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News Articles

Corporate Governance versus Hedge Fund Activism

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A typically Canadian storyline has become conventional wisdom to explain the Canadian Pacific saga

Clubby Canadian board members, comfortable with the status quo and reluctant to rock the boat, lest they diminish their attractiveness as corporate directors, watch passively as shareholder value is destroyed by incompetent management. Institutional investors, pension funds in particular, hide their dissatisfaction behind a facade of “good” governance with ever more finicky demands for marginal improvements of the “say-on-pay” sort.

Fortunately, at last, comes the swashbuckling American in shining armor to right the wrongs inflicted on the long-suffering Canadian shareholders.

While there may be some kernels of truth in this description, it draws misinformed distinctions between the American and the Canadian financial systems. Indeed, corporate governance suffers from a surfeit of rules, guidelines, and principles, often pushed or imposed on boardsof directors by “proxy advisor” outfits. But that is not a Canadian phenomenon as these outfits have been created first and foremost for the American market.

But it may surprise Canadians that, in spite of the persistent demands of investors in the USA, American corporations and their boards still enjoy a lot more protection from activist investors and takeover artists that Canadian companies do.

A third of the S&P 500 companies still have staggered boards (that is,only a third of board members are up for election each year). Staggered boards are practically non-existent in Canada. If CP had a staggered board, they could have basically sent Pershing Square up the proverbial creek. Only five board members would have been up for election this year and perhaps none of those targeted in the proxy fight!

Only 41% of S&P 500 companies have separate Chair and CEO position and in many cases that chair person is not an independent member but the former CEO; fully 85% of Canadian companies have adopted this principle, an important one in situations of conflicts with shareholders.

Legislative actions in some 30 U.S states in the Land of Free Markets have enhanced the power of the board to resist unwanted takeovers, and assorted hostile manoeuvres against the company. These legislations vary from state to state but they all aim at shifting the balance of power to the board of directors.

There is no equivalent in Canada. Once a company is put in play,protective measures are few and of short duration; they are basically designed to give the board the time to shop around for a better offer.

The only distinctive measure of protection for significant companies in Canada is provided by their adoption of dual-class structures of shareholding, a model that is finding a good many adepts in the United States among the founders of high-tech companies, such as Google, Facebook and others.

The claim that hedge funds may be playing a benign, beneficial role by prodding complacent companies to perform better in the long run is not supported by empirical research. For instance, a study of 130 cases of hedge fund interventions (Bratton, 2006) found that these funds usually requested that companies implement one or the other of four types of actions:

Selling the company.

Simply put, these hedge funds took an equity position and then agitated for the firm to be sold, so they could pocket the usual control premium, ranging between 30% and 50% when a sale transaction is completed.

Unbundling.

Here the funds push the company to get rid of specific “underperforming” or unrelated subsidiaries or divisions by selling them or spinning them off to the market; not only will that produce immediate cash but it should result in a better performance for the residual company, and hence for the company’s stock price, providing a profitable exit for the hedge fund.

Disgorging cash.

Here the game plan is to force the company to use any “excess” cash, or to leverage the company’s balance sheet, to buy back shares or increase dividend payments, both measures likely to increase share value in the short term but resulting in a more fragile company with fewer resources for longer term investments.

Changing strategy and governance.

Hedge funds, in these cases, become expert at running companies; they will offer specific criticisms of the current management and strategy, and argue for a change in direction and game plan; they will ask for board representation to influence the management and strategy of the company; of course, these hedge funds often end up creating turmoil, uncertainty and conflict within the company; by a savvy management of financial markets, the fund may be able to bail out at a profit before the damage is apparent to supportive institutional investors.

It is highly doubtful that Canada would be well served by the large-scale importation of these short-term stratagems and “greed-is-good” artists. But, strange as it may seem and for the reasons described earlier,Canadian companies, other than those with a dual class of shares, are more vulnerable to these “activists” than American companies.

By the way, given that the American financial system is replete with these “activist” hedge funds and all other sorts of brilliant, no-nonsense fund managers, one is at a loss to explain:

  • The dismal arrangements that brought their financial system, andthe global one, within a hair’s breadth of total collapse in 2008;
  • The fact that over the last ten years, sedate, complacent Canadian companies have produced a shareholder return of some 54.8%(TSX 60 index) while the dynamic American companies, watched and prodded by activist funds, managed to deliver only 28.3% during the same period (S&P 500).

