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	<title>IGOPPActions multivotantes &#8211; IGOPP</title>
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		<title>Family Controlled Companies: Drivers of Canadian Economy</title>
		<link>https://igopp.org/en/family-controlled-companies-key-drivers-of-canadian-economic-sustainability-panel-2/</link>
		<comments>https://igopp.org/en/family-controlled-companies-key-drivers-of-canadian-economic-sustainability-panel-2/#respond</comments>
		<pubDate>Wed, 18 Oct 2023 02:51:19 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[Videos ]]></category>
		<category><![CDATA[Actions multivotantes]]></category>
		<category><![CDATA[Dual-class shares]]></category>
		<category><![CDATA[Parties prenantes]]></category>
		<category><![CDATA[Stakeholders]]></category>

		<guid isPermaLink="false">https://igopp.org/family-controlled-companies-key-drivers-of-canadian-economic-sustainability-panel-2/</guid>
		<description><![CDATA[To listen to the full panel with Louis Audet (board member of IGOPP), about the most recent report of IGOPP on family businesses, please click here or on the image below (the panel&#8217;s duration is 43 minutes):]]></description>
		<content><![CDATA[To listen to the full panel with Louis Audet (board member of IGOPP), about the most recent report of IGOPP [1] on family businesses, please click here  [2]or on the image below (the panel's duration is 43 minutes):

[1] https://igopp.org/en/the-performance-of-canadian-controlled-companies-listed-on-the-sptsx/
[2] https://www.youtube.com/watch?v=EneTrzShDZM]]></content>
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		<title>Shopify Shareholders ‘Approve’ Controversial “Founder Share” – With the Help of the Existing DCS</title>
		<link>https://igopp.org/en/shopify-shareholders-approve-controversial-founder-share-with-the-help-of-the-existing-multiple-voting-shares/</link>
		<comments>https://igopp.org/en/shopify-shareholders-approve-controversial-founder-share-with-the-help-of-the-existing-multiple-voting-shares/#respond</comments>
		<pubDate>Thu, 09 Jun 2022 17:22:59 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
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		<category><![CDATA[Chef de la direction]]></category>
		<category><![CDATA[Dual-class shares]]></category>

		<guid isPermaLink="false">https://igopp.org/shopify-shareholders-approve-controversial-founder-share-with-the-help-of-the-existing-multiple-voting-shares/</guid>
		<description><![CDATA[The 2022 Shopify AGM put the spotlight on two controversial theories for driving corporate success: the founder-CEO and multi-class share structures. When it went public in 2015, Shopify’s multi-class structure was fairly standard for an aspirational tech unicorn, if still unusual relative to capital markets as a whole. In recent years an increasing proportion of [&#8230;]]]></description>
		<content><![CDATA[The 2022 Shopify AGM put the spotlight on two controversial theories for driving corporate success: the founder-CEO and multi-class share structures.

When it went public in 2015, Shopify’s multi-class structure was fairly standard for an aspirational tech unicorn, if still unusual relative to capital markets as a whole. In recent years an increasing proportion of companies going public in the United States and Canada have opted for multi-class (also known as “dual-class”) share structures that provide superior voting rights to a designated share class over “subordinate” shareholders who buy in at or after the IPO. The designated superior shareholders are typically the founder(s) and early investors.

How did that work in practice? Prior to the 2022 AGM, Shopify’s founder and CEO, Tobi Lütke, together with fellow board member John Phillips, effectively dictated the outcome of all shareholder voting resolutions through their ownership of Class B Multiple Voting shares, which carry 10 votes each. Class B shares are 9.5% of outstanding equity but 51% of voting rights, with Lütke alone worth 34% of voting power. Both hold minimal Class A Subordinate voting shares. Class B shares can be converted on a 1:1 basis into Class A (but lose their multiple votes) for the purpose of being sold by the holder.

In most cases, the multi-class share structures are intended to be temporary, allowing the founders and early investors to maintain their influence over the company as it transitions into publicly listed status. In Shopify’s case, the company has become Canada’s greatest stock market success story of the high-tech era since Blackberry. And despite (or perhaps because of?) the successful transition, the board and management didn’t want to rock the boat quite yet.

Under Shopify’s former covenants, the multi-class structure would automatically collapse when Class B shares represent less than 5% of all outstanding equity (the “Dilution Sunset”). This event was deemed likely to occur in the coming months or years (we believe it was more likely to be sooner than later).

Why was the Dilution Sunset approaching? Because of the ballooning of the Class A share count since Shopify’s 2015 IPO, primarily through Class B shareholders converting to Class A and substantial equity-based employee compensation, all of which have reduced the Class B share capital proportionate to the aggregate outstanding equity, thereby making the collapse of the structure more likely as the 5% threshold nears.

At its June 7, 2022 annual shareholder meeting, Shopify proposed a drastic and novel rearrangement of its capital structure to pre-empt the Dilution Sunset and preserve the disproportionate voting power of the CEO.

The board, after negotiating with the CEO, recommended an arrangement under which Shopify would issue to the CEO a “Founder share” cementing disproportionate voting rights of 40% for life, provided that Mr. Lütke serves as at least one of: (i) board member, (ii) executive officer or (iii) consultant whose “primary engagement” is with Shopify.

Not only that, but Mr. Lütke would be permitted to reduce his economic stake by up to 70% of his current holdings, which currently equate to 6.3% of all outstanding equity, without giving up a single percentage point of his total voting power.

What was the board thinking?

It doesn’t take an expert in hostage negotiations to see that the independent board members were dealing from a position of relative weakness, or at the very least deference, compared to the already-powerful CEO.

For starters, as a matter of basic arithmetic, all Shopify board members owe their presence on the board to the support, or at least acquiescence, of the Class B multiple voting shareholders.

