2 mai 2019

« CPPIB backs investor group in bid to end Bombardier’s dual-class share structure »

Nicolas van Praet | The Globe and Mail

« CPPIB is backing a proposal to end Bombardier Inc.’s dual class share structure and remove the control of the founding family, forcing the company onto the defensive as it hosts investors for its annual meeting Thursday.

Canada Pension Plan Investment Board, which oversees assets worth about $368-billion and is one of Bombardier’s 25 biggest shareholders, says on its website it will vote in favour of a proposal by investor rights group Médac to end the two-class system. It gave no reasons for its decision, but its proxy-voting guidelines state that it supports the collapse of existing dual-class share structures on terms that are in the long-term best interests of the company.

“One argument for dual-class share structures is that those with the superior voting rights can ensure stability, continuity in ownership and facilitate a long-term perspective. We disagree with this argument,” CPPIB says in the guidelines, adding such systems are contrary to good governance. “They can entrench management against shareholder pressure for change and undermine the basic principle linking voting to equity ownership on the basis of one-share-one-vote.”

[ … ]

Relatives and descendants of inventor Joseph-Armand Bombardier control the company with 50.9 per cent of the voting rights through a special class of stock carrying 10 votes a share. Family members also have four of the company’s 14 board seats, despite owning just 12.2 per cent of the equity. The system has been in place since 1980.

Bombardier operates under the Canada Business Corporations Act, which states that changing or unwinding multivoting share systems requires the adoption of special resolutions and the approval of those holding those supervoting shares. In the case of Bombardier, that’s the company’s founding family.

The company has said it has no intention to change its share-capital arrangement, arguing the system brings significant benefits, such as the ability to keep its headquarters in Canada. Concern over the setup is dispelled in part by the oversight of independent directors on senior management and strong governance principles and practices, Bombardier said in a March 22 filing.

“This issue will be discussed at the annual meeting of shareholders along with other shareholder proposals,” Bombardier spokesman Simon Letendre said on Wednesday.

Yvan Allaire, executive chairman of the Institute for Governance of Private and Public Organizations, told The Globe he believes a large number of subordinate voting shares will be cast in favour of the Médac proposal.

“Most large funds are in principle opposed to this type of shareholding,” Mr. Allaire said via e-mail, adding this is the first time Bombardier investors will have an opportunity to vote on the issue. A similar proposal put forward to the shareholders of any dual-class company would elicit a large number of “for” votes from investors holding subordinate voting shares but would still be roundly defeated, he said.

“In the end, the corporation must change hands,” Médac said in its proposal outlined in Bombardier’s proxy circular. “Indeed, it is in everyone’s interest.”

Médac knows its proposal is destined to fail because of the family’s opposition. Still, obtaining the support of more than half of investors who are not tied to the family would send a “very significant” message, the group said in an e-mail to The Globe.

The debate over the dual-class share system comes as analysts are questioning whether Bombardier chief executive Alain Bellemare will reset his 2020 financial goals for the company when it reports first-quarter earnings on Thursday morning. Management slashed revenue and earnings estimates last week for 2019 as it grapples with delivery issues on several big rail contracts. »

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