Go figure!

(Opinions expressed herein are those of the author only)

News Articles

Proxy advisors: Who are these guys?

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ISS backed Pershing long before CP battle

The news that an American firm had come out in support of Pershing Square Capital’s slate of directors for the board of Canadian Pacific was ­received with bluster and fanfare in Canadian media.

There is something strange, even bizarre, in an American outfit making pronouncements about the fate of a Canadian company, the pronouncements received as the oracular output of impartial, independent and benign observers. But who are these guys?

They are “proxy advisors” doing a booming business advising institutional investors on whether to vote against some or all members of the board; they also advise their clients on whether to vote for or against the various proposals submitted to shareholders in the annual ritual of shareholders meeting.

ISS (Institutional Shareholders Services) is the largest “proxy advisor” by a wide margin, with Glass Lewis, owned by the Ontario Teachers’ Pension Fund, a distant second.

ISS is the same outfit that advised institutional investors to vote in favour of the egregious Magna deal with its founder; the same outfit that urged investors to agree to the takeover of Potash by foreign acquisitors — and the same outfit that recommended investors vote against the takeover of Casey’s chain of American convenience stores by Alimentation Couche-Tard!

ISS was bought in 2006 by Risk Metrics, a firm offering all kinds of consulting services to hedge funds, investors and companies. Then, in 2008, Risk Metrics became a publicly listed company with the usual imperatives to grow revenues and earnings per share. In 2010 Risk Metrics itself was bought by stock-market-listed MSCI, a firm offering multiple services to institutional investors.

How has it come to pass that an advisory firm wielding considerable influence could become part of a publicly traded entity, mixed in with other businesses offering all sorts of services on risk management, compensation, governance, mergers and acquisitions to clients who may benefit hugely from the voting recommendation of the proxy advisory division? Can’t anyone see the conflicts of interest lurking in this arrangement?

Indeed, many do, including the U.S. Securities and Exchange Commission, which issued a “concept release” in November 2009 requesting comments and suggestions on what to do about “proxy advisors.” The “concept release” singles conflicts of interest as the area of most concern, giving several examples of how such conflicts might arise, among them if a shareholder engages the proxy advisory firm for advice on voting recommendations in an effort to garner the firm’s support for its shareholder proposals. Moreover, the proxy advisory firm “might recommend a vote in favour of a client’s shareholder proposal in order to keep the client’s business.” (SEC, concept release, 2009.)

The SEC was deluged with informed comments, telling examples and drastic recommendations for action, but, overwhelmed by the implementation of the Dodd-Frank Act, has not taken any action yet.

In its submission to the SEC, U.S. law firm Wachtell, Lipton, Rosen and Katz writes that “at a minimum, proxy advisory firms should be required to disclose in their recommendations whether the advisor has, currently or within the recent past, been engaged by any participant in the relevant proxy contest, whether any of the interested parties in a contest subscribe to the proxy advisory firm’s services, and the aggregate fees paid by the interested parties to the proxy advisory firm.”

Pershing Square Capital has been involved in two bitter proxy contests over the last few years; in both ISS played a significant role.

In 2007, Pershing sought to get eight of its nominees on the board of Ceridian, a global business services company in the human resources, transportation and retail markets. ISS came out in support of several of the Pershing nominees, while other proxy advisors sided with management. The contest was settled with the election of four board members of the Pershing slate, but the company was quickly sold for $5.3-billion to a private-equity fund at considerable profit for Pershing.

Then, in 2009, Pershing engaged in a very acrimonious proxy fight to get its nominees on the board of Target, the huge American retail company with sales in excess of $60-billion and some 350,000 employees. Again, ISS basically supported Pershing’s stance when other proxy advisors recommended supporting the management of Target. The company issued a scathing rebuttal of the ISS report and shareholders overwhelmingly supported management, inflicting a huge loss on Pershing Capital.

