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	<title>IGOPPPrivate governance &#8211; IGOPP</title>
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		<title>Going public: a thing of the past?</title>
		<link>https://igopp.org/en/going-public-a-thing-of-the-past/</link>
		<comments>https://igopp.org/en/going-public-a-thing-of-the-past/#respond</comments>
		<pubDate>Tue, 16 Jul 2024 20:39:50 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[Reports & Studies]]></category>
		<category><![CDATA[Dual-class shares]]></category>
		<category><![CDATA[IPO]]></category>
		<category><![CDATA[Private governance]]></category>

		<guid isPermaLink="false">https://igopp.org/entree-en-bourse-un-reve-du-passe/</guid>
		<description><![CDATA[In Canada, 2023 was a lean year for new companies embarking on initial public offerings (IPOs) on the TSX, the country’s main stock exchange. In fact, only one company, Lithium Royalty Corp., proceeded with an IPO, raising about $150 million in March 2023. More than a year later, at the end of June 2024, no [&#8230;]]]></description>
		<content><![CDATA[In Canada, 2023 was a lean year for new companies embarking on initial public offerings (IPOs) on the TSX, the country’s main stock exchange. In fact, only one company, Lithium Royalty Corp., proceeded with an IPO, raising about $150 million in March 2023. More than a year later, at the end of June 2024, no new conventional[1] company has since been listed via IPO on the TSX. This is an abnormally long—even historic—period.

“The public markets are a great economic equalizer, allowing small retail investors, supported by appropriate investor protections, to participate directly in the growth of [the] economy” (Capital Markets Modernization Taskforce, 2021). Studies show that the size of a country’s capital market is positively correlated with its economic development (measured by the long-term real growth rate of GDP per capita), and that, in the case of stock markets, the relationship is estimated at 1:1 (Kaserer and Rapp, 2014). Healthy, attractive markets are essential, as they also promote innovation, economic diversification and greater sharing of created wealth, while making a country’s economy more resilient to shocks (European IPO Task Force, 2020).

For entrepreneurs, an IPO offers many advantages. First and foremost, of course, it is a means of financing growth, but it also enhances brand awareness and reputation (Pešterac, 2020). Compliance requirements imposed by regulators and stock market operators lend companies a high degree of credibility, making it much easier to recruit and retain employees and managers. It is also an undeniable plus when negotiating with local and foreign suppliers.

Of course, an IPO inevitably comes with additional costs associated with public disclosure requirements and other compliance obligations, not to mention the risk of hostile takeover attempts or having to deal with an attack from an activist shareholder. Table 1 lists some of the most frequently raised arguments for and against an IPO.

[1] A conventional company refers to a company with traditional business activities (manufacturing products, providing services, retailing, financial and banking services, etc.), which excludes financial vehicles such as exchange-traded funds, special-purpose acquisition companies, mutual funds, split-share companies, closed-end investment trusts, and so on.
]]></content>
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		<item>
		<title>The performance of Canadian controlled companies listed on the S&#038;P/TSX</title>
		<link>https://igopp.org/en/the-performance-of-canadian-controlled-companies-listed-on-the-sptsx/</link>
		<comments>https://igopp.org/en/the-performance-of-canadian-controlled-companies-listed-on-the-sptsx/#respond</comments>
		<pubDate>Fri, 13 Oct 2023 14:12:45 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[Reports & Studies]]></category>
		<category><![CDATA[Dual-class shares]]></category>
		<category><![CDATA[Private governance]]></category>

		<guid isPermaLink="false">https://igopp.org/la-performance-des-societes-canadiennes-controlees-inscrites-au-sptsx/</guid>
		<description><![CDATA[Family-run businesses are the cornerstone of market economies. These companies are often imbued with a strong culture rooted in the values of their founder, a culture that develops and strengthens over time, sometimes even beyond the first generations who succeed one another at the helm of the business. They tend to make decisions with a [&#8230;]]]></description>
		<content><![CDATA[Family-run businesses are the cornerstone of market economies. These companies are often imbued with a strong culture rooted in the values of their founder, a culture that develops and strengthens over time, sometimes even beyond the first generations who succeed one another at the helm of the business. They tend to make decisions with a long-term horizon, in consideration of all their stakeholders and the environment, as it is natural for them to want to ensure that future conditions remain favourable. This is the very essence of sustainable value creation.