The special committee of independent directors also signposted early on that Mr. Lütke’s position as the individual “guiding the ship” was paramount. During negotiations lasting over the course of a year, the committee generally did not initiate any proposals to the CEO; rather, it waited for Lütke to propose terms. His first offer was to set and preserve the multiple voting power at 49.99%. Aside from one counter-proposal for 34% alongside a tighter service-based sunset and stricter divestment restrictions than those desired by Mr. Lütke, the committee did not push back. The final terms are as described above.

Clear from this is that the board places enormous faith in Mr. Lütke.

The history of corporate (North) America is replete with examples of one-company CEOs. The mythology of the self-made founder-CEO speaks to what for many are the most persuasive qualities of capitalism America-style. Shopify’s rise has seen it and Mr. Lütke compared to similar modern software and internet success stories with long-serving founder-CEOs, notably Microsoft (Bill Gates), Apple (Steve Jobs), Facebook (Mark Zuckerberg) and Amazon (Jeff Bezos). Of the aforementioned, all but Facebook have simple, equitable single class share structures, and an examination of their long-term record suggests that they were able to execute a vision that delivered enormous value to shareholders despite having one vote for each share.

Mr. Bezos maintained a substantial stake – enough to exercise effective control through an equitable structure – over many years; Mr. Bezos held approximately 25% in 2007, 19% in 2013 and today still holds approximately 13% despite having stepped down as CEO in 2021. Even Zuckerberg owns around 13% of all outstanding Meta Platforms (fka Facebook) stock, even though he’d need less than that to still guarantee effective control.

Shopify’s proposal to Mr. Lütke allows him to maintain effective control even while selling down up to 70% of his current 6% stake.

The Theory

The debate over whether multi-class structures should be permitted is contested. Proponents of either side can point to individual companies that have performed especially well or poorly, or indeed to singular events like the Succession-style blow-up in 2021 at Rogers Communication; in any case, performance assessments are relative, with some such companies, particularly in Canada, using a dual class structure to embed a founding family’s control of the business for multiple decades.

Like fractal geometry, the debate doesn’t end at the largest scale of the topic – i.e. should multi-class structures be permitted or not – but diverges into sub-debates around areas of best practice for application of the structure: what should be the ratio of voting superiority between the special class and the subordinate class? What form of sunset (expiry date) should be adopted – should it be service-based (e.g. the founder-CEO leaves their role), time-based (such as the seventh anniversary of the IPO) or dilution-based (where the multiple-voting shares automatically dissolve into the common stock class when they represent less than, for instance, 5% of all shares outstanding)? Should the sunset be a mix of all these?

While Glass Lewis in 2022 adopted a voting policy against multi-class structures without a reasonable time-based sunset (in our opinion, seven years or less from IPO), we are sympathetic to criticism of time-based sunsets as overly arbitrary.

In Canada, among the most thoughtful arguments against a blanket negative approach to dual class companies are those made by the Institute for Governance of Private and Public Organizations (“IGOPP”). The IGOPP has argued that companies with dual class structures are just as likely, if not more so, to deliver long-term growth as one-share-one-vote companies (see “Policy Paper No. 11: The Case for Dual-Class of Shares” [1], 2019.)

IGOPP believes there is “much merit to dual-class companies and family firms, provided holders of shares with inferior voting rights are well protected. [IGOPP’s emphasis].” IGOPP’s recommendations for ensuring the protection of subordinate shareholder rights include:

 	That voting strength of superior shares be capped at a ratio of 4:1, such that 20% of the equity would be required for absolute control (50%+ of votes). IGOPP implies that a ratio of greater than 10:1 is unacceptable and states that classes of shares with no voting rights should be prohibited.
 	Public disclosure of separate vote tallies for each class of shares.
 	That subordinate shareholders be entitled to elect one-third of board members.
 	Dilution sunset that would be triggered by the controlling shareholder’s voting power dropping below a percentage generally considered as a “blocking minority” – 33% (which would be 11.1% with a 4:1 ratio).

Shopify’s proposed Founder share and accompanying “governance update” does not include any of the above safeguards.

Glass Lewis View

In reviewing the proposed Founder share arrangement, we were struck by the degree to which the original dual-class structure (i.e. the Class A 1 vote / Class B 10 votes) appears to have aligned with its intended aims, with shareholder expectations and with those of other best practice standard-setters.

Shopify’s performance since listing publicly has been remarkable. So, to the extent that its dual-class structure insulated its early investors and leadership from short-term pressures, it fulfilled its purpose. Shareholders of Class A subordinate shares have been taken along for a glorious ride as Shopify became one of the main success stories in an extended bull market in which software and e-commerce companies outperformed. The company benefitted from a favourable consumer perception, peaking during pandemic-induced lockdowns, as the ‘anti-Amazon’ since its platform enables small businesses to sell to their customers directly, rather than having to compete in a single online marketplace and outsource order fulfilment.

As is often the way in the early years of a public company, particularly for a tech concern with a seemingly rocket-fuelled stock, common shareholders probably didn’t mind that their votes at general meetings were effectively meaningless.

Glass Lewis believes in the principle of one share, one vote, but our policy guidelines clearly earmark the period in each public corporation’s lifecycle in which an inequitable voting structure might be desirable: the early years. We agree that freeing up the founding leadership to concentrate on growing the business and trying to realize its vision is a strategy that works for some companies.

While in 2022 we settled on a seven-year time-based sunset as a general policy for newly public dual-class companies, sunset mechanisms may achieve a similar result via a different route.

If Shopify’s original dilution sunset is indeed close to triggering – and the board’s clamouring to propose the Founder share at this AGM suggests that it is – then it is doing so uncannily close to the seven-year anniversary of Shopify as a public company.

One of our main concerns with multi-class structures is that they may foster misaligned incentives between the superior voters and dispersed common shareholders, and that these can be exacerbated over the long-term. This is especially true of companies where the subordinate class has zero votes per share or where the gulf in votes per share is especially large (as noted above, best practice proponents recommend not exceeding 4 votes per share in order to preserve a semblance of economic alignment between superior and subordinate shareholders).