Now, the Ontario Teachers’ Pension Plan has come out in favour of the nominees of Pershing Square Capital and so did, no surprise here, its subsidiary, proxy adviser Glass Lewis.

Indeed, why would institutional investors who claim to have the kind of resources needed to make wise investment decisions listen to the advice of an outfit like ISS on what’s best for their CP shares? Why give so much uncritical media coverage to the opinions of these outfits?

News Articles

Governance: In your Face… book!

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The imminent initial public offering of Facebook Inc. shares has the hallmarks of a momentous event: the number of instant millionaires and billionaires, the implicit market value of a toddler company, the young age of its founder, and so on.

But what is also remarkable about the Facebook IPO is the way its founder intends to govern the company. He is essentially flouting all the principles and practices of orthodox, “good” governance.

The company will have a dual class of shares, one class with a single vote per share, the other with 10 votes for each share. Mr. Zuckerberg, directly and through voting agreements, will control some 57% of all votes (although owning only 28% of the shares). Dual class of shares, the bête noire of finance ideologues and the governance police, was also adopted by Google (and the co-founders of RIM must now regret dearly not having done the same).

If that were not enough to protect Facebook from unwanted suitors, the company has also adopted all measures designed to thwart any hostile bid:

  • A classified board with directors elected for a three-year term with staggered expiry dates so that only one third of directors are up for election each year — a very effective means of stalling any hostile attempt at obtaining control of the board.
  • Any transaction that would result in a change of control of the company will require the approval of a majority of outstanding Class B shares (those with 10 votes, controlled by Zuckerberg) voting as a separate class.
  • Several other protective provisions are triggered if and when the voting power of the Class B shares falls below 50%.
  • Then, since Facebook is a “controlled” company, therefore it is not required to have a majority of independent directors, a compensation committee or an independent nominating committee. As put in the Facebook prospectus: “So long as the outstanding shares of our Class B common stock represent a majority of the combined voting power of our common stock, Mr. Zuckerberg will be able to effectively control all matters submitted to our stockholders for a vote, as well as the overall management and direction of the company.”
  • Of course, Mr. Zuckerberg is chairman and chief executive of the company, a combination of roles that is anathema in most countries’ governance circles and increasingly so even in the U.S.

The lesson to be drawn from the Facebook IPO is straightforward. When your company is hot, you may do as you please and will hardly hear a peep of complaint from the governance gendarmerie. It is the time to set up protection devices to give your company the ability to think about, and implement, long-term strategy, impervious to the chicanery of quarterly earnings, the bullying of financial analysts and tourist investors, and the attacks of financial vultures.

In times past, entrepreneurs would bring their company public under a set of conditions pretty similar to those Zuckerberg is imposing on the buyers of Facebook shares. But nowadays, entrepreneurial companies, which are not so enticing as a Facebook or a Google, will either shun public markets or accept rules and conditions of corporate governance that may well be detrimental to their independence or even their survival.

Press Releases

“A Capitalism of Owners”

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At a time when the political and financial elite gathered at Davos frets about the failures of capitalism and the need for its reform, Professors Yvan Allaire and Mihaela Firsirotu, in a new book titled “A Capitalism of Owners “, propose an action plan to change fundamentally the way capitalism has come to work. We must bring back some level of trust and loyalty within and around companies, a long term perspective in their management and governance as well as due consideration of the stakeholders that give companies their legitimacy and purpose.

Their new book contains “tales of financial markets” to make clear and tangible how financial markets have offered corporate executives a Faustian bargain and infected with greed all nooks and crannies of civil society. The authors lead a frontal assault on the neoliberal policies of weak governments and free-for-all markets. They describe, and illustrate with several examples, the corrupting logic of financial markets. They make the case that a society will work best when there are diverse forms of business ownership, from family controlled companies, cooperatives, corporations with controlling shareholders and so on. They propose changing the rules of “corporate democracy” for the widely held, stock- exchange listed corporations. In an extensive chapter, the authors examine the issue of executive compensation and make several radical recommendations to “spin a new economic web of motivations and incentives”.