As they grew, the largest of these companies eventually had to go public. Their founder-entrepreneurs were concerned with maintaining control over the company’s operations in order to further a culture that reflects the values central to the company’s past successes. As such, they sought to preserve the unique character of their business and ensure they could continue to uphold their long-term vision despite the presence of new shareholders, most of them anonymous and changing.

Given their own imperatives at the time of their company’s IPO, some founder-entrepreneurs were unable to raise the necessary funds without diluting their equity stake below the level required to retain control, or did not wish this risk to materialize. They therefore resorted to mechanisms to ensure that control was maintained, notably through the use of different share classes (DCS), each conferring specific rights (multiple voting rights for one of the classes, for example, or exclusive rights to appoint members to the board in order to maintain a majority).

Whether control is exercised through a direct stake or by resorting to a DCS structure, these companies are frequently targeted by categories of investors who consider their governance to be deficient, at least according to the guidelines established for companies with widely held ownership (i.e. without a controlling shareholder). This criticism is often even sharper where DCS companies are concerned, due to the control exercised without an economic stake that is commensurate with exclusive nomination rights or the percentage of votes cast. A number of pressure groups are strongly advocating that all forms of DCS structure be eliminated.

Is this criticism warranted? Does the long-term economic, social and environmental performance of Canadian controlled listed companies support this perception of “bad governance?”

These topics are fiercely debated in various governance forums and have been the focus of considerable research in academic circles. While some voices are raised against founding shareholders and their families maintaining control, others are increasingly being heard in favour of allowing new generations of entrepreneurs to use DCS structures. Several countries have recently revised their rules to allow them on their main stock exchanges, and others, such as France and Germany, are seriously considering doing so in the near future.

The aim of our study is first to situate the debate and summarize the findings of the most recent research. We then compare the performance of Canadian controlled companies in the S&#38;P/TSX Index with that of Canadian companies with widely held ownership in the same group. Comparisons are based both on ESG ratings (Environmental, Social and Governance performance) and total shareholder return over five and 10 years.
]]></content>
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		<item>
		<title>The quest for diversity of boards of directors and in senior management of public corporations</title>
		<link>https://igopp.org/en/the-quest-for-diversity-of-boards-of-directors-and-in-senior-management-of-public-corporations/</link>
		<comments>https://igopp.org/en/the-quest-for-diversity-of-boards-of-directors-and-in-senior-management-of-public-corporations/#respond</comments>
		<pubDate>Fri, 12 Feb 2021 20:28:40 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[Reports & Studies]]></category>
		<category><![CDATA[Diversity]]></category>
		<category><![CDATA[Private governance]]></category>
		<category><![CDATA[Regulation]]></category>

		<guid isPermaLink="false">https://igopp.org/les-enjeux-de-la-diversite-a-la-direction-et-aux-conseils-dadministration-des-societes-ouvertes-2/</guid>
		<description><![CDATA[In June 2009, IGOPP published a Policy Paper on “The Status of Women on Boards of Directors in Canada: Calling for Change”. Almost 12 years later, the issue of diversity on boards of directors still remains partly unresolved. Indeed, women’s representation on boards of directors has doubled during this period [from 15% in 2008 to [&#8230;]]]></description>
		<content><![CDATA[In June 2009, IGOPP published a Policy Paper on “The Status of Women on Boards of Directors in Canada: Calling for Change”. Almost 12 years later, the issue of diversity on boards of directors still remains partly unresolved. Indeed, women’s representation on boards of directors has doubled during this period [from 15% in 2008 to 29.58% in 2020] but the target of 40% gender diversity set in the IGOPP Policy Paper has not yet been achieved.

But by now a broader definition of diversity is proposed, a definition which targets an adequate representation of several groups making up the general population of the society where an organization is domiciled.