As such, a well-crafted dilution sunset makes sense: the superior shareholders may decide to use their disproportionate control of the company to, for example, issue a deluge of stock options to employees as the company grows and competes for talent. They may be totally justified in doing so (we’ve heard that software engineers can be expensive and that they tend to expect equity compensation). But a dilution sunset at least keeps the experience of the superior shareholders tethered to that of ordinary shareholders, who have good reason to be concerned both about excessive dilution and about the spectre of a shareholder with a small economic stake exercising effective control.

Read more [2]

&#160;

[1] https://igopp.org/wp-content/uploads/2019/09/IGOPP_PP_CaseDualShareClass_PP11_EN_v13_WEB.pdf
[2] https://www.glasslewis.com/shopify-shareholders-approve-controversial-founder-share-with-the-help-of-the-existing-multiple-voting-shares/]]></content>
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		<title>Investors call for limits on dual-class shares in light of Rogers battle</title>
		<link>https://igopp.org/en/investors-call-for-limits-on-dual-class-shares-in-light-of-rogers-battle/</link>
		<comments>https://igopp.org/en/investors-call-for-limits-on-dual-class-shares-in-light-of-rogers-battle/#respond</comments>
		<pubDate>Thu, 04 Nov 2021 20:39:51 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
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		<category><![CDATA[Dual-class shares]]></category>
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		<guid isPermaLink="false">https://igopp.org/investors-call-for-limits-on-dual-class-shares-in-light-of-rogers-battle/</guid>
		<description><![CDATA[Canadian investor organizations want stricter requirements for companies with dual-class stocks to trade on public exchanges amid a growing debate about the drawbacks of such shares and a controversy over voting rights at Rogers Communications Inc. Dual-class stock structuring – where different classes of shares in a single company have different voting rights – has [&#8230;]]]></description>
		<content><![CDATA[Canadian investor organizations want stricter requirements for companies with dual-class stocks to trade on public exchanges amid a growing debate about the drawbacks of such shares and a controversy over voting rights at Rogers Communications Inc.

Dual-class stock structuring – where different classes of shares in a single company have different voting rights – has been criticized for limiting public shareholders’ ability to hold underperforming businesses to account. The family battle at Rogers, where most public shareholders have no voting rights, has revived calls for regulators to impose controls on such structures.

“This for us is the opportunity to push regulators to promote that conditions must be attached if a new IPO comes to market with a dual-class structure,” said Catherine McCall, executive director of the Canadian Coalition for Good Governance (CCGG). The organization represents 54 major institutional investors in Canada, which collectively manage $5-trillion in assets.

The Rogers case has brought the hazards of dual-class share structures and zero-voting shares back into the limelight. A family trust holds more than 97 per cent of the voting shares, and public shareholders cannot vote on changes to the board of directors, which has led to a court fight over who is in control.

Dual-class share structures, also known as multiple-class, have seen a resurgence in recent years among tech companies that are following the lead of Facebook and Alphabet. Shopify Inc. is among those companies.

According to data from the TMX Group, the number of companies with dual class shares listed on the Toronto Stock Exchange, including those moving over from the TSX Venture Exchange, is rising. More companies with this structure listed in the first nine months of 2021 alone than in the prior two years combined – 12 in 2021, compared with seven in 2020 and four in 2019.

In the United States, 24 per cent of companies that went public in the first half of 2021 adopted a multiclass structure with unequal voting rights, according to the Council of Institutional Investors. Half have sunset clauses under which controlling shareholders give up their superior voting rights under specific conditions in the future. Just five of the 431 new listings offered shares with no vote.

In 2018, the Hong Kong and Singapore exchanges let companies with multiple share classes list, followed by the Shanghai exchange in 2019. The London Stock Exchange still does not allow dual-class companies on its premium segment or in its main index, the FTSE 100.

Dual-share structure shares have been controversial since U.S. auto manufacturer Dodge Brothers Inc. first proposed them in 1925.

Ms. McCall said most of CCGG’s members agree that one share should equal one vote, so the amount of capital company leaders put into a corporation should match their voting interest.

The organization advocates for a maximum ratio of four-to-one multiple shares to subordinates, sunset clauses with periodic review from shareholders, and provisions that require a company making a takeover bid to offer holders of subordinate shares the same amount as multiple-voting shares.

Ms. McCall cites studies from the National Bureau of Economic Research that suggest that while large ownership stakes in managers’ hands tend to improve corporate performance, heavy voting control by insiders weakens it.

“When you access the public markets, it comes with certain obligations. Dual-class capital introduces an element of unfairness that has to be restricted in some way, or you can end up in bad situations,” she said.

Others go further.

Kevin Thomas, chief executive officer of the non-profit Shareholder Association for Research and Education (SHARE), which advocates for shareholder rights, says dual-class shares should be banned.

“Some companies with dual-class shares will say they have a strong program of shareholder engagement,” he said. “They will still speak to their shareholders, but without the votes. There’s no obligation for them to respect what they hear or to even listen at all. It’s a charade.”

SHARE advocates prohibiting new dual-class shares except on the TSX Venture Exchange, requiring a three-year sunset provision for companies with existing structures, and abolishing all non-voting stock.

“What happens when the old leadership is past its best-before date? It’s like sour milk in the fridge. We need to pull it out,” Mr. Thomas said.

Others say too many restrictions could hurt growth. David Beatty, academic director at the David and Sharon Johnston Centre for Corporate Governance Innovation, is a long-time proponent of the dual-class system. Without them, he said, leaders may view progress only in terms of quarterly reports.

“The work we did at the Johnston Center showed that family companies with dual-class shares significantly outperformed the widely held companies. Families tend to be much more long-term in their orientation,” he said.

Mr. Beatty cited the National Bank of Canada’s Family Index report, which in 2020 compared the returns of 38 family-owned companies with the S&#38;P TSX Composite. It found family companies achieved absolute returns of 180.9 per cent, compared with the S&#38;P/TSX Composite’s 140.5 per cent.

