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.
Issue link: https://digital.carswellmedia.com/i/138095
SHAREHOLDER ACTIVISM Again, the proportion of controlling shareholders is significantly higher among smaller public companies. "What utility is possibly served by giving even more authority to a controlling shareholder through the adoption of majority voting?" Tuzyk asks rhetorically. Tuzyk also suggests that the TSX is stretching its historical mandate by imposing mandatory majority voting. "Legally speaking, the TSX can impose whatever listing conditions it wants, but increasingly the Exchange is moving from its traditional role of regulating share issuances and dilutions and getting into corporate governance," he explains. "In other words, the TSX is evolving from its procedural role to a more substantive role that engages corporate law and shareholders' rights." While that has been the trend in the US, the movement there has a statutory basis. "Dodd-Frank directed the SEC to direct the stock exchanges to do certain things," Tuzyk says. "There's no such legislative impetus in Canada." Hansell is not swayed by such arguments. "Intellectually, it's hard to see an argument against majority voting, which I believe is the most significant regulatory development driving shareholder activism," she says. The US, of course, is one of these jurisdictions. "The 10 percent early warning requirement makes us particularly interesting to US dissident investors, as does the fact that we don't make the same use of staggered boards that US companies do," says Ross Bentley in Blakes' Calgary office. "Nor do we have a 'just say no' defense." But the 10 percent rule may have a short shelf life. The Canadian Securities Administrators have just recently proposed to decrease the trigger for early warning reporting from 10 percent of the outstanding securities of a class to 5 percent, which was still open for comments at press time. ON ANOTHER FRONT, some have been critical of what seems like ever more burdensome disclosure requirements on matters such as executive compensation, all in the name of keeping shareholders informed. "If you look at the compensation disclosure material, the infor- "THE RULE REQUIRING INDIVIDUAL VOTING IS NON-CONTENTIOUS BECAUSE SO MANY COMPANIES HAVE ADOPTED IT. 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." AS EXAMPLES OF the regulatory focus on empowering shareholders, observers also point to the public broadcast solicitation exemption, which came into force in 2008. The rule exempts shareholders, but not management, from issuing an information circular in support of a solicitation if the solicitation is conveyed by public broadcast, speech or publication. "In both CP and Agrium, the dissidents used a public broadcast to get out in front of the issuer," Atkinson says. "That gave them greater scope to set the agenda and put the issuer on its heels — especially because the issuers are a little more constrained in how they can respond." Atkinson also cites the relatively new restrictions on a board's ability to dilute existing shareholdings by more than 25 percent in the face of a hostile take-over as yet another example of the increasing number of hurdles that boards must cope with these days. "Previously, directors could issue as many shares as they wish, so this rule represents a clear restriction on a board's powers," he notes. Then there's the 10 percent share accumulation threshold that dissidents must reach before they declare themselves. "Requiring dissidents like hedge funds to accumulate a 10 percent stake before making any disclosure is tantamount to letting them hide in the weeds," Salmon says. "Most major jurisdictions have a 5 percent threshold." mation circular requirements for annual meetings and what has to go into quarterly statements, you'll find that things are increasingly getting to the point where companies can't complete them without legal help," says Gordon Chambers in Cassels Brock & Blackwell LLP's Vancouver office. "It's a one-size-fits-all regime that's troublesome and you have to wonder whether disclosure provides any value to the market where a mere mortal can't make any sense of it." But Michael Schafler of Dentons Canada LLP's Toronto office says that the existing regulation is necessary and justified. "Regulators want to ensure that shareholders can be confident that everyone is playing by the same fair rules," he says. "It's not a question of overregulation at all." AS IT TURNS OUT, regulators have attracted criticism not only by their actions, but also by their inaction. The cloud on Canadian shareholders' rights law cast by the empty voting www.lexpert.ca | LEXPERT • June 2013 | 25 B-00-Features.indd 25 13-05-23 10:22 AM