Responding to this emerging trend, the government of Canada amended the Canada Business Corporations Act (CBCA) to foster an increased diversity on boards of directors as well as in the senior management of public corporations. These changes, which came into effect on January 1, 2020, aimed at increasing the representation of women but also of Aboriginal people, persons with disabilities and members of visible minorities. These new legal stipulations apply to federally incorporated corporations listed on a stock exchange. Thus 78 of Canada’s largest corporations, drawn from the S&#38;P/TSX index were subjected to these new requirements.

The following table captures, in raw form, the source of disquiet about representation:



This report begins with a brief comparison of the Canadian law with that of other countries. Then we sketch an overview of the representation of designated groups on boards and senior management of the companies subjected to the new legal stipulations. We collected the information which these 78 companies disclosed in 2020 and compiled the above table. We then carried out further analyses factoring in educational variables and age.

Several observations emerge from this analysis; the most significant ones are as follows:

 	Canada is at the forefront of this quest for diversity beyond the representation of women on boards of directors to include diversity in the senior management of companies, as well as the representation of Aboriginal peoples, persons with disabilities and persons belonging to visible minorities. The Canadian government has opted for a flexible approach, emphasizing disclosure, rather than a quota approach, as advocated in some other jurisdictions.
 	The subject companies have interpreted very freely the regulation concerning the number of members of senior management who must be considered for disclosure. The definition in the regulations provides for 5 to 7 senior management members. However, the subject companies defined senior management as made up of some 16 members on average. More than half of the companies seem to have interpreted the regulation incorrectly (but that probably reflects their own internal definition of senior management).
 	Although the gains made over the past decade are notable, much remains to be done in terms of the representation of women on boards of directors as well as in the senior management of companies.
 	Taking into account the variables of age and education, although these two factors are not exhaustive of all factors influencing selection and promotion, we see a clear under-representation of members of visible minorities within the boards of directors
and senior management of publicly traded Canadian companies.

The rate of renewal of board members and senior management is rather slow. Some measures (for instance, quotas, tenure and/or age limit) would accelerate the turnover of board membership but these must be carefully assessed. Absent coercive measures, social systems change over relatively long periods of time.

The laudable goal of increasing the diversity of representation on corporate boards and in the senior management of large corporations will not be achieved without much management goodwill, as well as investors and government prodding, particularly so when that goal includes not only the representation of women but also that of various other groups making up a society.
]]></content>
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		</item>
		<item>
		<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>
		<category><![CDATA[Actions multivotantes]]></category>
		<category><![CDATA[Dual-class shares]]></category>
		<category><![CDATA[Entreprises privées]]></category>
		<category><![CDATA[Indépendance des administrateurs]]></category>
		<category><![CDATA[Independence of Board members]]></category>
		<category><![CDATA[Private governance]]></category>

		<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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		</item>
		<item>
		<title>Dual-class of shares: with the proper framework, a benefit for all</title>
		<link>https://igopp.org/en/dual-class-of-shares-with-the-proper-framework-a-benefit-for-all/</link>
		<comments>https://igopp.org/en/dual-class-of-shares-with-the-proper-framework-a-benefit-for-all/#respond</comments>
		<pubDate>Wed, 27 May 2015 15:30:48 +0000</pubDate>
		<dc:creator><![CDATA[mlamnini]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
		<category><![CDATA[Dual-class shares]]></category>
		<category><![CDATA[Private governance]]></category>
		<category><![CDATA[Shareholders]]></category>

		<guid isPermaLink="false">http://igopp.org/?p=5070</guid>
		<description><![CDATA[A recent piece in the Financial Post (“Time for regulators to take major look at dual class shares”, Barry Critchley, May 14, 2015) reports on the cogitations of a law professor who proposes as an “optimal solution” to abolish existing dual class of shares and prohibit such capital structure at IPO time, no less! Of [&#8230;]]]></description>
		<content><![CDATA[A recent piece in the Financial Post (“Time for regulators to take major look at dual class shares [1]”, Barry Critchley, May 14, 2015) reports on the cogitations of a law professor who proposes as an “optimal solution” to abolish existing dual class of shares and prohibit such capital structure at IPO time, no less!

