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IGOPP in the Medias, IGOPP in the Medias, IGOPP in the medias

The Threat to Shareholders and the Economy from Activist Hedge Funds

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“ A paper by Dr. Yvan Allaire entitled “The Value of ‘Just Say No,’” and also memos by our firm (here and here, the latter memo discussed on the Forum here), demonstrated that an ISS client note entitled “The IRR of No,” which argued that companies that had “just said no” to hostile takeover bids incurred profoundly negative returns, suffered from critical methodological and analytical flaws that undermined its conclusions.

Dr. Allaire also presented a sophisticated analysis contained in two papers (“Activist Hedge Funds: Creators of Lasting Wealth? What Do the Empirical Studies Really Say?” and “Hedge Fund Activism and Their Long-Term Consequences; Unanswered Questions to Bebchuk, Brav and Jiang”), consistent with our firm’s earlier observations (discussed on the Forum here), offering a devastating critique of Professor Bebchuk’s research claiming to show that attacks by activist hedge funds did not destroy long-term value.” Read more

IGOPP in the Medias, IGOPP in the Medias, IGOPP in the medias

The Shareholder Value Scam

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“If you guessed Hedge Funds, take your seat at the head of the class.  And, do the hedge fund and private equity firms deliver on Shareholder Value?  Not quite:

“…the most generous conclusion one may reach from these empirical studies has to be that “activist” hedge funds create some short-term wealth for some shareholders as a result of investors who believe hedge fund propaganda (and some academic studies), jumping in the stock of targeted companies. In a minority of cases, activist hedge funds may bring some lasting value for shareholders but largely at the expense of workers and bond holders; thus, the impact of activist hedge funds seems to take the form of wealth transfer rather than wealth creation.” [IGOPP pdf]

Note the last part? “Take the form of wealth transfer rather than wealth creation.” What have some of the more critical articles of the current economic situation been saying all along?  That in the matrix of Shareholder Value and Financialism, intensified by corporate compensation schemes, and further abetted by hedge fund activism – we have transfers of wealth without the actual creation of a better economy for everyone. ” Read more

IGOPP in the Medias, IGOPP in the Medias, IGOPP in the medias

Yvan Allaire: Shareholder Activism and Long-Term Value

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In case you missed it last weekend, Donna Dabney, Executive Director of the Governance Center at The Conference Board posted this November 14th presentation by  Dr. Yvan Allaire presented at the Annual Meeting of The Conference Board Governance Center. His talk was titled Do activist interventions create long term shareholder value?

Allaire reviews a lot of studies and basically disputes the contention that activist interventions lead to long-term shareholder value. While I find his arguments compelling, what we really need in research going forward is much more nuanced than what his overview provides. Yes, I yield to the point that most shareholder activism doesn’t move in the direction I would like. For example, transferring wealth from employees and debt holders to shareholders only aggravates wealth disparity. Agreed – reducing cash, investment and R&D seem more likely to the hurt long-run prospects of a company.  Read more

IGOPP in the Medias, IGOPP in the Medias, IGOPP in the medias

“Just Say No”

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On October 22, 2014, Institutional Shareholder Services issued a note to clients entitled “The IRR of ‘No’.” The note argues that shareholders of companies that have successfully “just said no” to hostile takeover bids have incurred “profoundly negative” returns. In a note we issued the same day, we called attention to critical methodological and analytical flaws that completely undermine the ISS conclusion. Others have also rejected the ISS methodology and conclusions; see, for example, the November analysis by Dr. Yvan Allaire’s Institute for Governance of Public and Private Organizations entitled “The Value of ‘Just Say No’” and, more generally, a December paper by James Montier entitled “The World’s Dumbest Idea.” Of course, even putting aside analytical flaws, statistical studies do not provide a basis in individual cases to attack informed board discretion in the face of a dynamic business environment. The debate about “just say no” has been raging for the 35 years since Lipton published “Takeover Bids in the Target’s Boardroom,” 35 Business Lawyer p.101 (1979). This prompts looking at the most prominent 1979 “just say no” rejection of a takeover.