Mr. Beatty said Canadian stock exchanges should remain open to dual-class shares to encourage tech firms to list in Canada rather than in places with more lenient rules. In 2014, Chinese company Alibaba listed on the New York Stock Exchange instead of in Hong Kong, which didn’t allow dual-class shares.

Ms. McCall said many Canadians cannot avoid investing in dual-class shares because they are included in index funds or held on their behalf by pension plans and other institutions.

François Dauphin, CEO of the Institute for governance, said investors can still sway companies despite dual-class shares.

”In most places, shareholders do have a say,” he said. “With the media around, at some point companies will have to talk to shareholders and justify why they’re going against most people’s opinions.”

One benefit of dual-class share structures is that they keep companies virtually immune to hostile takeovers, he said. This is particularly relevant in the tech field, which sees many acquisitions.

He said company founders in this area “have a vision to put in place. It’s good that they have that kind of control.”

Read more [1]

[1] https://igopp.org/wp-content/uploads/2021/11/Investors-call-for-limits-on-dual-class-shares-in-light-of-Rogers-battle_The-Globe-and-Mail_November-2021.pdf]]></content>
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		<title>Audet family was right to reject Rogers&#8217; attempted takeover of Cogeco</title>
		<link>https://igopp.org/en/audet-family-was-right-to-reject-rogers-attempted-takeover-of-cogeco/</link>
		<comments>https://igopp.org/en/audet-family-was-right-to-reject-rogers-attempted-takeover-of-cogeco/#respond</comments>
		<pubDate>Fri, 11 Sep 2020 14:35:55 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
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		<guid isPermaLink="false">https://igopp.org/audet-family-was-right-to-reject-rogers-attempted-takeover-of-cogeco/</guid>
		<description><![CDATA[In a surprising move, Rogers and Altice USA made an offer to buy Cogeco and Cogeco Communications and split their assets between them. If Cogeco were a typical Canadian corporation with a one-share, one-vote capital structure, the would-be buyers could disregard any reticence or opposition by the board of directors and transmit their offer directly [&#8230;]]]></description>
		<content><![CDATA[In a surprising move, Rogers and Altice USA made an offer to buy Cogeco and Cogeco Communications and split their assets between them. If Cogeco were a typical Canadian corporation with a one-share, one-vote capital structure, the would-be buyers could disregard any reticence or opposition by the board of directors and transmit their offer directly to shareholders. Given that Rogers already holds a stake of 41 per cent in the subordinate shares of Cogeco and 33 per cent for Cogeco Communications, the outcome is fairly predictable. If shareholders representing two-thirds or more of the shares vote for their offer, the deal is done (leaving aside any possible wobbling by the CRTC or the Competition Bureau).

But because of multiple voting shares, the Audet family, which has effective control of these entities, can and did bluntly reject the attempted takeover. And for good reason. Under the family’s leadership, Cogeco shareholders enjoyed a compound return of 9.8 per cent over the last five years and 11.8 per cent over the last ten. Shareholders of Cogeco Communications were rewarded with a compound return of 10.8 per cent over five years and 13.2 per cent over ten years.

Rogers/Altice offered a “generous” premium of some 30 per cent over the average share price of August 2020. But, compared to the share price of Cogeco entities at the beginning of 2020, the bid price represented a measly 2.3 per cent premium for Cogeco and just 18.6 per cent for Cogeco Communications.

On their face, those facts would justify a rejection of the Rogers/Altice offer and perhaps lead to further negotiations. That would prove a point often made in favor of multiple-voting shares: the controlling shareholders are in a great position to extract the best price from would-be buyers for the benefit of all shareholders.

That is not the denouement here, however, as the Audet family has made it clear their rejection of the “hostile” bid is not tactical but is firm and unconditional. Rogers should not be surprised by such a decision nor continue to pursue this acquisition: its own shareholder structure gives total control to the Rogers family (and now to a “control trust,”).

In an era of exotic funds and of “activist” hedge funds seeking to bully companies into taking actions of only short-term benefit, a dual class of shares becomes very attractive and beneficial for the whole industrial system of a country. It is the ultimate defense mechanism, particularly in Canada, where staggered boards do not exist and poison pills are of very short duration. Even in the U.S., however, from 2017 to 2019 some 16.5 per cent of companies going public did so with a dual class of shares, a share structure that is especially popular among tech companies.

Some will argue, as they always do, that all shareholders should have a voice in a takeover decision, as they would with a one-share, one-vote model, and that multiple voting shares represent a breach of shareholder “democracy.” That’s balderdash. The equivalent of “one person-one vote” democracy in the domain of shareholding would be “one shareholder-one vote,” irrespective of the number of shares held. In political democracies, citizens do not acquire more voting rights because they pay more taxes to the government.

Short-term “tourist” shareholders should no more get to vote than tourists who happen to be in a country on voting day should be able to claim voting rights. Like immigrants, newcomers to the shareholding of a company should have to wait a significant time before acquiring “citizenship” and the right to vote. Clearly, one share-one vote can’t be taken seriously.