Of course, that remarkable suggestion is based on the same lame arguments that were hashed, rehashed and refuted in countless articles. The buyers of these shares need protection as they are obviously ignorant, misinformed and when buying these IPO shares, “they are not necessarily turning their minds to the share structure”

And this pronouncement comes as the Canadian IPO market is coming out of its slumber with a series of highly successful new issues with a dual class structure (BRP, Cara, Shopify, Stingray).

Entrepreneurs and institutional investors know a few salient facts:

 	Financial markets, and the stock market in particular, have changed greatly over the last twenty years; institutional investors and indexed funds represent a large percentage of all shares traded on stock markets (more than 70% in the USA, between 50% and 60% in Canada, although precise statistics are less available). These investors are usually quite savvy and know what they are buying.
 	Entrepreneurs will not come to the market if it means becoming vulnerable to a hostile takeover (remember that Canada has one of the most favorable legal context for hostile takeovers), or being harassed on a quarterly basis for every decision that does not bring an immediate increase in earnings per share, or being targeted by “activist” hedge funds pushing hard to auction off their company.
 	A dual class of shares is not a free lunch in Canada. Indeed, since 1987, the TSX requires that any company issuing a class of shares with multiple votes also adopt a «coattail» provision to ensure that all shareholders will be treated equally, should an offer be made to buy the shares of the controlling shareholder. This provision in itself eliminates the single most important source of inequality between classes of shareholders. Whenever a «coattail» provision is in place, there is no justification for paying a premium to the holders of multiple-voting shares, should these be converted into subordinate shares. As Magna had become public before 1987 (and thus grand-fathered), it was not subjected to the requirements of a «coattail», hence the astounding premium paid to the controlling shareholder. It is noteworthy that despite the surging popularity of dual class of shares in the USA, there is no equivalent «coattail» requirement for American companies.
 	Both the Institute that I chair (IGOPP, in 2006) and the Canadian Coalition for Good Governance (CCGG, in 2013) have proposed similar frameworks to enhance the attractiveness of dual class of shares. In addition to a universal and rigorous «coattail» provision preferably enforced by the regulators (rather than by the TSX), that framework includes:
 	A reasonable multiple of votes so that absolute control is achieved only with a sizeable chunk of shareholder equity owned by the controlling shareholder(s).

Both CCGG and IGOPP felt that a multiple of four votes would be appropriate as it calls upon the controlling shareholder to own 20% of the shareholders’ equity to maintain absolute control (50% of the votes). The recent IPOs have not observed that recommendation although the ratios, except for Cara, have been generally kept reasonable and certainly in no case is there a repetition of the 100-to-1 ratio of the Magna days:

 [2]

 	The class of shares with a single vote should elect up to a third of all board members. Controlling shareholders should exercise their power to elect directors only for the fraction of the board equivalent to their percentage of total voting rights, with a cap of two-thirds of board members elected by a controlling shareholder. Unfortunately that guideline was not observed by any of the recent IPOs.
 	A sunset provision. A delicate issue with multiple-voting shares revolves around the advisability of setting a termination time or event at which point the dual-class structure would be collapsed into a single-class structure with all shares having henceforth a single vote. All of the recent issues in Canada have elected to adopt a variation of a particular form of «sunset» clause: the dual structure would be eliminated in the event that the controlling shareholders and their successors hold shares which represent less than 50% of all votes or some equivalent formulation.

Thus, it is quite possible to get the very real benefits of the dual-class structure and protect adequately the «minority» shareholders. If regulators feel the hitch to intervene on this issue, it would behoove them to adopt, and enforce for future IPOs, a framework along the lines proposed by IGOPP  [3]and the CCGG.

