A Matter of Principal

Robert W. Sexty is a professor of Business Administration and Commerce
at the Memorial University of Newfoundland and author of Canadian
Business: Issues and Stakeholders.

This book is the most recent of several on the failure of financial
institutions. The others include Terrence Belford’s Trust: The Greymac
Affair (Lorimer, 1983), Terence Corcoran’s Public Money, Private Greed
(Collins, 1984), Arthur Johnson’s Breaking the Banks (Lester & Orpen
Dennys, 1986), and Timothy Perrin’s Short-Changed: Victims of the
Canadian Financial Crisis (Western Producer Prairie Books, 1989). Most
have emphasized the lack of principles on the part of entrepreneurs and
corporate officers. This volume claims to be the first full account of
the $1.2-billion collapse of the Edmonton-based Principal Group Ltd., a
financial services company, in August 1987. Principles were again an
issue.

The story of the Principal failure is complex, involving intercorporate
transactions and many players. Rather than give a chronological account
of events leading up to, and after, the failure, Fisher has organized
the book into 23 chapters (ranging in length from 4 to 42 pages) that
largely focus on these players. Chapter 1 describes a typical depositor
or “victim.” Other chapters describe various other players: holders
of promissory notes (also victims and not covered by deposit insurance);
company officers; regulators; politicians; lawyers, accountants, and the
courts; and William Code, who headed the inquiry into the affair. The
longest chapters cover Donald Cormie, the head of Principal, his family,
and close associates.

Fisher, a journalist, provides a good account of the financial disaster
and the attempts to unravel the affairs of the Principal Group. An
epilogue updates the reader on the status of various players—in
particular, Cormie, who is living well in Arizona. But the account
provides few insights into the failures of financial institutions and
why the lack of principles on the part of Cormie and company officers
went undetected. The regulators failed to protect depositors from these
unprincipled individuals and it appears that even more negligent, and
also unprincipled, politicians allowed the failure to happen. Readers
will be wiser about trusting their money to any financial institution
after reading this book, but the definitive book on this unprincipled
affair has yet to be written.