What happened when a beloved book publisher changed hands

On Monday evening, Elaine Dewar held a launch party for her latest book, The Handover, an exhaustive investigation into the recent history of the esteemed Canadian publishing house McClelland & Stewart, and, for a certain type of industry insider, one of the most talked-about books of the season. The event took place in an east-end Toronto pub, and the standing-room-only crowd seemed comprised almost entirely of authors, editors, agents, critics, journalists and publishers. Even Jack Stoddart, who once ran the General Publishing empire, made a rare appearance.

Several of those in attendance were former employees of McClelland & Stewart, which was founded in 1906, rose to prominence during the dazzling reign of Jack McClelland and was acquired by real estate developer Avie Bennett in 1985.

In 2000, Bennett donated three-quarters of the company to the University of Toronto, and sold the remaining 25 per cent of the shares to Random House Canada, which acquired M&S outright – for a single dollar – in 2012. It's that last part of the company's history that interests Dewar, a veteran investigative journalist and author; the book is subtitled "How Bigwigs and Bureaucrats Transferred Canada's Best Publisher and the Best Part of Our Literary Heritage to a Foreign Multinational."

The Handover, which arrives in bookstores on Tuesday, weaves together issues of cultural nationalism, the divisive issue of foreign ownership of Canadian companies, the challenges facing the book trade and who gets to tell – and publish – Canada's stories.

"I would be lying if I said I was not afraid of this proposal when it came to me," Dan Wells, publisher of the Windsor-based independent press Biblioasis, said at Monday's launch. "But I also thought that if I let that fear get in the way of doing it, then I would be part of the problem."

The problem, as Dewar outlines in her nearly 400-page book, is that Random House – now Penguin Random House Canada, which is owned by German media conglomerate Bertelsmann – should never have gained control of the publisher of a library's worth of the most-beloved Canadian authors, from Margaret Atwood to Michael Ondaatje to Mordecai Richler to Alice Munro.

Casting a pall over Monday's launch was the fact that Bennett died on June 2 at the age of 89; the funeral had been held on Sunday. But Dewar was in no mood to bury Bennett again.

"I have no quarrel with what Avie did," she said on the phone the following afternoon. "He was entitled to try his best to get his investment out. And that's what he did. And he did it bloody brilliantly."

What he did was donate 75 per cent of the company to the University of Toronto – receiving a tax credit worth $15.9-million for his troubles – and sell the rest to Random House Canada for $5.3-million. This arrangement allowed M&S, at least under the Investment Canada Act, to still be considered "Canadian," and allowed M&S to receive millions in federal and Ontario grant money, funds that a foreign-owned publisher would not be eligible to receive.

Dewar alleges that this was a con, of sorts, and that the university never effectively controlled M&S: She got access to internal memos that showed several top university administrators believed they never had financial control. She also contends, based on interviews with Bennett and Stoddart, that no significant efforts were made to find a Canadian buyer for M&S.

And she found that then-University of Toronto president Robert Prichard and Bennett approached the Liberal government of the day to sign a ministerial letter stipulating that the government considered the new M&S to be Canadian regardless of the management arrangement with Random House Canada – a management arrangement that saw RHC take care of things such as shipping and accounting. The Liberal government approved the deal. (In a statement provided to The Globe and Mail, Pierre-Olivier Herbert, press secretary to Minister of Canadian Heritage Mélanie Joly, said: "Our government is committed to ensuring that foreign investments in Canada's cultural sector benefit Canadians and respect Canadian laws. Due to the confidentiality provisions contained in the Investment Canada Act, no further information can be provided on specific cases.")

"They had full control from Day 1," said Marc Côté, publisher of Cormorant Books, one of the surprisingly few people who work in the publishing industry who were willing to go on the record with Dewar. (This sentiment was echoed by several other publishers unwilling to speak to The Globe on the record.)

It wasn't just sources that were afraid to talk; Dewar had trouble finding a publisher, although she eventually found a willing partner in Biblioasis. "Everyone in this town [Toronto] was afraid," Dewar said. The reason? "We have an utterly dominated marketplace. We have to do something about that. We have to be asking the federal government, 'What the hell is the competition bureau for?' It allows situations like this to not only develop, but get worse."

Even with a "gracious discount" Wells estimates he spent $7,000 in lawyer's fees, a significant amount for an independent publisher. "The book was an incredible strain on my resources," he said. "But I just determined that I would take whatever precautions I could. We got a good lawyer. We had it legally vetted. We were very rigorous, editorially. We've ensured that we're protected. And we think that this is a book that – some people may not like everything in it, but I don't think that this is in any way a libellous book."

In an interview, Brad Martin, CEO of Penguin Random House Canada, dismissed allegations that the company was controlled by RH from the get-go – he said that M&S reported to a board that featured two members from Random House, two from the university, an independent director who was appointed by Bennett, who served as chairman – and denied that M&S received grants to which they were not entitled.

"I'm not sure what the issue is," said Martin, who has not read, nor was interviewed for, the book. (Dewar says he never made himself available during her research.) "It was controlled by the board. McClelland & Stewart engaged Random House on a management contract to cover off things like shipping, fulfilment, payroll, simple accounting. We counted the numbers, they were responsible for them. They made every publishing decision. So they decided what they would pay in advances, they decided what they would pay for marketing, they decided on the marketing strategies."

Martin added that Penguin Random House remains "completely committed to McClelland & Stewart as a publishing company. We're a very decentralized company. McClelland & Stewart has a lot of freedom here. … We have every intention of growing the McClelland & Stewart list, and the authors that McClelland & Stewart was so famous for, at least those that are still with us, are still with McClelland & Stewart, and new authors are coming on all the time."

As for the allegations against the University of Toronto, Althea Blackburn-Evans, the school's director of media relations, said that, "We accepted the gift because we were very proud to act as a steward of McClelland & Stewart. … We had representatives on the board of directors. Day-to-day operations were overseen by Random House, but we did have participants on the board." She said the tax credit evaluation was an independent evaluation that determined the 75 per cent donated to the university was worth three times what RHC had paid for the 25 per cent. (The book alleges the market price was inflated.)

During the decade it was still under control of the University of Toronto, M&S was a member of the Association of Canadian Publishers, the organization and lobbying group that currently represents roughly 135 Canadian-owned publishers. (Côté says the membership didn't mind having M&S around because it was "the only calling card the ACP really had when going to the government.") Coincidentally, the ACP's annual general meeting was held in Toronto this week, and many of its members were in attendance at Dewar's launch, as was Kate Edwards, the organization's executive director.

"It's a story that our members have followed for more than 15 years," she said. "Right now, people are looking at the book with interest. There will be more discussion about whether there's an action for the association to take, whether it's a request for the funding agencies to look into this or some other action. I don't have an answer for that yet.

"The fact remains that M&S was the Canadian publisher for decades, and it's no longer a Canadian company."