[1] http://business.financialpost.com/news/fp-street/time-for-regulators-to-take-major-look-at-dual-class-shares
[2] http://igopp.org/wp-content/uploads/2015/05/Graph-2015.05.27-article-dual-share.jpg
[3] http://igopp.org/en/dual-class-share-structures-in-canada/]]></content>
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		</item>
		<item>
		<title>When does a publicly listed corporation become a criminal?</title>
		<link>https://igopp.org/en/quand-une-entreprise-est-elle-criminellement-responsable/</link>
		<comments>https://igopp.org/en/quand-une-entreprise-est-elle-criminellement-responsable/#respond</comments>
		<pubDate>Tue, 10 Mar 2015 17:42:53 +0000</pubDate>
		<dc:creator><![CDATA[mlamnini]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
		<category><![CDATA[Ethics]]></category>
		<category><![CDATA[Private governance]]></category>
		<category><![CDATA[Regulation]]></category>

		<guid isPermaLink="false">https://igopp.org/quand-une-entreprise-est-elle-criminellement-responsable/</guid>
		<description><![CDATA[Under what circumstances is it appropriate to lay criminal charges against a publicly listed corporation for the actions of its employees? What justifies imposing what amounts, in Terrence Corcoran’s words, to a “corporate death penalty”? (Financial Post, February 23rd, 2015) Lawyers will debate these questions ad infinitum” but what would be a common-sense answer? A [&#8230;]]]></description>
		<content><![CDATA[Under what circumstances is it appropriate to lay criminal charges against a publicly listed corporation for the actions of its employees? What justifies imposing what amounts, in Terrence Corcoran’s words, to a “corporate death penalty”? (Financial Post, February 23rd, 2015)

Lawyers will debate these questions ad infinitum” but what would be a common-sense answer?

A publicly listed corporation is “owned” by its shareholders, a large and dispersed group of people and institutions. These “owners” elect a board of directors “to manage, or supervise the management of, the business and affairs of a corporation” (from the Canadian Business Corporation Act). This board of directors has the ultimate authority and responsibility over management’s actions and decisions but on the basis of the information provided by management and other advisers to the board. For a widely-held, exchange-listed corporation, its board of directors is the embodiment of that legal entity.

To lay criminal charges against a publicly listed corporation should require proof that the board of directors was aware, facilitated, abetted or approved illegal conduct by members of management.

As no one, including the RCMP, has claimed that the board of directors of SNC-Lavalin, at the time the alleged illegal acts were committed, had any knowledge of, or in any way had abetted, such acts, it is grossly inappropriate to place SNC-Lavalin in such serious jeopardy.

Before proceeding with the criminal charges laid by the RCMP, which would injure the 40,000+ employees of SNC-Lavalin around the world, the federal prosecutors should determine whether the board indeed did know of the illegal actions taken by some managers and executives and whether the board had taken all reasonable measures to safeguard the company against such illicit behavior.

Based on those findings, prosecutors should modify the charges and indict former SNC-Lavalin executives who were found to have engaged in illegal actions and levy a fine against the company to the extent that all measures were not taken to protect the company against illicit actions.

The argument that the corporation having profited from the illegal actions of some of its executives is equally guilty makes little sense. Indeed, by that logic, as shareholders ultimately benefited from the impact on the company’s stock price from these illegally obtained contracts, shareholders should be charged and prosecuted! Of course, the limited liability of shareholders would quickly thwart such a move, but the logic is the same.

There are few precedents where a public company was indicted for criminal offenses; it is even fairly rare for private companies with a large number of shareholders (as opposed to a private company that is managed by the owners).

Previous cases prosecuted in Canada involved a private company and a penny stock mining outfit, both of which pleaded guilty and paid fines (Griffiths Energy International was fined $10.35 million in 2013; Niko Resources of Calgary was fined $9.5 million in 2011).

In another case, an agent of Cryptometrics Canada was sentenced in May 2014 to three years in prison. The CEO and the chief operating officer of U.S. parent Cryptometrics as well as the Canadian subsidiary, both of whom actively participated in the attempt to corrupt foreign officials, were charged by the RCMP but no criminal charges were laid against the company!

But a by-now distant example sticks out: the criminal indictment of the audit firm Arthur Andersen, a large private partnership, for alleged obstruction of justice in the Enron case.

As soon as the indictment was made public, the firm began to implode. Found guilty in August 2002 (less than 9 months after the Enron bankruptcy), Arthur Andersen closed down, putting on the market its 28,000 employees in the USA and 85,000 employees worldwide.

