC employees across the country — was presented by professional host Rebecca Makonnen. Radio-Canada obtained a recording of the 68-minute event.

Hudon and Makonnen began the event by chatting about a shopping trip they’d taken together in Paris. Hudon then segued into comments about remote work, the importance of human connections in the post-pandemic era and the “new chapter” that had started under her leadership.

Sources who attended that June 3 event say they still have no idea what the point of it was. And it wasn’t cheap; according to information obtained under access law, the event involved $320,000 in external contracts, in addition to the salaries of the BDC employees who worked on it.

According to BDC figures, $146,000 of that sum was spent on audiovisual services (awarded without competition because the amount was under the BDC’s $150,000 threshold for tender calls), $145,000 went to script-writing and video production and $11,500 went to hiring Makonnen as master of ceremonies in Montreal. (Makonnen is also a host at Radio-Canada. The master of ceremonies in Toronto during the June 3 event was a BDC employee.)

Taylor confirmed that Hudon and Makonnen are “friendly acquaintances” but added their relationship is not a “close or personal one.”

He said that the BDC manages costs in a “diligent manner” and all spending met the criteria for a pan-Canadian event. He added that BDC expenses are paid out of BDC revenues and are not considered to be government expenditures.

Hudon travelled with her own driver

The BDC acknowledges that it is unusual for the Crown corporation’s Montreal-based driver to travel with its president by plane.

Still, the BDC spent $8,100 in 2022 to twice send its driver to British Columbia to accompany Hudon on official trips.

On October 25 and 26, 2022, Hudon and the BDC driver made a brief round trip between Montreal and Vancouver, spending $6,510 and $2,625 respectively on travel.

The trip — recorded in part in a video later posted on LinkedIn — allowed Hudon to make a surprise visit to employees gathered in Whistler, B.C.

Comments made online by employees suggest that Hudon’s visit was appreciated by many people on site.

People are framed by the flowers as they walk through Whistler, B.C., Friday, May 15, 2020. Whistler, which is a travel destination for tourists around the world, is seeing the effects of travel bans due to COVID-19.
Tourists walk through Whistler, B.C., on May 15, 2020. (Jonathan Hayward/The Canadian Press)

But BDC sources questioned the decision to fly the president’s driver all the way to B.C. for such a brief event. Taxi services between Vancouver Airport and Whistler, for example, advertise online prices of $500 for the round trip.

The BDC driver also accompanied Hudon on a four-day trip to British Columbia in June 2022, which cost the BDC $12,300. Vehicle rental and gas expenses for this trip amounted to $1,500.

The BDC insisted that sending its driver to B.C. offered the best value for money.

“We decided to use the corporation’s driver for these two trips because of external factors, long distances and the need to allow the CEO to work in a confidential setting,” said Taylor. “That being said, it is the only occasion in which the driver traveled by plane to drive the CEO.”

Upheaval in the upper ranks

Several sources have pointed to a high turnover rate in BDC’s senior ranks. Roughly ten people have left top positions at the Crown corporation in recent months.

The BDC hired four of Hudon’s former colleagues from her time at Sun Life from 2010 to 2017, when she ran the firm’s Quebec operations.

A BDC spokesperson confirmed that Hudon participated in the hiring of two of these Sun Life alumni.

BDC recently advertised new positions for a vice president of marketing and a vice president of public relations.

Taylor said the BDC is reshuffling existing positions. Several sources told Radio-Canada the personnel changes are part of Hudon’s efforts to emphasize communications and marketing.

The BDC offices in Montreal in 2019.
The BDC offices in Montreal in 2019. (iStock)

Hudon is very active on social media and has increased BDC’s communication capabilities on several platforms in recent months.

But some staffing changes have made waves internally. According to a well-placed source, some succession plans — which involved grooming certain employees to eventually take on certain roles — have not been followed over the past year.

Some of these people were not seriously considered for key positions under Hudon, said the source, who added the situation caused “a commotion.” The BDC acknowledges that it has not followed all succession plans under Hudon.

The future of the BDC

The Trudeau government has said that, after 78 years of existence, the BDC needed to be modernized.

A number of measures announced under Hudon — such as investment funds for clean energy ($400 million) and women entrepreneurs ($500 million) — have been well received in the business community.

A government source said Hudon was given a mandate to transform the BDC.

“She is excellent and the culture had to be changed,” said the source.

The federal government is about to launch a legislative review of the BDC.

“The review, initially planned for 2020 but delayed because of the pandemic, will result in a report to Parliament that must be tabled in the House of Commons one year from the review’s launch,” said another Liberal government official.

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