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	<title>IGOPPEntreprises privées &#8211; IGOPP</title>
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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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		<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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		<item>
		<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>
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		<category><![CDATA[Gouvernance créatrice de valeurs]]></category>
		<category><![CDATA[Institutional investors]]></category>
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		<category><![CDATA[Value-creating governance]]></category>

		<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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		<title>Why Tim Hortons is not buying Burger King?</title>
		<link>https://igopp.org/en/pourquoi-tim-hortons-nachete-pas-burger-king/</link>
		<comments>https://igopp.org/en/pourquoi-tim-hortons-nachete-pas-burger-king/#respond</comments>
		<pubDate>Tue, 02 Sep 2014 23:36:35 +0000</pubDate>
		<dc:creator><![CDATA[mlamnini]]></dc:creator>
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		<description><![CDATA[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 [&#8230;]]]></description>
		<content><![CDATA[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.)


]]></content>
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		<title>Rona battle highlights impotence of boards: Prof</title>
		<link>https://igopp.org/en/rona-battle-highlights-impotence-of-boards-prof-2/</link>
		<comments>https://igopp.org/en/rona-battle-highlights-impotence-of-boards-prof-2/#respond</comments>
		<pubDate>Wed, 08 Aug 2012 18:49:24 +0000</pubDate>
		<dc:creator><![CDATA[mlamnini]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
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		<guid isPermaLink="false">http://aimta712.org/?p=2163</guid>
		<description><![CDATA[&#8220;Quebec-based home improvement retailer Rona Inc. (RON.TO 10.93 -0.08 -0.73%) has found itself in the crosshairs of an unsolicited takeover approach from its American rival Lowe’s Cos (LOW.N 45.14 0.51 1.14%) &#8212; even as Rona’s board and management have publicly stated they’re not interested. For Yvan Allaire, Institute for Governance of Private and Public Organizations [&#8230;]]]></description>
		<content><![CDATA["Quebec-based home improvement retailer Rona Inc. (RON.TO 10.93 -0.08 -0.73%) has found itself in the crosshairs of an unsolicited takeover approach from its American rival Lowe’s Cos (LOW.N 45.14 0.51 1.14%) -- even as Rona’s board and management have publicly stated they’re not interested.

For Yvan Allaire, Institute for Governance of Private and Public Organizations chair and professor at UQAM, the hostile takeover proposal highlights a glaring weakness in corporate Canada: powerless boards.

“Once the board in Canada says no to a transaction, it means almost nothing. If it were in the U.S. and the board says no to a would-be acquirer that would be the end of it,” he says. “We have in Canada situation when the board is virtually impotent when faced with hostile takeovers.”

He says that while shareholders “have rights… that doesn’t mean the board is without any power to use its business judgment when faced with a decision like this.”

“The question being raised by this Rona transaction…[is that] there are serious concerns in Canada that we are a totally free-for-all for transactions by foreign companies without any protection and without the board being able to evaluate this transaction because it’s essentially powerless. It is a Canadian problem.”"

Read more [1]

[1] http://www.bnn.ca/News/2012/8/8/Rona-battle-highlights-impotence-of-boards-Prof.aspx]]></content>
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