The book calls on governments to set a level playing field, to adopt a policy of “reciprocity” in their dealings with other governments. “No doubt, write the authors, that some of their policy suggestions will generate great resistance and be met with scepticism or fatalism. But, in a truly democratic political system, these policies, if enacted, would bring some sanity back to our economic system.” Indeed, the recommendations of the authors are aimed at giving back to civil society a sense of ownership of the business firms operating in its midst, to make them accountable for their socio-economic role and environmental responsibility as well as shape an energetic role for the public sector. For, indeed, our economic system is the outcome of political decisions, not the product of some transcendental force. Humans designed this system; humans can change it.

About the authors:

  • Professors Yvan Allaire and Mihaela Firsirotu are the authors of Black Markets and Business Blues, published in 2009, which won the silver prize of the American Association of Independent Publishers.
  • Dr. Yvan Allaire is a member of the Global Council on the Role of Business of the World Economic Forum and the Executive Chair of the Institute for Governance (IGOPP).
Books

A Capitalism Of Owners

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At a time when the political and financial elite gathered at Davos frets about the failures of capitalism and the need for its reform, Professors Yvan Allaire and Mihaela Firsirotu, in a new book titled “A Capitalism of Owners “, propose an action plan to change fundamentally the way capitalism has come to work. We must bring back some level of trust and loyalty within and around companies, a long term perspective in their management and governance as well as due consideration of the stakeholders that give companies their legitimacy and purpose.

Their new book contains “tales of financial markets” to make clear and tangible how financial markets have offered corporate executives a Faustian bargain and infected with greed all nooks and crannies of civil society.

The authors lead a frontal assault on the neoliberal policies of weak governments and free-for-all markets. They describe, and illustrate with several examples, the corrupting logic of financial markets.

They make the case that a society will work best when there are diverse forms of business ownership, from family controlled companies, cooperatives, corporations with controlling shareholders and so on.

They propose changing the rules of “corporate democracy” for the widely held, stock- exchange listed corporations.

In an extensive chapter, the authors examine the issue of executive compensation and make several radical recommendations to “spin a new economic web of motivations and incentives”.

The book calls on governments to set a level playing field, to adopt a policy of “reciprocity” in their dealings with other governments.

“No doubt, write the authors, that some of their policy suggestions will generate great resistance and be met with scepticism or fatalism. But, in a truly democratic political system, these policies, if enacted, would bring some sanity back to our economic system.”

Indeed, the recommendations of the authors are aimed at giving back to civil society a sense of ownership of the business firms operating in its midst, to make them accountable for their socio-economic role and environmental responsibility as well as shape an energetic role for the public sector.

For, indeed, our economic system is the outcome of political decisions, not the product of some transcendental force.

Humans designed this system; humans can change it.

News Articles

The last temptation of Mr. Harrison

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E. Hunter Harrison retired as CEO of the Canadian National Railways Corporation on December 31st 2009. His was a good, lucrative run at CN.

On his leaving CN, he held $ 77 million in unexercised options with a further $18 million in restricted shares to vest in the future. He is receiving a pension of $1,590,000 a year.

In 2008 and 2009, he earned cash compensation of some $10 million and in 2009 exercised stock options that brought him some $31 million.

He was paid, upon retirement, a sum of US$350,000 for two years for compliance with non-compete restrictions in his contract. Technically, that agreement ended on December 31st 2011.

So, the man now raising horses in Florida is certainly one of the roughly 2000 people in the USA worth more than $100 million. But he is reportedly restless, looking for ways to use his boundless energy and vast experience. That is all very understandable, very human.

However, the opportunity comes from an activist hedge fund intent on bringing changes to Canadian Pacific. The fund wants Mr. Harrison to take over as CEO of CP and thus, unfortunately, to become the leader of a prime competitor of CN. That a hedge fund would make such an offer does not surprise. It is shocking, however, that Mr. Harrison would consider seriously going to work against all his former colleagues at CN and try hard to destroy the value of the company that made him wealthy.

CN is claiming that there are legal restrictions on Mr. Harrison going to work for a direct competitor. Whether there are such restrictions may be largely irrelevant in the contemporary world of finance.

But, in the world of normal people, in the realm of industry and commerce, there are moral and ethical restrictions on such behavior. Have we come to the point where one who has been highly paid to run a company may then jump without reprobation to run its direct competitor?