In January 1979, McGraw-Hill rejected a $34 per share offer (later raised to $40) by American Express (which represented a 50% premium over the pre-offer market price). Within less than two years, the decision was completely vindicated with the shares selling in the market for more than the $40 offer price. The graph below, showing McGraw-Hill’s stock price appreciation through December 2014, further shows how right that rejection was. Read more

Presentations , Press Releases

Yvan Allaire is Keynote speaker at The Annual Meeting of the Corporate Governance Center – Conference Board in New-York

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On November 14th, Dr. Yvan Allaire, the Executive Chair of the Institute for Governance (IGOPP), was the keynote speaker at The Annual Meeting of the Corporate Governance Center – Conference Board in New-York. I spoke on the topic: Do activist hedge funds create long-term shareholder value?

His presentation was followed by a panel discussion with the following people:

  •  Abe Friedman, Managing Partner, Camberview Partners, LLC
  • Roy J. Katzovicz, Partner, Investment Team Member and Chief Legal Officer Pershing Square Capital Management, L.P.
  • Moderator: Charles Nathan, Senior Advisor, Finsbury
Reports & Studies

The value of “just say no”: A Response to ISS

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On October 22nd 2014, ISS published a note on the financial consequences for shareholders to vote “NO” to a proposed takeover. The ISS note, and its conclusion, comes at a propitious time for the Valeant cum Pershing Square attempt to take over Allergan.

The shareholders of Allergan, who may get to vote on this takeover on December 18th, are now “informed” that those shareholders who voted “No” to a proposed takeover of their company would have been better off financially, had they agreed to the takeover. “For those [proposed takeovers] which do go all the way to a vote yet remain independent, however, the abysmal subsequent returns relative to shareholders’ next best alternatives suggest something in the process has gone awry”. (ISS, The IRR of NO, page 3)

Unfortunately, the ISS note does not support such a blanket statement. Already, several commentators, notably Sabastian V. Niles of legal firm Wachtell, Lipton, Rosen & Katz (see – “Shareholder Returns of Hostile Takeovers”), have been sharply critical of the ISS paper: the very small sample size, the inclusion of two target companies with miniscule stock market value, the exclusion of a case where the shareholders eventually accepted a tender offer (thus not qualifying as a “No” vote) but only after management elicited a very large increase in bid price.

Our take on the ISS paper will highlight other debatable aspects of their analysis.

The ISS note is based on a very small sample of companies from vastly different industries (industrial gases, convenience stores, internet software, power production, etc.) and on takeover events scattered over four years. To increase their sample size, they include two micro-cap companies that should be removed from the analysis, as we shall do in the rest of this piece: Onvia (market cap-$36 million) and Pulse Electronics (market cap-$250 million). As per the ISS note, the bold numbers of Table 1a claim to represent the total market performance of the companies that have rejected the attempted takeover since the time of the “No” vote, compared to an S&P 500 index fund and “peer group” median
performance.  Read more

News Articles

Hedge fund goes public…with a dual class of shares!

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When, for reasons that will be left unexplained here, hedge funds decide “to go public”, i.e. list shares on a stock exchange, they marshal all the available legal, fiscal and accounting acumen to achieve two goals: 1. Pay as little tax as possible; 2. Keep total, unfettered control of the company. To achieve the latter, in all cases they have created capital structures with two classes of shares!

On October 13th 2014, a hedge fund controlled by Pershing Square (owned by Bill Ackman) was officially listed on the Amsterdam stock market. Its prospectus outlined the corporate structure adopted for this publicly listed entity. In essence, the entity, which will be legally located in Guernsey (a Channel island and a haven for tax-efficient financial structures) will be issuing two classes of shares, with one class holding 50.1% of the votes. This class of shares will be held in a separate entity with a board of independent directors. But these “independent” directors happen to be “professional” directors who sit on the boards of multiple companies set up in Guernsey for tax-efficiency reasons.