Of course, in May 2005, the U.S Supreme Court reversed this guilty verdict because of faulty instructions by the judge. But Arthur Andersen has remained and will remain a dead entity.

Now, this power to indict a public corporation is mostly used by U.S. prosecutors as a billy club or a Damocles sword to extract major concessions.

Innocent by-standers, be they employees or shareholders, are not acceptable collateral damages in the “war against corruption”. The culprits are the people who actually committed these acts; they should bear the costs for their actions. A corporation as a distinct legal entity should be charged only if its board of directors knew or should have known about the machinations of some members of management.

“Kill a few corporations to scare the many” is not a sensible policy for law enforcement.

The author is solely responsible for the opinions expressed here.
]]></content>
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		</item>
		<item>
		<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>
				<category><![CDATA[News Articles]]></category>
		<category><![CDATA[American governance]]></category>
		<category><![CDATA[Entreprises privées]]></category>
		<category><![CDATA[Gouvernance américaine]]></category>
		<category><![CDATA[Head offices]]></category>
		<category><![CDATA[Private governance]]></category>
		<category><![CDATA[Sièges sociaux]]></category>

		<guid isPermaLink="false">https://igopp.org/pourquoi-tim-hortons-nachete-pas-burger-king/</guid>
		<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.)


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		<title>Boards should decide takeovers</title>
		<link>https://igopp.org/en/boards-should-decide-takeovers/</link>
		<comments>https://igopp.org/en/boards-should-decide-takeovers/#respond</comments>
		<pubDate>Wed, 07 May 2014 18:30:06 +0000</pubDate>
		<dc:creator><![CDATA[mlamnini]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
		<category><![CDATA[Hostile takeovers]]></category>
		<category><![CDATA[Private governance]]></category>
		<category><![CDATA[Shareholders]]></category>

		<guid isPermaLink="false">http://aimta712.org/boards-should-decide-takeovers-2/</guid>
		<description><![CDATA[In an opinion piece published in the Financial Post on May 6th, (Shareholders should decide takeovers), Mr. Philip Anisman responds to my piece published in the Financial Post of April 30th (Canada needs a new takeover regime). Mr. Anisman recycles the key arguments of “market discipline” and boards having to dedicate themselves to the singular [&#8230;]]]></description>
		<content><![CDATA[In an opinion piece published in the Financial Post on May 6th, (Shareholders should decide takeovers), Mr. Philip Anisman responds to my piece published in the Financial Post of April 30th (Canada needs a new takeover regime).

Mr. Anisman recycles the key arguments of “market discipline” and boards having to dedicate themselves to the singular goal of “maximizing shareholder value” when assessing an unsolicited offer to buy the company.

Of course, he has to acknowledge that “the fiduciary standard adopted by the Supreme Court of Canada in its BCE decision would enable such directors’ decisions [i.e. preventing a takeover bid]. By encompassing the interests of all stakeholders within directors’ fiduciary duties, the Supreme Court has, in effect, adopted the substance of many U.S. state anti-takeover laws, allowing directors to determine whether the interests of stakeholders other than shareholders should prevail in any given case. Like Mr. Allaire, the BCE decision would permit directors to just say “no” to a takeover bid and would limit the unique market discipline provided by takeover bids. Whatever the merits of this position under corporate law, it does not govern the takeover bid provisions in the securities laws administered by our securities regulators.

But that is my very point. Shouldn’t the provincial securities regulators adopt a regime for takeovers which is consistent with Supreme Court decisions? Is it appropriate for securities regulators to place themselves above the Supreme Court? Is it not possible that the long-term interest of the company, not “maximizing shareholder value”, calls for the rejection of a particular hostile bid?  [...] Read more [1]