If Mr. Harrison really wants to use his experience, talent and energy for good, why does he not offer his services, pro bono, to help the numerous railway companies in the developing world that would surely greatly benefit from his talent and experience.

News Articles

Roger Martin versus Michael Jensen: much ado about nothing

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In a profanity-laden interview with Terence Corcoran of the National Post (January 6th 2011), Professor Michael Jensen rejects the accusation in Roger Martin’s latest book that he is the spiritual father of the shareholder-value maximization movement. True enough; in the seminal Jensen-Meckling article of 1976 that Martin singles out as the source of this abomination, the authors never make the argument that maximizing shareholder value should be the aim of corporate management.

But, Jensen does protest too much. His contribution to the field of finance, very influential in the 1980s and 1990s, consisted in two main arguments:

  • The theory of agency costs and the nexus of relationship between principals and agents; in his view, shareholders (and debt holders) are the principals of the board of directors, and the latter, the principals of management. If shareholders are indeed the principals of the board of directors, for whose benefits should the agents (the board) act in all circumstances; fairly or not, the conclusion drawn broadly and widely from this article was that boards should urge and prod management to do whatever is necessary to maximize shareholder value. Marx might not have liked what Lenin did with his theory but he still bears the blame for its contents.
  • In two famous article in the Harvard Business Review (September- October 1989), Jensen wrote of the “Eclipse of the Public Corporation” and in May-June 1990 (with Kevin J. Murphy) about “CEO Incentives: It’s not How Much You Pay, But How”, Jensen argued that the CEOs of the public corporation got too small a share of the value they created for shareholders. That is why “so many CEOs act like bureaucrats rather than value-maximizing entrepreneurs”. That insight triggered a search for ways to let senior management get a larger share of the wealth created for shareholders. Lo and behold, stock options were the perfect device to accomplish that, it was thought at the time. So Jensen may not have advocated directly for the widespread use of stock options as an effective means of incentivizing management but that was the inference drawn from his theoretical musings.

After the collapse of Enron, WorldCom, Global Crossing and others in 2001-2002, Jensen took some distance from his own earlier writings. He may claim, and rightly so, that he has proposed alternatives to the shareholder-value model as well as the stakeholder model. He is right to argue that the stakeholder model proposed by Roger Martin and a host of writers before him never provides any clarity as to how the trade-offs between the interests of various stakeholders would be set and resolved.

Jensen (as well as Allaire and Firsirotu in books published 1993, 2004, 2009) proposes “value-maximization” as an alternative model, by which he merely means the maximization of the long-term interest of the corporation. That happens to be the fiduciary responsibility of boards of directors under Canadian law.

The argument here is that this objective cannot be achieved without careful consideration of the interest of all stakeholders who have an influence on the long-term survival and success of the company. It does not entirely avoid the issue of trade-offs among stakeholders but puts in a manageable framework.

As for the elimination of stock options, Jensen, unlike I and Roger Martin, may not have proposed this measure but, in a long piece (again with Kevin J. Murphy) published in 2004, he points out the flaws and limitation of stock options as a form of incentive compensation. His solution at the time, options indexed by the cost of capital of the firm, would have created more problemsthan the flawed stock option system he subjected to virulent criticism.

Indeed, most boards of large corporation have come to agree, gingerly and slowly, that stock options are a deeply flawed system of compensation. For the CEOs of the S&P 500 companies, stock options represented 49% of their total compensation in 2000 but only 25% in 2008. For the Canadian CEOs of the TSX 60 companies, stock options represented 35% of total compensation in 2000 and merely 22% in 2010.

So, far from a far-fetched, leftist proposal, the elimination of stock options is happening gradually as boards of directors come to terms with the severe limitations of that form of compensation but are careful to proceed slowly, lest it should lead to some inopportune CEO exit.

News Articles

Counterpoint: Options deeply flawed as compensation

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Stock options now a smaller part of CEO compensation.

In an interview with Terence Corcoran of the Financial Post (Jan. 6), Prof. Michael Jensen rejects the accusation in Roger Martin’s latest book that he is the spiritual father of the shareholder-value maximization movement. True enough. In the seminal Jensen-Meckling article of 1976 that Martin singles out as the source of this abomination, the authors never make the argument that maximizing shareholder value should be the aim of corporate management.