Presumably, also for tax reasons, the Pershing structure includes “an independent trust [which] has been established for the benefit of one or more charitable organizations, currently The Breast Cancer Society of Canada”. Very curious indeed! This whole arrangement may be but an intermediate step to a U.S. listing by Pershing.

Of course, this capital structure precludes any “activist” investor from pressuring the management of Pershing for board representation, for changes in strategy, or for any of the other activist initiatives with which Pershing pursues companies with conventional capital structures.

Bill Ackman did try once upon a time to influence the management of a controlled company with a dual class of shares: Canadian Tire. He learned that this type of structure could easily resist his brand of “activism” and sold out. “Because we believe that one of our important competitive advantages is our ability to effectuate change at companies in our portfolio, other than in special circumstances, we do not expect to make investments in controlled companies in the future.” (Pershing Square Q3 2008 Investor Letter, by Bill Ackman, November 15, 2008.) Thus, Pershing Square would not invest in the shares of…Pershing Square. But, Ackman invites other investors to become shareholders of his company where they cannot effectuate change.

Pershing Square did not invent this financial legerdemain. For instance, in 2007, The Blackstone Group, an alternative asset manager (another term for hedge fund) decided to list shares (or units as they prefer to call them) on the New York stock Exchange. Here’s how they did this:

«We have decided to organize The Blackstone Group L.P. as a limited partnership …and to avail ourselves of the limited partnership exception from certain of the New York Stock Exchange governance rules» .

This arrangement «eliminates the requirements that we have a majority of independent directors on our board of directors and that we have a compensation committee and a nominating and corporate governance committee composed entirely of independent directors».

«In addition, we will not be required to hold annual meetings of our common unitholders. The Blackstone Group L.P. common unitholders will have only limited voting rights and will have no right to elect our general partner or its directors…» (From the Blackstone prospectus).

In 2010, KKR, a private equity fund, also went public. Their prospectus makes it clear that:

«Our common unitholders do not elect our Managing Partner or its board of directors and, unlike the holders of common stock in a corporation, have only limited voting rights on matters affecting our business and therefore limited ability to influence decisions regarding our business. Furthermore, if our common unitholders are dissatisfied with the performance of our Managing Partner, they have no ability to remove our Managing Partner, with or without cause.»

So, it seems that these swash-buckling capitalists are not really true believers in free-for-all capitalism when it comes to their business and their money.

Yet, their professed capitalistic credo anathematizes any measure that would tamper with the “one-share-one-vote” mantra. In hedge fund heaven, there are no poison pills, no staggered boards, no dual class of shares, no constraints of any sort on the will of the “owners”.

One would think that these holy principles would guide these champions of unfettered capitalism, should they decide to list their fund/company on a stock exchange. Alas, it is not so!

However, the management and boards of directors of real companies, pressured and coerced by proxy advisors, institutional investors, sundry academics, and the whole governance industry, rarely deviate from the orthodoxy of one-share-one-vote and the primacy of shareholder interest. When any company does deviate, it is treated, more or less harshly, as an inferior form of capitalism.

Where were these defenders of the orthodoxy when Blackstone, KKR, Pershing Square et alia came up with these schemes? Not a peep of protest came from these quarters.

IGOPP in the Medias, IGOPP in the Medias, IGOPP in the medias

“Looking for good governance – can co-ops get it right?”

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“Stay different, and don’t ape the corporate governance structures of the private sector. That in outline was the message to co-ops from Professor Yvan Allaire, the executive chair of Canada’s Institute for Governance to delegates at the co-op summit taking place in Quebec this week.

