The Lexpert Guides to the Leading US/Canada Cross-Border Corporate and Litigation Lawyers in Canada profiles leading business lawyers and features articles for attorneys and in-house counsel in the US about business law issues in Canada.
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SHAREHOLDER ACTIVISM "[THE CANADIAN PACIFIC PROXY BATTLE] WAS AN HISTORIC SITUATION AND A WAKE-UP CALL FOR CANADIAN BOARDS BECAUSE IT RESULTED IN A MAJOR CHANGE TO THE COMPOSITION OF THE BOARD OF A WIDELY HELD CANADIAN CORPORATION." Andrew MacDougall; > Osler, Hoskin & Harcourt LLP As it became apparent that Pershing's board nominees would be elected, CP's CEO resigned and five other directors decided not to stand for re-election. Within six weeks of the shareholders' meeting, Pershing nominees controlled a majority of the board and served as the railway's Chair and CEO. As it turns out, the saga may also have marked the end of an era. "The myth that a company can just blow activists off and that a blue-ribbon board will defeat them if they try to do anything has now been completely debunked," says David Woollcombe in McCarthy Tétrault LLP's Toronto office. Carol Hansell in Davies Ward Phillips & Vineberg LLP's Toronto office is of similar mind. "I can't think of another example where shareholder activism has overthrown such an iconic Canadian company with such a great board of directors," Hansell says. By the time 2012 ended, proxy battles surrounding CP, Telus, Agrium, Baja Mining Corp. and other corporate icons had ensued. "About 10 percent of the S&P/TSX 60 were subject to some kind of shareholder activism in 2012," says David Salmon, the Vancouver-based Senior VP, Western Canada for Laurel Hill Advisory Group LLC, a proxy solicitation firm. THERE ARE THOSE who argue that Canadian regulators and legislators have promoted activism by focusing on the empowerment of shareholders. They are particularly unhappy about the advent of majority voting. Under majority-voting rules, shareholder votes that are withheld for a particular director are considered votes "against" that director. Under the previous plurality system, withheld votes were simply not counted, so a director would only need one "for" vote to be elected the board (assuming no other candidate was running). "Majority voting is a power tool that makes a meaningful difference to shareholder activists," says Aaron Atkinson in Fasken Martineau DuMoulin LLP's Toronto office. According to Hansell, majority voting is an effective tool for activists because it targets individuals rather than a group. "You get a director's attention when you start talking about him or her personally, as opposed to talking about the 'board,'" Hansell says. But others argue that majority voting is an inappropriate mechanism for many corporations. "The rule requiring individual voting is non-contentious because so many companies have adopted it," says John Tuzyk in Blake, Cassels & Graydon LLP's Toronto office. "But that's not the case regarding majority voting, which far fewer companies have adopted and many do not want to have imposed on them." While 88 percent of issuers in the S&P/TSX Composite Index already elect directors individually, only 61 percent of issuers in the Index have adopted majority voting. While 61 percent is a clear majority, it's important to remember that what's being counted in these statistics are the larger entities that tend to comprise the Index. Majority voting may seem simple enough, but it does add complexity and cost for companies. "Big issuers like banks can chalk majority voting up to the cost of doing business, but smaller companies in particular don't necessarily need or want it," Tuzyk says. Adopting majority voting is especially controversial in the case of controlled corporations, which represent a high percentage of Canadian issuers. A 2008 study conducted for the Institute for Governance of Public and Private Organizations found that 53 percent of the 253 Canadian companies on the S&P/TSX Index had at least one significant shareholder. In 27 percent of these 253 companies, a single or related shareholders controlled more than 20 percent of the votes. 24 | LEXPERT • June 2013 | www.lexpert.ca B-00-Features.indd 24 13-05-23 10:22 AM