But Jensen does protest too much. His contribution to the field of finance, very influential in the 1980s and 1990s, consisted in two main arguments:

First, the theory of agency costs and the nexus of relationship between principals and agents. In his view, shareholders (and debtholders) are the principals of the board of directors, and the latter, the principals of management. If shareholders are indeed the principals of the board of directors, for whose benefits should the agents (the board) act in all circumstances? Fairly or not, the conclusion drawn broadly and widely from this article was that boards should urge and prod management to do whatever is necessary to maximize shareholder value. Marx might not have liked what Lenin did with his theory, but he still bears the blame for its contents.

Second, in famous articles in the Harvard Business Review two decades ago, Jensen wrote of the “Eclipse of the Public Corporation” and about “CEO Incentives: It’s not How Much You Pay, But How,” arguing that the CEOs of the public corporation got too small a share of the value they created for shareholders. That is why “so many CEOs act like bureaucrats rather than value-maximizing entrepreneurs.” That insight triggered a search for ways to let senior management get a larger share of the wealth created for shareholders. Lo and behold, stock options were the perfect device to accomplish that, it was thought at the time. So Jensen may not have advocated directly for the widespread use of stock options as an effective means of incentivizing management, but that was the inference drawn from his theoretical musings.

After the collapse of Enron, WorldCom, Global Crossing and others in 2001-02, Jensen took some distance from his own earlier writings. He may claim, and rightly so, that he has proposed alternatives to the shareholder-value model as well as the stakeholder model. He is right to argue that the stakeholder model proposed by Roger Martin and a host of writers before him never provides any clarity as to how the trade-offs between the interests of various stakeholders would be set and resolved.

Jensen and others propose “value maximization” as an alternative model, by which Jensen merely means the maximization of the long-term interest of the corporation. That happens to be the fiduciary responsibility of boards of directors under Canadian law.

The argument here is that this objective cannot be achieved without careful consideration of the interests of all stakeholders who have an influence on the long-term survival and success of the company. It does not entirely avoid the issue of trade-offs among stakeholders, but puts it in a manageable framework.

As for the elimination of stock options, Jensen may not have proposed this measure, but in 2004 he pointed out the flaws and limitations of stock options as a form of incentive compensation. His solution at the time — options indexed by the cost of capital of the firm — would have created more problems than the flawed stock option system he subjected to virulent criticism.

Indeed, most boards of large corporation have come to agree, gingerly and slowly, that stock options are a deeply flawed system of compensation. For the CEOs of the S&P 500 companies, stock options represented 49% of their total compensation in 2000 but only 25% in 2008. For the Canadian CEOs of the TSX 60 companies, stock options represented 35% of total compensation in 2000 and merely 22% in 2010.

So, far from being a far-fetched, leftist proposal, the elimination of stock options is happening gradually as boards of directors come to terms with the severe limitations of that form of compensation. But they are careful to proceed slowly, lest it should lead to some inopportune CEO exit.

News Articles

The Americanization of Canadian Executive Compensation

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Executive compensation has become a nasty bone of contention in most developed societies. Whatever argument is invoked to explain and justify the large amounts paid to executives, the very public disparity  of income within a given society and within the same organization turns the issue into, at best, a rallying cry for advocates of a saner society and, at worst, into an invitation to demagoguery.

The case against the level and form of executive compensation has been buttressed in the USA by the recent financial crisis when bonuses and incentive compensation are believed to have played a significant role. While Canada has managed to escape almost unscathed this crisis, the unease about executive compensation has continued to simmer; it has boiled over with the recent publication by the Canadian Center for Policy Alternatives of sensational report on the 100 best paid CEOs in Canada.

Read more

Press Releases

Five years after the adoption of Bill 53

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In a new report the IGPPO recently assessed the progress of governance modernization efforts in Quebec state-owned corporations since the establishment of modern rules and new disclosure norms five years ago.

According to the report, Quebec-government owned corporations have conformed well to the disclosure provisions of Bill 53, which was adopted in 2006.