Yvan Allaire talked of what he called a “deep governance crisis” in shareholder-owned companies, where he said management had been driven by investor pressure to focus simply on immediate short-term returns. “Managers are motivated, some would say bribed, to work just for the interests of shareholders,” he said. The interests of other stakeholders in these businesses were being completely disregarded. Co-ops, he said, had to do things differently.

Mr Allaire, who is a member of the Global Council on the Role of Business at the World Economic Forum (Davos), is well-known in his native Canada for his writings on governance issues, and is also co-author of the recent book A Capitalism of Owners: how financial markets destroy companies and societies and what to do about it. He reminded his audience of how executive pay had risen steeply in recent years, so that top managers now could be earning 180 times the average wages of employees in their businesses. At the same time investors were holding shares for shorter and shorter periods of time. ” Read more

News Articles

Why Tim Hortons is not buying Burger King?

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Although smaller than Burger King, Tim Hortons (TI) is more profitable and better managed than Burger King. Their stock market valuation is comparable. Why then is it not Tim Hortons that is trying to buy Burger King?

TI becomes a target of hedge funds
One must recall that in early 2013, two activist funds (Scout Capital Management and Highfields Capital, two hedge funds) started circling around TI. The two funds, which, at the time, held respectively 7% and 4% of TI’s shares, wanted to be heard by management and the board of directors.The managers of the two funds said and wrote that although TI was extremely well managed and enjoyed tremendous commercial success, its stock was lagging in performance. TI could create a lot more shareholder value if it implemented their recommendations. Essentially, the two hedge funds contended that TI’s board of directors lacked financial savvy, was not conversant enough with the tricks of financial engineering. So, they urged the board of TI to:

  • increase the company’s indebtedness in order to buy back a large number of its shares;
  • stop (or slow down) the company’s expansion in the United States;
  • spin-off its real estate holdings in an exchange listed “real estate investment trust” (REIT);
  • tie executive compensation to earnings per share and total shareholder return (TSR);
  • bring in new board members drawn from the financial community.

These measures, the hedge funds asserted, would increase earnings per share and the return on equity of TI and would, ipso facto, boost its share price. In what has to be an iconic statement about what differentiates financial capitalism from industrial capitalism, a hedge fund wrote:

“In fact, we would argue that the earnings growth created through this [financial engineering] approach would be far superior (at much lower execution risk) than attempting to drive growth through continuing to invest in the U.S. market at sub‑par returns.” [Letter sent by HIGHFIELDS CAPITAL MANAGEMENT to Tim Hortons on March 21, 2013.]

At first, TI’s senior management and board of directors were underwhelmed with these recommendations and politely dismissed the two activist funds. But, these funds did not give up and, it seems, finally succeeded in convincing the board that their recommendations were sound (except for the REIT gambit).

So, TI added two board members from the financial community; then, on August 8, 2013, the company announced that the board of directors had approved  $900 million in new debt to buy back a billion dollars-worth of shares of TI over the next twelve months.

The results of these financial moves are captured in the following table:

In eighteen months, TI was transformed from a company with little leverage (debt-to-debt plus equity of 26.4%) into a highly leveraged company (77.3%). Shareholders’ equity has melted away, shrinking from $1.2 billion to $384 million (given that any buyback of shares at a market price higher than the book value of the shares triggers a reduction in equity equivalent to the difference between the two amounts).

TI’s stock price increased from $55 in July 2013 to $62 at the end of 2013, a 13% gain, just in time for some funds to sell their holdings at a profit; but the market quickly realized that, with its new capital structure and financial strategy, TI would have to slow down its growth in the United States, which caused the share price to drop back to $58 in July 2014.

Therefore, in the short term, the stock market reacted as predicted by the hedge funds, but in the longer term, because this financially engineered growth in earnings could not be sustained, the stock returned to its intrinsic value.

The TI of December 2012, with its very low leverage, could have considered making a bid for Burger King. However, the TI of July 2014 no longer had the financial flexibility and buffer to consider a Burger King transaction. So-called “activist” hedge funds, all too often, propose stratagems that work well for their funds’ performance but hamper the development of industrial firms and inflict considerable damage unto targeted companies.

