Report will please controlling owner-managers but does it serve the interests of investors who are treated like second-class shareholders?
Not to be confused with The Centre for Corporate & Public Governance, a group called the Institute for the Governance of Private and Public Organizations (interesting choice of names, don’t you think?), created in 2005, has come out with some suggestions on how to make dual-class shares more palatable. The study recommends a number of conditions that might make super voting shares, which give their holders a disproportionate say in the affairs and fortunes of the company, acceptable to even major investment institutions such as pension funds. Now, as an investor, you could get yourself all twisted like a pretzel in trying to accommodate the reluctance of company founders to step up to the reality that when a business goes public you can’t really pretend it is still private. Or you could just say no to such an outmoded, anti-investor scheme. The Centre for Corporate & Public Governance, which is North America’s first and oldest fully independent think tank on issues related to boardroom accountability and effective governance, has been on record for at least a decade in its opposition to dual-class share structuring. It continues to champion elimination of this antiquated system today.
It is interesting to look at the source of this new report. It comes from a group working out of Concordia University and has the backing of some large companies, like Power Corporation, which rather like dual-class shares. The board includes Guylaine Saucier, who, in addition to being a director of Nortel for many years, headed a study into corporate governance in Canada in 2002. As I said at the time in The Globe and Mail, the makeup of that committee, which included two other Nortel directors (then CEO John Roth among them) and its approach to the issues were so breathtakingly short-sighted that they were likely to be a harbinger of an equally visionless and ineffectual report. I believe subsequent events in Canada confirmed that prediction. The implosion of Brampton, Ontario-based Nortel represented the largest loss in shareholder value in Canada’s history. Mrs. Saucier and other board members at the time claimed the disaster came as quite a shock, as they did not see the problems at Nortel that were unfolding. Given the changes the group she headed also failed to see for the future of corporate governance in Canada, this statement comes as no surprise. The question is, Is Canada well-served by the chronic myopia of such directors and should they be relied upon to determine what is in the best interests of investors?
What is most disappointing in this report is that it has the support of the Ontario Teachers Pension Fund and a number of other prominent institutional investors. One might expect a greater degree of forward-thinking leadership on this subject from such advocates of boardroom change. On this point, it appears they have thrown in the towel, leaving it to individual investors to just say no to the transparent efforts of corporate titans to cling to power. I suppose it will take more scandals like Hollinger and more boardroom conflicts such as those at Magna and Bombardier before the apostles of dual-class appeasement actually see the light, which in the dimly lit recesses of the cozy club that produced this document, can take a very long time. It is regrettable that among its billionaires and business leaders, its boardroom luminaries and well-positioned academics, Canada cannot find its own modern equivalent of William Ripley, who, in the United States during the 1920s, mounted a campaign to expose dual-class shares for the attack on fairness and investor sensibilities which they were and eventually got them banned. And unlike today’s directors, he wasn’t even being paid by shareholders to do the job.