However the IGPPO believes that some improvements are needed. Bilan de la Gouvernance des Sociétés d’État, which was prepared by the IGPPO’s chairman Yvan Allaire, puts forward ten recommendations to improve governance quality:

The current law only targets 23 provincially-owned corporations however there are dozens of other organizations with large budgets that should be subject to greater transparency norms.

The law states that 2/3 of board members need to be independent, however the government still has not provided a definition of independence.

The boards of directors should make public profiles that list the expertise and competencies sought out in board members. The organization should also indicate how existing members’ qualifications rate relative to the targeted profile.

The IGPPO provides guidelines for analyzing candidacies from persons identified with the political party in power and/or who have continued financially to it.

State-owned corporations should all make public their strategic plans on the Internet and mention whether they have been approved by government.

The annual reports of state-owned corporations should be published quickly and the constraining requirement that these be tabled in the National Assembly while it is in session be removed, because this requirement imposes unnecessary delays.

The Internet sites of state owned corporations should include on the main page a button-link labeled “governance” where pertinent information can be found.

The government should better respect the governance of state-owned corporations and no longer repeat the experience of Bill 100, where specific budget cut measures were imposed without distinction between organizations. Each board of directors should decide on its own the organization’s way of contributing to the government’s objectives.

The Quebec government should consolidate its operations in a “State Ownership Agency,” through which politicians and civil servants can liaise with the heads of the state owned corporations.

The IGPPO wishes to highlight the exemplary efforts made by the government, which enabled the percentage of women on boards to increase from 27.5% to 45.8% in just 54 months. The parity objective as outlined in the law will thus likely be met by December 14, 2011.

Reports & Studies

Five years after the adoption of Bill 53

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In a report the IGPPO recently assessed the progress of governance modernization efforts in Quebec state-owned corporations since the establishment of modern rules and new disclosure norms five years ago.

According to the report, Quebec-government owned corporations have conformed well to the disclosure provisions of Bill 53, which was adopted in 2006.

However the IGPPO believes that some improvements are needed. Bilan de la Gouvernance des Sociétés d’État, which was prepared by the IGPPO’s chairman Yvan Allaire, puts forward ten recommendations to improve governance quality:

The current law only targets 23 provincially-owned corporations however there are dozens of other organizations with large budgets that should be subject to greater transparency norms.

The law states that 2/3 of board members need to be independent, however the government still has not provided a definition of independence.

The boards of directors should make public profiles that list the expertise and competencies sought out in board members. The organization should also indicate how existing members’ qualifications rate relative to the targeted profile.

The IGPPO provides guidelines for analyzing candidacies from persons identified with the political party in power and/or who have continued financially to it.

State-owned corporations should all make public their strategic plans on the Internet and mention whether they have been approved by government.

The annual reports of state-owned corporations should be published quickly and the constraining requirement that these be tabled in the National Assembly while it is in session be removed, because this requirement imposes unnecessary delays.

The Internet sites of state owned corporations should include on the main page a button-link labeled “governance” where pertinent information can be found.

The government should better respect the governance of state-owned corporations and no longer repeat the experience of Bill 100, where specific budget cut measures were imposed without distinction between organizations. Each board of directors should decide on its own the organization’s way of contributing to the government’s objectives.

The Quebec government should consolidate its operations in a “State Ownership Agency,” through which politicians and civil servants can liaise with the heads of the state owned corporations.

The IGPPO wishes to highlight the exemplary efforts made by the government, which enabled the percentage of women on boards to increase from 27.5% to 45.8% in just 54 months. The parity objective as outlined in the law will thus likely be met by December 14, 2011.

Press Releases

Homage to Laurent Beaudoin and Paul Desmarais

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For its fifth anniversary, on April 26th, the IGPPO gathered together “Quebec Inc.” to acknowledge the exceptional contribution made by two men who have marked the province’s economic development: Laurent Beaudoin and Paul Desmarais.

More than 400 personalities from the political and business world attended the gala including Lucien Bouchard, Henri-Paul Rousseau, Clément Gignac, Jacques Daoust and Thiery Vandal. See photos from the evening.

The IGPPO highlighted the remarkable contribution made by these two men, who have made such an impact on Quebec economic life during the past five decades.