Should TI really consider buying Burger King?
If TI still had the financial wherewithal, should it have bid to buy Burger King? After all, TI needs no “financial inversion” to benefit from the favourable Canadian corporate income tax regime, which is touted as a rationale for the transaction. (Some observers believe that another reason for transferring Burger King’s legal head office to Canada is to sooth Investment Canada, which will have to approve the transaction and assess whether it brings “tangible benefits for Canada.”)

Well, let’s remember that between 1995 and 2005, TI was part of the Wendy’s International Group (Wendy’s being a direct competitor of McDonald’s and Burger King). In 2005, some activist funds, including the omnipresent Bill Ackman (Pershing Square – which holds almost 11% of the Burger King shares), made the case forcefully that Wendy’s should spin-off Tim Hortons by listing it on the stock market.

In a letter addressed to Wendy’s senior management, Ackman, who, at the time, held 9.9% of its shares, wrote:

“We believe that many Wendy’s shareholders and members of the Wall Street research analyst community have frequently questioned the benefits of having Tim Hortons under the same corporate structure as Wendy’s given the minimal synergies that exist between the two companies. (…) As such, we believe that as long as Tim Hortons is owned under the Wendy’s corporate umbrella, the Company will trade at a depressed valuation.” [Letter by W. Ackman to the Chairman, CEO and President of Wendy’s International, dated July 11, 2005.]

In other words, it is a bad idea to merge two such disparate entities as Wendy’s (or Burger King) and Tim Hortons into one and the same company.

It would not be surprising if, a few years hence, some activist hedge funds make the case that Tim Hortons should again be spun off from Burger King. Maybe once the benefits of tax inversion become less significant…

(The opinions expressed in this article are those of the author.)

News Articles, Reports & Studies

To govern in the interest of the corporation

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The measure of a business corporation’s success is undoubtedly its economic performance. However, to achieve an excellent performance in the long run, the corporation must make the best use of the talent and experience of all its personnel. It must protect its good reputation as an employer, supplier of goods and services, buyer and citizen of the regions and countries where it operates.

At some point in time, this statement would have been considered a truism.

Indeed, this concept of the corporation was dominant among large enterprises all through the  1950s to the 1980s. At that time, corporate executives and boards of directors were imbued with a responsibility for a broad spectrum of stakeholders. They sought to maintain a healthy balance between the interests of the employees, shareholders, clients, and the broader societyeneral. Financial markets, and the shareholders in particular, had  relatively little influence on the decisions of a large corporation when share ownership was fragmented and its financing came largely from internally generated funds.

Under the best circumstances, this kind of industrial arrangement produced excellent companies during that period: IBM, Dupont, GM and many others in the United States; Bell Canada, Alcan, the Canadian chartered banks, Canadian Pacific and others in Canada.

Whatever the legal stipulations about boards’ fiduciary responsibility may have been during the 1950s to 1980s, management and boards of directors (made up at the time of a majority of insiders drawn from management) were driven by a concept of the corporation that took the interests of the stakeholders into account just as much as those of the shareholders.

Reports & Studies

Hedge Fund Activism and their Long-Term Consequences

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In our paper “Activist” hedge funds: creators of lasting wealth? What do the empirical studies really say?” (available here), we asked Lucian Bebchuk, Alon Brav and Wei Jiang questions of the sort that any referee/reviewer for a professional journal would raise about their paper The Long-Term Effects of Hedge Fund Activism. Their paper’s aim is to examine the empirical basis for “the long-standing claim that activist interventions are followed by declines in long-term operating performance”

The reply we got from Professor Bebchuk was essentially that he had already answered all our questions in his reply to Wachtell Lipton “Don’t run away from the evidence” and that our paper was not academically rigorous because “it expresses an opposition to relying on empirical evidence”. He is wrong on both counts.

