August 23, 2012

Do your shares have the power?

David Milstead | The Globe and Mail

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Yvan Allaire, chairman of the board of the Institute for Governance of Private and Public Organizations (IGPPO) and a professor emeritus at Universite du Quebec a Montreal, estimated that 13 per cent of the 253 companies on the TSX/S&P composite index in 2008 had some form of dual-class voting structure.

For the last three decades, any company choosing to list on the TSX must include some sort of “coattail” provision that protects the lesser-voting shareholders. In essence, it says that the terms of any sale of the super-voting shares must be offered to all shareholders. Magna was one of roughly a dozen companies on the TSX that are grandfathered in and need not abide by that clause.

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Hot-button issues

Yvan Allaire, in a paper earlier this year for the Canadian Institute of Chartered Accountants, listed questions directors should ask before joining the board of a company with a dual-class share structure. The questions also would serve potential shareholders:

1. What is the nature of the difference between the share classes?

  • Do both classes have full rights to vote, differing only in the number of votes to which they are entitled?
  • Is there a class without voting rights?
  • Is there a provision allowing the class of shares with inferior voting rights to elect a number of board members?
  • Are both classes of shares traded on stock exchanges and, if so, how are they valued by the market?

2. Does the company have a strong coattail provision in place to protect minority shareholders in the event of the controlling shareholder selling his/her interest?

3. How does the controlling shareholder’s voting power compare with his/her economic interest?

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