We live in an age when all institutional investors call on corporations to pursue ESG (Environment, Social, Governance) objectives and in a country where the legal framework as interpreted by the Supreme Court calls on boards of directors to take into account the interests of all stakeholders, without giving preference to any particular group, not even shareholders. Many dual-class companies become family businesses, which have a longer life, are better integrated in their communities and are more likely to plan and manage with a long-term perspective and careful consideration of all stakeholders. The controlling shareholders of the Cogeco companies are exemplars of these benefits associated with family control. May these family-controlled companies, including Rogers, remain impervious to unwanted takeovers and other financial shenanigans.
]]></content>
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		<item>
		<title>SEC Rule Amendments and Dual-class returns</title>
		<link>https://igopp.org/en/sec-rule-amendments-and-dual-class-returns-commentary/</link>
		<comments>https://igopp.org/en/sec-rule-amendments-and-dual-class-returns-commentary/#respond</comments>
		<pubDate>Thu, 20 Aug 2020 18:38:47 +0000</pubDate>
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		<guid isPermaLink="false">https://igopp.org/?p=12824/</guid>
		<description><![CDATA[1. ISS is finally leashed: SEC Amends Rules for Proxy Advisors On July 22, 2020, the Securities and Exchange Commission (SEC) adopted amendments to better regulate the activities of proxy advisors, such as ISS and Glass Lewis, and to ensure that clients of proxy voting advice businesses have reasonable and timely access to more transparent, [&#8230;]]]></description>
		<content><![CDATA[1. ISS is finally leashed: SEC Amends Rules for Proxy Advisors

On July 22, 2020, the Securities and Exchange Commission (SEC) adopted amendments to better regulate the activities of proxy advisors, such as ISS and Glass Lewis, and to ensure that clients of proxy voting advice businesses have reasonable and timely access to more transparent, accurate and complete information on which to make voting decisions.
In essence, proxy advisors have always benefited from an exemption from the information, legal risks and filing requirements of proxy solicitation. The SEC has now stipulated that this exemption will apply in the future only if proxy advisors abide by the following conditions:

 	They must provide specified conflicts of interest disclosure in their proxy voting advice or in an electronic medium used to deliver the proxy voting advice;
 	They must have adopted and publicly disclosed written policies and procedures reasonably designed to ensure that corporations that are the subject of proxy voting advice have such advice made available to them at or prior to the time when such advice is disseminated by the proxy advisors to their clients;
 	They ensure their clients will receive, in a timely manner, any statement, explanation and contestation issued by the corporations that are the object of the voting recommendation.

The SEC is thus responding to oft-stated concerns of many issuers about these heretofore lightly regulated but influential market participants.

Proxy advisory firms are not required to comply with the amended regulations until December 1, 2021.

Of course, ISS has already announced its intention to challenge in court this SEC ruling.

IGOPP is particularly pleased with the SEC’s amended regulations as it called for such actions in a 2013 Policy Paper [1], The Troubling Case of Proxy Advisors: Some policy recommendations.

The complete press release of the SEC, and the links to retrieve pertinent materials, can be accessed here [2].

2. New study on relative performance of US dual-class companies

In a novel approach to the subject, researchers have “constructed” an index of dual class shares for the period 2009-2019. The intention here is to assess the performance of a hypothetical fund that would be made up of all dual class shares in proportion to their stock market capitalization. The performance of the fund may then be compared to other index funds, such as, in this case, the CRSP US Total Market Index. The results for dual class voting structures speak for themselves, as shown in the Table below.



Clearly, the volatility-adjusted return ratio of the Dual Index (a close variant of the Sharpe ratio where the higher the ratio the better) is clearly superior to the ratio of the Market Index.

The Index includes all dual-class companies with ordinary common shares listed on NYSE, NASDAQ, or AMEX and total market capitalization in excess of $100 million. A reconstitution process of the Dual Index is carried out semiannually, at the end of June and December. In case of a delisting or collapse of the dual-class structure, the researchers reinvested the proceeds in the portfolio until the next Dual Index reconstitution.

As of December of 2019, the Dual Index included 178 dual-class companies valued at $3.4 trillion. The Index accounts for 89% of the market capitalization of all dual-class companies listed across major U.S. stock exchanges.

The next figure shows the cumulative growth of a one-dollar investment in the Dual Index (green line) relative to the cumulative growth of a one-dollar investment in the market index (blue line). The performance of the Dual Index is especially strong in the second half of the decade .



The complete study by authors Byung Hyun Ahn, Jill E. Fisch, Panos N. Patatoukas &#38; Steven Davidoff Solomon, released as Research Paper on July 28, 2020, is available here [3].

[1] https://igopp.org/wp-content/uploads/2014/04/pp_troublingcaseproxyadvisors-pp7_short_3_.pdf
[2] https://www.sec.gov/news/press-release/2020-161
[3] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3645312]]></content>
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		<title>Theory, Evidence, and Policy on Dual-Class Shares: A Country- Specific Response to a Global Debate</title>
		<link>https://igopp.org/en/theory-evidence-and-policy-on-dual-class-shares-a-country-specific-response-to-a-global-debate/</link>
		<comments>https://igopp.org/en/theory-evidence-and-policy-on-dual-class-shares-a-country-specific-response-to-a-global-debate/#respond</comments>
		<pubDate>Tue, 18 Jun 2019 18:56:05 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
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		<guid isPermaLink="false">https://igopp.org/theory-evidence-and-policy-on-dual-class-shares-a-country-specific-response-to-a-global-debate/</guid>
		<description><![CDATA[Dual-class shares have become one of the most controversial issues in today´s capital markets and corporate governance debates around the world. Namely, it is not clear whether companies should be allowed to go public with dual-class shares and, if so, which restrictions (if any) should be imposed. Three primary regulatory models have been adopted to [&#8230;]]]></description>
		<content><![CDATA[Dual-class shares have become one of the most controversial issues in today´s capital markets and corporate governance debates around the world. Namely, it is not clear whether companies should be allowed to go public with dual-class shares and, if so, which restrictions (if any) should be imposed.

Three primary regulatory models have been adopted to deal with dual-class shares:

 	(i) prohibitions, existing in countries like the United Kingdom, Germany, Spain, Colombia, or Argentina;
 	(ii) the permissive model adopted in several jurisdictions, including Canada, Sweden, the Netherlands, and particularly the United States; and
 	(iii) the restrictive approach recently implemented in Hong Kong and Singapore.

This paper argues that, despite the global nature of this debate, regulators should be careful when analysing foreign studies and
approaches, since the optimal regulatory model to deal with dual-class shares will depend on a variety of local factors. It will be argued that, in countries with sophisticated markets and regulators, strong legal protection to minority investors, and low private benefits of control, regulators should allow companies going public with dual-class shares with no restrictions or minor regulatory intervention (e.g., eventbased sunset clauses).