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IGOPP in the Medias, IGOPP in the Medias, IGOPP in the medias

Do Activist Hedge Funds Really Create Long Term Value?

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“About a year ago, Professor Lucian Bebchuk took to the pages of the Wall Street Journal to declare that he had conducted a study that he claimed proved that activist hedge funds are good for companies and the economy. Not being statisticians or econometricians, we did not respond by trying to conduct a study proving the opposite. Instead, we pointed out some of the more obvious methodological flaws in Professor Bebchuk’s study, as well as some observations from our years of real-world experience that lead us to believe that the short-term influence of activist hedge funds has been, and continues to be, profoundly destructive to the long-term health of companies and the American economy.
Recently, the Institute for Governance of Private and Public Organizations issued a paper that more systematically examines the flaws of Professor Bebchuk’s econometric and statistical models, concluding that “the Bebchuk et al. paper illustrates the limits of the econometric tool kit, its weak ability to cope with complex phenomena; and when it does try to cope, it sinks quickly into opaque computations, remote from the observations on which these computations are supposedly based.” The paper also observes that “activist hedge funds operate in a world without any other stakeholder than shareholders. That is indeed a myopic concept of the corporation bound to create social and economic problems, were that to become the norm for publicly listed corporations.”

Further the Institute’s paper concludes: “[T]he most generous conclusion one may reach from these empirical studies has to be that “activist” hedge funds create some short-term wealth for some shareholders (and immense riches for themselves) as a result of investors, who believe hedge fund propaganda (and some academic studies), jumping in the stock of targeted companies. In a minority of cases, activist hedge funds may bring some lasting value for shareholders but largely at the expense of workers and bond holders; thus, the impact of activist hedge funds seems to take the form of wealth transfer rather than wealth creation.”

The Institute’s paper is well worth reading for its academically rigorous, as well as common sense, refutation of Bebchuk’s claims.

Editor’s Note: Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton and Steven A. Rosenblum that replies to the recently-issued empirical study by Lucian Bebchuk, Alon Brav, and Wei Jiang on the long-term effects of hedge fund activism. The study is available here, and its results are summarized in a Forum post and in a Wall Street Journal op-ed article. »

Reports & Studies

“Activist” hedge funds: creators of lasting wealth? What do the empirical studies really say?

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Hedge funds have found, in some academic circles, supporters and champions of their enduring contribution to shareholder wealth. Some recent empirical research has triggered an important debate in the American corporate/financial world about the role of board of directors, the rights of shareholders, and the very concept of the business corporation. The terms of the debate run as follows: Are boards of directors responsible for the long-term interest of the company? Or, are there lasting benefits from “activist funds” pushing and prodding reticent boards of directors to take actions these activists consider likely to create significant wealth for shareholders? What are the consequences of this “activism” for other stakeholders and for the very nature of board governance?

A wide range of observers with considerable financial experience and corporate expertise take a dim view of “activist hedge funds”, lambasting them for their greed-fuelled short-term stratagems and their prejudicial influence on the long-term health of companies.

Professor Lucian Bebchuk of the Harvard Law School, argue that these wise people, with loads of practical experience, have no “scientific” basis for their collective judgment that activist interventions are detrimental to the long-term interests of shareholders and companies. Having assembled reams of data and statistics, Bebchuk and his colleagues claim they have “scientifically” demonstrated that hedge funds are not “myopic activists”, but on the contrary bring to corporations they target performance improvements which last long after they have exited the target company.