Beaudoin and Desmarais come from a rare breed of leader, who have built companies that have dominated their respective industries.

During the gala, the IGPPO announced the creation of a table of honor made up of the great builders in the Quebec economy which will be set up at 1000 rue de la Gauchetiere (Montreal) starting in September 2011. The two first entrants will be Laurent Beaudoin and Paul Desmarais.

See photos from the evening.

News Articles

The place of women on board

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In 2010, 14.4% of board members of the 100 largest Canadian publicly listed corporations were women. During the year 2010, roughly 7% of these board members were replaced and for one in five cases by a woman. (Source: Spencer, Stuart, Corporate Board Report, 2010).

Even to a patient, passive observer, it is clear that the rate of change for the participation of women on corporate boards is glacially slow. There are two ways of accelerating the rate of progress of women on board:

  • The French way, that is, by a law establishing quotas to be met by all publicly listed corporations (as well as large private companies!). In January 2011, the French government enacted a law obliging companies to meet a quota of 20% of women on their board by 2014 and 40% by 2017 (The percentage of women on the boards of the 120 most important French companies was 11.4% in 2010). Any appointment to the board of a company which contravenes these obligations when those quotas become effective will be declared void and null; board members will not receive any board meeting fees until the situation is corrected.
  • The British way, that is, set up a commission to come up with reasonable objectives and to urge, or shame, corporations into making firm commitments to specific targets within a given time-frame. Thus, in February 2011, a task force created by the British government and chaired by Lord Davies of Abersoch submitted its report calling on British corporations to set a firm target of 25% of women on their boards by 2015.(The percentage of women on the boards of targeted British corporations was 12.5% in 2010).

The first avenue runs the risk of triggering perceptions of affirmative action, a most damaging consequence for the whole effort of getting women to take a substantial place on boards. But the most troubling aspect of this issue is that a fundamental variable is never brought into the discussion: the turnover rate of board membership. The Spencer Stuart report for 2010 shows that there were some 87 new members out of 1150 members on boards of the 100 largest corporations, or a rate slightly above 7%. […] Read more

Press Releases

IGOPP’s Position paper National securities commission

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Last May, Canada’s Minister of Finance Jim Flaherty tabled a bill that aimed to replace the 13 provincial and territorial securities commissions with a national one. The government immediately submitted its proposal to the Supreme Court of Canada, to get an opinion on its constitutionality.

The IGPPO deposited a position paper to draw the court’s attention to the absence of any factual basis for claims regarding the efficiency and effectiveness of centralized securities industry regulation.

There are no existing studies that show that communications within a federal regulator’s various offices would be more efficient than communications between provincial regulators and the Canadian Securities Administrators (CSA) in the existing passport system.

As an Institute dedicated to the research and distribution of governance related information, the IGPPO believes that the court should respond to the question that was asked of it, by basing itself on modern governance principals related to complex organizations, and by adopting an evidence-based methodology, rather than relying on suppositions or conjectures regarding the merits of centralization.

Press Releases

The IGOPP presents a position paper on Bill 127

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The IGPPO approves several elements in the bill, that are in line with the recommendations contained in its report, published in 2008, on governance in Quebec public sector health and social services establishments.

However, the IGPPO believes that the four following parts of the bill should be modified, in order to improve governance in the network:

  • The strategic orientations, priorities and the organization of services (articles 30, 31 and 39)
  • Accountability and the annual report (art. 25 and 42)
  • The nomination and evaluation of the general manager (art. 43, 44 and 65)
  • Training of board of director members (art. 69)
Memoranda and Opinions, Memoranda and Opinions

Management of the health and social services network: Bill 127

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The IGOPP approves several elements in the bill, that are in line with the recommendations contained in its report, published in 2008, on governance in Quebec public sector health and social services establishments.

However, the IGOPP believes that the four following parts of the bill should be modified, in order to improve governance in the network:

  • The strategic orientations, priorities and the organization of services (articles 30, 31 and 39)
  • Accountability and the annual report (art. 25 and 42)
  • The nomination and evaluation of the general manager (art. 43, 44 and 65)
  • Training of board of director members (art. 69)