[ ... ]

65 Yvan Allaire, Enough with the Shibboleth on Dual Class of Shares, Le MÉDAC (2016), pp 3 (available at
https://medac.qc.ca/documentspdf/articles/2016-05_yvan_allaire_vote_multiple_anglais.pdf) [1].

&#160;

To read the complete study, please click here [2].

[1] https://medac.qc.ca/documentspdf/articles/2016-05_yvan_allaire_vote_multiple_anglais.pdf)
[2] https://igopp.org/wp-content/uploads/2019/06/Gurrea-Martinez-2019.pdf]]></content>
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		<title>Quebec budget includes $1-billion to keep head offices, like SNC-Lavalin’s, in the province</title>
		<link>https://igopp.org/en/quebec-budget-includes-1-billion-to-keep-head-offices-like-snc-lavalins-in-the-province/</link>
		<comments>https://igopp.org/en/quebec-budget-includes-1-billion-to-keep-head-offices-like-snc-lavalins-in-the-province/#respond</comments>
		<pubDate>Thu, 21 Mar 2019 22:57:26 +0000</pubDate>
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		<category><![CDATA[Head offices]]></category>
		<category><![CDATA[Hostile takeovers]]></category>
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		<guid isPermaLink="false">https://igopp.org/quebec-budget-includes-1-billion-to-keep-head-offices-like-snc-lavalins-in-the-province/</guid>
		<description><![CDATA[[ &#8230; ] The Quebec government has set aside $1-billion to encourage strategically important businesses to keep their head offices in the province, a measure Finance Minister Eric Girard says he could use to protect the Montreal executive suites of SNC-Lavalin Group Inc. Mr. Girard announced the measure Thursday in his Coalition Avenir Québec government’s [&#8230;]]]></description>
		<content><![CDATA[[ ... ]
The Quebec government has set aside $1-billion to encourage strategically important businesses to keep their head offices in the province, a measure Finance Minister Eric Girard says he could use to protect the Montreal executive suites of SNC-Lavalin Group Inc.
Mr. Girard announced the measure Thursday in his Coalition Avenir Québec government’s first budget, which hikes spending 4.7 per cent and relies heavily on increased federal transfers to keep a clean balance sheet.
The budget is light on details of how the government would execute the head-office plan. Budget documents say the government will strike a team “whose mandate will be to develop business intelligence in the field of head office protection.” Mr. Girard said details will be announced later by Economy Minister Pierre Fitzgibbon.
The retention of head offices has been a sensitive issue in Quebec since the 1970s, when companies fled the province amid a separatist movement and lagging economic prospects. Quebec independence is on the back burner, but the head-office issue reared up again after U.S. hardware giant Lowe’s Companies Inc. made a surprise bid for Quebec-based Rona Inc. and troubles mounted for SNC-Lavalin, the engineering giant facing corporate fraud and bribery charges after years of international scandal.
If convicted, Ottawa could ban the company from bidding on federal projects for 10 years. A ban in Canada would force the company to seek more work outside the country and throw into question its commitment to maintaining its headquarters in Montreal.

[ ... ]

Montreal’s Institute for Governance published a list in 2016 of 16 Quebec-based companies with more than $1-billion in revenue having no protection against hostile takeovers. Some of the companies on that list are almost certainly on Quebec’s current list of strategic firms, including grocer Metro Inc., aerospace training firm CAE Inc. and engineering company WSP Global Inc., said Yvan Allaire, executive chairman of the institute. Other companies that are integral to the economy likely include Alimentation Couche-Tard Inc., Bombardier Inc. and CGI Inc., which all have dual class shares as defences.

 Read more [1]

[1] https://igopp.org/wp-content/uploads/2019/03/Quebec-budget-includes-1-billion-to-keep-head-offices-like-SNC-Lavalin’s-in-the-province-The-Globe-and-Mail_March-2019.pdf]]></content>
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		<title>The case for dual class of shares</title>
		<link>https://igopp.org/en/the-case-for-dual-class-of-shares/</link>
		<comments>https://igopp.org/en/the-case-for-dual-class-of-shares/#respond</comments>
		<pubDate>Fri, 13 May 2016 19:37:44 +0000</pubDate>
		<dc:creator><![CDATA[mlamnini]]></dc:creator>
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		<guid isPermaLink="false">https://igopp.org/?p=6274</guid>
		<description><![CDATA[With the Bombardier saga and the Couche-Tard warning bell, the usual litany of arguments against dual class of shares was again dusted off. Commentators opposed to this capital structure seem to forget or overlook the inconvenient truth that many of Canada’s industrial champions are controlled corporations often through a dual class of shares. That is [&#8230;]]]></description>
		<content><![CDATA[With the Bombardier saga and the Couche-Tard warning bell, the usual litany of arguments against dual class of shares was again dusted off. Commentators opposed to this capital structure seem to forget or overlook the inconvenient truth that many of Canada’s industrial champions are controlled corporations often through a dual class of shares.

That is the conclusion one may draw from the Ontario Institute for Competitiveness and Prosperity study which identified 77 Canadian industrial champions; only 23 of them were widely-held corporations; 33 were listed controlled corporations, 19 of them via a dual class of shares; another 16 were privately held! (Flourishing in the global competitiveness game, working paper 11, September 2008). Furthermore, 23 of the 50 largest employers in Canada were dual class companies (Canada’s 50 biggest employers in 2012, Globe and Mail, June 28th 2012)

That is a fundamental point:

Without a controlling shareholder, without a dual class of shares, there would be no aeronautical industry in Canada, no C-Series to compete with Boeing and Airbus, a singular Canadian feat, no Magna in Ontario (a dual class company until 2010), no Rogers Communication, no Teck Resources, no Canadian Tire, no Weston, no CGI, no Shaw and so on. 

And why is that?

