Skip navigation

For activist investors, it's all about who has the power

Continued from Page 1

This so-called access to the proxy has been a hot topic in the United States, where the Securities and Exchange Commission last year proposed new rules that would allow shareholders to add names to the ballot under certain circumstances. The proposal has been put on hold following huge protest from public companies, and the SEC is reportedly trying to broker a compromise.

In Canada, the idea is far more nascent, and regulators have not moved to introduce changes.

Bill Mackenzie, president of shareholder advocate Fairvest Corp., said the board appointment process should be opened up to accept nominations.

Currently, boards propose a slate of nominees equal to the number of seats to be filled, but only shareholders with clout can influence the names that are put forward, and only through private negotiations.

Mr. Mackenzie said that for most shareholders, director voting is a hollow process in which there is no real choice.

"The whole board, in my experience, has been really insulated from shareholders," he said.

Companies have complained that giving shareholders the right to propose nominees would result in poor-quality directors, such as special interest candidates with narrow views. But Mr. Mackenzie argues that any nominee would still have to attract many votes to be elected.

"None of these guys are going to get voted on unless they are primo directors," he added. "Are you going to put some quack on? That would be crazy."

Daniel McCarthy, research director for the Canadian branch of the United Brotherhood of Carpenters and Joiners of America -- whose members oversee $38-billion (U.S.) in pension fund assets -- said the union is interested in proposing board nominations.

But he said the U.S. branch of the union is still discussing whether to propose alternative director nominees for next year's proxy season, and hasn't reached any final decisions. He said the idea would only follow afterward in Canada.

Mr. McCarthy said it is arrogant of companies to suggest that they always do a better job of choosing director nominees, noting that many high-profile directors have failed to protect shareholder interests.

And despite corporate criticism of the idea, he said shareholders like the Carpenters would use such a power carefully to find top-quality nominees.

"It's counterintuitive that a shareholder would want to put somebody on the board of directors who is not competent," he said.

Mr. Lamoureux said Teachers would like the power, but he expects it would be rarely applied.

"Once you have the power, the threat of the power is more powerful than the power," he said. In other words, he said, if boards know that a nominee is unpopular and may be defeated, they'll back down before a vote is held.

Mr. Beatty, however, said he feels the U.S.-style proposal is too cumbersome, and Canada needs to find a better model.

Under the SEC model, shareholders either have to win a vote on whether proxy access should be allowed, or have to have previously voted at least 35 per cent against a board nominee. As well, a nominee could only be appointed by shareholders who own at least 1 per cent of a company's shares.

Mr. Beatty said a simpler solution exists in Britain and Australia, where shareholders have the right to actually vote against nominees for boards. In Canada and the United States, shareholders can only vote "for" nominees or "withhold" for nominees, but cannot technically vote against them. This means that even a single vote in favour of a candidate assures his or her election, leaving shareholders unable to easily defeat any candidate without launching a proxy battle with an alternative slate.

In Britain, Mr. Beatty said, shareholders can typically see a nominee replaced even before it goes to a vote if defeat seems likely.

"The institutions, if they're totally opposed to somebody being elected as a director, they go to the chairman and say: 'Look, if you propose Al Capone, we're going to oppose him.' . . . And rather than undergo the public humiliation for Al Capone and the company, the chairman will say: 'Fine, I got your message.' "

Recommend this article? 0 votes

Back to top