April 21, 2019

As vote challenging Bombardier’s share structure faces defeat, Médac calls for legislative reform

Nicolas van Praet | The Globe and Mail

Investor-rights group Médac acknowledges its bid to end Bombardier Inc.’s dual-class share system is destined to fail, but says it has no better option to trigger a discussion on what it sees as a critical issue.

The Montreal-based organization is calling for changes to the laws governing Canadian companies that give extra voting rights to certain shareholders. It has submitted a shareholder proposal that will be considered at the plane- and train-maker’s annual meeting on May 2.

“We think multivoting share structures like that should never be eternal,” Médac spokesman Willie Gagnon said in an interview. If companies choose to enact them, controlling shareholders should maintain an equity interest threshold in the company of at least 20 per cent, he said.

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.

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Médac says the time has come to dissolve Bombardier’s two-class structure because there is growing discrepancy between the family’s interests and those of Bombardier’s other shareholders and stakeholders. Proxy firms Institutional Shareholder Services and Glass Lewis are backing Médac’s proposal.

Mr. Gagnon said Médac’s proposal will be voted on by shareholders, but that he expects it to be defeated 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, he said.

As of last year, there were 69 companies with multivoting share structures listed on the Toronto Stock Exchange, according to Montreal’s Institute for Governance of Private and Public Organizations. They include several well-known names such as Canadian Tire Corp. Ltd., Power Financial Corp. and Rogers Communications Inc.

Médac says it is taking a long-term view with its stand on Bombardier, saying its share price topped $26 in 2000, but has fallen to less than $3 today. Médac says the family continues to wield control over a company whose recent decisions, such as handing control of its C Series airliner program to Airbus SE, have proved unpopular among some stakeholders.

Quebeckers took to the streets in protest and institutional investors publicly rebuked Bombardier in 2017 over its decision to raise the pay of its top executives by nearly 50 per cent while the company received more than US$1-billion in Quebec taxpayer support. More recently, Bombardier chief executive Alain Bellemare was chided for failing to take time to publicly explain the reasons behind the company’s move to slash 5,000 jobs in November. “Bombardier restructures and leaves others to pick up the pieces,” one commentator said.

“The progressive dismantling of Bombardier over the last several years and its sizable debt level are among the factors leading us to conclude that the long-term development of the company is now compromised,” Mr. Gagnon said. “When we consider the value of the shares together with the company’s social acceptability level … that’s when we start to ask the kinds of questions we’re asking today.”

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