In a period such as the 2002-2003 when the U.S. dollar was worth close to C$1.60 and the stock market was seriously depressed, all these Canadian companies would have been bargains for U.S. acquirers. Canada would have reverted to the branch-plant economy of the 1950s.

In any case, at one point or another, their success would have attracted foreign buyers. May we mention Tim Horton, Alcan, Falconbridge, etc. That is the reason why so many sensitive industrial sectors are legally protected in Canada from foreign takeovers (banks, telecoms, airlines, media companies)

And wisely so! For the Canadian regulatory context is one of the most hospitable to unwanted takeovers, much more so than in the United States. And don’t count on the toothless Investment Canada to block foreign acquisitions.

American companies have multiple measures (although waning in effectiveness) at their disposal to rebuff an unwanted takeover of their company (staggered boards, poison pills of unlimited duration, board’s authority to just say no, etc.) So, because of these American conditions, Boeing may carry on with its long-term investments without fear of an unwanted takeover in difficult times, and they have had quite a few.

Then, financial markets have become populated by short-term so-called investors and analysts fixated on the next quarter’s earnings per share and stock performance; they have become the locus of nasty financial games played with and around publicly listed companies.

Thus, the new breed of American (and Canadian) entrepreneurs not only do they want to be shielded from unwanted takeovers they also seek to insulate themselves from the quarterly pressures of analysts and short-term investors.

In 2015, according to Prosoaker Research (2016), 24% of all new share offerings (IPOs) in the U.S. were made with a dual class structure, a sharp increase from 15% in 2014 and 18% en 2013. So, young companies such as Alphabet (i.e. Google), Facebook, Groupon, Expedia, (and, in Canada, Cara, BRP, Shopify, Spin Master, Stingray) have issued two classes of shares, one with multiple votes which assures them of an unassailable control over their companies and makes them relatively indifferent to the short-term gyrations of earnings and stock price.

Furthermore, in Canada since 1987 (but not in the USA), companies issuing a class of shares with multiple votes must adopt, as a requirement to be listed on the Toronto stock exchange, a coat-tail provision. That provision essentially ensures that all shareholders will receive the same price for their shares, should the controlling shareholders decide to sell out. That twist, by itself, has removed most of the potential financial benefits of control through a dual class of shares.

Add to the mix of dual class companies the much stricter contemporary rules of corporate governance and the presence of a majority of independent directors on their boards and you have a recipe for success, for long-term strategic thinking, and for bold job-creating investments. It turns out to be a demonstrably optimal arrangement for all investors: controlling shareholders with their wealth at stakes managing, or supervising management, and taking a long-term view of the company.

Financial performance

If getting good steady returns is what investors are looking for, dual class companies are indeed a good bet. The evidence is now pretty compelling that these companies perform better than conventional companies; or at least, perform as well and provide the added benefit of keeping their ownership and headquarters in the home country.

The following table provides some of that evidence from recent studies (but with different time periods):

Performance of Canadian dual class firms, compared to single class firms (or reference index) over 5, 10 and 15 years periods

 [1]

Conclusion

Setting aside cases of extraordinarily attractive companies, such as Amazon where Bezos still owns 18% of the shares, it is difficult for companies to undertake gutsy investments and implement strategies unfolding over many years without some buffer from the short-term pressures of contemporary financial markets. That may not be to the liking of some financial players but so be it.

That pressing reality must be acknowledged by all, including policy makers, who do not have a vested interest in making lots of money quickly. Don’t be fooled by specious arguments merely disguising self-interest. Investors who would have bought a basket of shares in Canadian dual-class companies would have done well over the last ten years better than by holding shares in a portfolio of single-class companies.

Do not be swayed by the spurious argument of shareholder democracy. If shareholders were the equivalent of citizens in a democracy, then tourists (i.e. transient shareholders) would not vote and all new shareholders (i.e. immigrants) would have to wait for a considerable period of time before acquiring the right to vote.

Dual-class companies account for a good number of Canada’s industrial champions; indeed dual class shares are a pillar of our industrial structure. That ownership structure should be encouraged, promoted and blessed, provided proper safeguards are in place to protect minority shareholders.

Opinions expressed herein are strictly those of the author.

[1] https://igopp.org/wp-content/uploads/2016/05/Table-dual-class.jpg]]></content>
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		<title>&#8220;Good&#8221; Governance and Stock Market Performance</title>
		<link>https://igopp.org/en/good-governance-and-stock-market-performance/</link>
		<comments>https://igopp.org/en/good-governance-and-stock-market-performance/#respond</comments>
		<pubDate>Mon, 07 Mar 2016 15:58:27 +0000</pubDate>
		<dc:creator><![CDATA[mlamnini]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
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		<guid isPermaLink="false">https://igopp.org/la-bonne-gouvernance-et-la-performance-des-entreprises/</guid>
		<description><![CDATA[Did the quest, one might dare say the obsession, with implementing &#8220;good&#8221; governance in public corporations result in better stock market performances for those companies that have adopted the best governance practices? Numerous studies, mostly American, have tried to show a convincing relationship between governance and performance, usually with disappointing results. Indeed, it is not [&#8230;]]]></description>
		<content><![CDATA[Did the quest, one might dare say the obsession, with implementing "good" governance in public corporations result in better stock market performances for those companies that have adopted the best governance practices?

Numerous studies, mostly American, have tried to show a convincing relationship between governance and performance, usually with disappointing results.

Indeed, it is not surprising that such an undertaking was doomed to fail. The economic and stock market performance of a company over the years is the joint product of macro-economic, cyclical, competitive, industrial and strategic factors; it reflects as well the residual influence of good or bad decisions made over the years. In spite of all the sophisticated statistical tools marshalled to try to isolate and capture the ineffable and fleeting effect of "good" governance (assuming of course that such an effect is indeed
at work), these undertakings have generally been unsuccessful.