We carefully reviewed Bebchuk et al.’s paper and reached the following conclusions:

  • First, the authors have not demonstrated that activist hedge funds, per se, create lasting, longterm value and bring a long-term perspective to their “activism”. They have merely shown some statistical relationships to provide (weak) support to their thesis. The weight of experience still trumps the results presented in Bebchuk et al.
  • Secondly, the most generous conclusion one may reach from these empirical studies has to be that “activist” hedge funds create some short-term wealth for some shareholders as a result of investors who believe hedge fund propaganda (and some academic studies), jumping in the stock of targeted companies. In a minority of cases, activist hedge funds may bring some lasting value for shareholders but largely at the expense of workers and bond holders; thus, the impact of activist hedge funds seems to take the form of wealth transfer rather than wealth creation.
  • Thirdly, “activist” hedge funds operate in a world without any other stakeholder than shareholders. That is indeed a myopic concept of the corporation bound to create social and economic problems, were that to become the norm for publicly listed corporations.
  • Finally, the Bebchuk et al. paper illustrates the limits of the econometric tool kit, its weak ability to cope with complex phenomena; and when it does try to cope, it sinks quickly into opaque computations, remote from the observations on which these computations are supposedly based.
Memoranda and Opinions, Memoranda and Opinions

Guidance for Proxy Advisory Firms

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IGOPP has issued in 2013 a policy position on the role of proxy advisors titled The Troubling Case of Proxy Advisors: Some policy recommendations. This submission draws largely from that policy paper and, hence, it is attached as an appendix.

The proposals of the CSA to raise somewhat the level of disclosure requested from proxy advisors is commendable but clearly not sufficient. Normative measures are required to ensure appropriate supervision of the activities of proxy advisors, given their significant influence on corporate governance and their role in the processes of acquisitions and proxy battles.

Numerous issues are identified in the Proposed National Policy 25-201. We intend to respond by addressing the specific questions contained in the CSA Notice and Request for Comment.

News Articles

The bizarre case of a “national securities regulator”

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So a couple of additional provinces might sign up for Ottawa’s deal to create some sort of centralized securities regulator.

Ottawa just won’t let go of this foolish idea. Having been rebuked by the Supreme Court, having been shown that all the claims made to justify a “national”security commissions were bogus, the federal government is now trying to wiggle back in through a small window left unsecured by the Supreme Court’s judgment.

So, let’s not call this thing “A National Securities Commission» but rather “A Cooperative Capital Markets Regulator” (CCMR) and let’s pretend that the provinces will enact a “provincial” legislation as long as there is a single, uniform one for all provinces! The federal government will produce a “complementary federal legislation” on criminal matters, systemic risk, etc. which will be enforced even in provinces that have not joined the CCMR.

Then, a memorandum of agreement will be signed by all parties essentially creating the centralized administrative structure of a “national securities regulator”.

“Regional” offices”, led by a deputy chief regulator under the authority of the central office, will provide the range of services that provincial securities commissions now provide. This sort of centralization becomes acceptable because some provinces are willing to delegate to a central entity a jurisdiction which is theirs, as confirmed by the Supreme Court of Canada.

Now, in January 2014, a press release was issued informing us that BC, Ontario and the federal government were making great progress in getting their ducks aligned; it was foreseen that a draft provincial law, the federal complementary law and the memorandum of agreement would all be ready by April 30th 2014 and the draft regulations by June 30th. All these dates have passed without anyone, outside inner circles, getting a peek at these draft documents. But, some provinces, it appears, are ready to sign on this deal, documents unseen.

Other than Ontario, which has been forever salivating for a “national regulator” located in Toronto to seal its position as the single financial center in Canada, it is difficult to understand why other provinces would jump aboard this ship. Perhaps, it is a case of the carrot and stick of the federal government in action.

Somewhere, somehow, the provincial ministers of finance of Alberta, Manitoba and Quebec will again have to make the case for provincial jurisdiction, forcefully, persuasively. They must plead with their colleague ministers of finance for more deliberation on their part; they must convey to them that this is a subject of great substantive and symbolic significance. For Quebec, this action by the federal government with the complicity of some provinces smacks of a minor Meech Lake fiasco!

(Opinions expressed herein are strictly those of the author).