And yet, for 14 years, the Globe and Mail's Report on Business (ROB) has computed and published a governance score for each of the some 230 largest companies listed on the Toronto Stock Exchange. The annual publication of the scores as well as the ranks assigned to every corporation has become a business ritual attended to by corporate leaders and the governance industry.

This overall score, with 100 as a maximum, is the sum of scores on four dimensions of governance:

1.  Board composition (32 points out of 100)

2. Shareholding and compensation (29/100)

3. Shareholder rights (28/100)

4. Disclosure (11/100)

Each of these aspects of governance is defined and captured through a series of variables (37 in total in 2015), each one given a number of points. Generally, these variables do touch upon all the desiderata of impeccable fiduciary governance. Over the years, the scoring system has adapted and evolved in sync with the changing and ever increasing requirements of “good" governance.

Be this as it may, we felt it would be interesting to survey, once more, how the ROB governance scores were related to the stock market performance of the largest Canadian corporations.

Read more [1]

[1] https://igopp.org/wp-content/uploads/2017/11/YAllaire-FDauphin-Good-governance-and-stock-market-performance-March-2016.pdf]]></content>
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		<title>Capturing long-term investors the Toyota way</title>
		<link>https://igopp.org/en/capter-des-investisseurs-a-long-terme-a-la-facon-de-toyota/</link>
		<comments>https://igopp.org/en/capter-des-investisseurs-a-long-terme-a-la-facon-de-toyota/#respond</comments>
		<pubDate>Wed, 01 Jul 2015 20:37:22 +0000</pubDate>
		<dc:creator><![CDATA[mlamnini]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
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		<guid isPermaLink="false">https://igopp.org/capter-des-investisseurs-a-long-terme-a-la-facon-de-toyota/</guid>
		<description><![CDATA[In the on-going quest for innovative capital structures, Toyota has recently provided an interesting twist and tied in knots a number of institutional investors. Toyota believes that developing the next generation technologies will require massive investments over many years. It also believes that the current state of investment practices, the prevalence of roaming funds and [&#8230;]]]></description>
		<content><![CDATA[In the on-going quest for innovative capital structures, Toyota has recently provided an interesting twist and tied in knots a number of institutional investors. Toyota believes that developing the next generation technologies will require massive investments over many years. It also believes that the current state of investment practices, the prevalence of roaming funds and the general emphasis on short-term stock prices, all work against the required investor stability for such long-term undertaking.
“As a result, we have determined that, in raising capital for research and development of next generation technologies, it is desirable to match to the extent possible the period in which investments in research and development contribute to our business performance with the period in which investments are made in us by investors. To that end, we have decided to issue the First Series Model AA Class Shares with voting rights and transfer restrictions that assume a medium to long term holding period”.
Reference document of the 111th ordinary general meeting, p.32
In a historical vote on June 16th 2015, Toyota shareholders adopted with a 75% majority the proposal to issue Model AA Class Shares. These shares will be sold only in Japan; they will not be listed, but will have voting rights. They will be priced at 120% of the ordinary shares and will be paid a dividend at a rate lower than ordinary shares but at an increasing rate every year. The company will commit to buy back the shares at the original price after five years. But at that time, holders of these shares will have the option of converting their shares into ordinary common shares at a conversion ratio yet to be determined.

Toyota will thus enlist the support for at least five years of patient shareholders, mostly Japanese retail investors, in order to pursue fundamental research into future technologies. It will raise an initial US$4 billion and is authorized to issue up to US$12billion of these shares for that purpose. If that endeavour is successful, all shareholders will benefit; of course, the impatient and the fickle may miss out but won’t be missed.
There seems to be no legal impediment for a Canadian company adopting this type of capital structure provided, alas, it gets the support of its actual shareholders.
Many “foreign” pension funds voiced their opposition to Toyota’s proposition. The influential CalSTRS (the pension fund of California teachers), Ontario Teachers’ Pension Plan, the Florida State Board of Administration, and somewhat surprisingly, Canada Pension Plan Investment Board (CPPIB) have all declared their intention to vote against the new Toyota shares.

As the CEO of the CPPIB has been doing an active and persuasive advocate of long-term investment agenda, one would have expected the CPPIB to support an innovative capital structure designed to draw in long-term investors and partly shield the company from the short-term pressures of financial markets. It appears however that the CPPIB still clings to the obsolete notion whereby two classes of shares are a capital sin that “can entrench management against shareholder pressure for change” (CPPIB proxy voting guidelines). Which shareholders and what change are questions best left unanswered.

In a rare instance, the two largest proxy advisory firms issued opposing recommendations to their clients. ISS recommended voting against the Toyota proposal while Glass Lewis came out in favour of it! ISS, it seems, worries that “a rise in the number of stable investors could lead to overly cozy relations between the company and its shareholders. This would make it difficult for the market to exercise adequate oversight of the company's management”. So, stable investors are bad; the “market” is always right!

In a press release, CalSTRS Director of Corporate Governance argued that “[…] the new share class proposed by Toyota would be structured as debt instruments, with guaranteed and defined dividend payments. Yet, these shares would also have voting rights equal to those of common stock that don’t enjoy this equity risk exposure shield.” Fundamentally, CalSTRS is also sticking to the dogma about “one-share-one-vote”. One has to wonder if these funds, out of principle, have refused to buy shares of Berkshire Hathaway; Alibaba; Google; Facebook; Groupon; Expedia, UPS; Tyson; Ford, Nike, The NY Times; News Corp; CBS, Comcast, Blackstone; KKR; Apollo; Pershing Square Holdings, Third Point, etc.

All in all, the Toyota innovation should be closely examined by all who believe that currently dominant capital structures open the door wide to all types of stock market agitators and tourist investors. It is an empirical fact that these sorts of “shareholders” pressure management and boards of directors to deliver quick boosts in stock price, even if it means cutting down on R&#38;D and capital expenditures.

Toyota is thinking “out of the box”. It is high time for institutional investors to clear their own thinking of shackles and cobwebs.

Opinions expressed herein are strictly those of the authors.
]]></content>
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