[1] http://igopp.org/wp-content/uploads/2014/05/Boards-should-decide-takeovers-A-reply-to-Mr.-Anisman.pdf]]></content>
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		<title>Two cheers for Barrick Gold</title>
		<link>https://igopp.org/en/two-cheers-for-barrick-gold/</link>
		<comments>https://igopp.org/en/two-cheers-for-barrick-gold/#respond</comments>
		<pubDate>Thu, 03 Apr 2014 13:23:03 +0000</pubDate>
		<dc:creator><![CDATA[mlamnini]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
		<category><![CDATA[Executive compensation]]></category>
		<category><![CDATA[Private governance]]></category>
		<category><![CDATA[Say on Pay]]></category>

		<guid isPermaLink="false">http://aimta712.org/?p=1734</guid>
		<description><![CDATA[After the bruising treatment that Barrick had to endure last year for its indefensible pay packages, the company got the message. The compensation plan it has made public on March 31st goes a long way towards the kind of pay system that all companies should adopt. Having published a policy paper on executive compensation in [&#8230;]]]></description>
		<content><![CDATA[After the bruising treatment that Barrick had to endure last year for its indefensible pay packages, the company got the message. The compensation plan it has made public on March 31st goes a long way towards the kind of pay system that all companies should adopt.

Having published a policy paper on executive compensation in 2012 («Cutting the Gordian knot», IGOPP, May 2012) that proposed the kind of changes now put forth by Barrick, we applaud the company for this bold, innovative step in the right direction.

The new reward system has several key features:

 	The elimination of stock options, the prime culprit for short-term thinking in business management;
 	Variable compensation based on performance measures that are both quantitative and qualitative; excellent performance is not measured only by the achievement of financial ratios but equally by more subtle but critical variables such as «Reputation and license to operate», «People development», and «Strategic execution»;
 	None of the quantitative measures are linked to stock-price performance; while the actual amount of financial rewards will, in the long run, be influenced by the stock price, the quantitative measures are tied to performance largely under the control of management: Return on invested capital, Free cash flows, Dividends to shareholders, Strong capital structure, Capital project performance;
 	The performance units are earned each year on the basis of targeted performance goals. These units vest after three years and are then converted in shares of the company; these shares are bought in the open market so that there is no dilution effect for shareholders;
 	Abandoning, for all intents and purposes, the flawed practice of benchmarking compensation against a supposedly comparable set of companies, the weakest link of current ways of setting compensation;
 	The company has adopted a claw-back provision in case of re-statement of past performance; it has also adopted a policy prohibiting hedging of the economic exposure to share ownership;
 	The company has raised substantially the required value of the share ownership by all executives;
 	The executives cannot cash the shares they have earned until they retire or leave the company.

Overall, this new compensation system represents a huge improvement over previous reward systems at Barrick and at most Canadian and American corporations for that matter.

I have one serious reservation: the concept of restricting the cashing of all earned shares until retirement or departure from the company may well prove counter-productive.A forty-five year old executive with a substantial paper worth in accumulated shares at risk of general stock market melt-down at a most inopportune time may find that an early leave from the company is an attractive option. Waiting until retirement to cash in any part of this vulnerable paper wealth may prove counter-productive.

It may be more appropriate to allow the cashing of earned shares over and above the threshold value set for executive share ownership. As long as executives keep a substantial part of their wealth in shares of the company, the convergence between their interest and the long-term interest of the company is assured.
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		<title>What does it take to get more women on Canadian boards?</title>
		<link>https://igopp.org/en/what-does-it-take-to-get-more-women-on-canadian-boards/</link>
		<comments>https://igopp.org/en/what-does-it-take-to-get-more-women-on-canadian-boards/#respond</comments>
		<pubDate>Mon, 26 Nov 2012 20:23:02 +0000</pubDate>
		<dc:creator><![CDATA[mlamnini]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
		<category><![CDATA[Diversity]]></category>
		<category><![CDATA[Private governance]]></category>

		<guid isPermaLink="false">http://aimta712.org/?p=1842</guid>
		<description><![CDATA[In 2010, only 14.4% of directors of the 100 largest Canadian publicly-listed corporations were women. In the same year, roughly 7% of board members were new and in only one-in-five instances was the new member female, according to the 2010 Spencer Stuart Board Index. Even to a patient, passive observer, that rate of change is [&#8230;]]]></description>
		<content><![CDATA[In 2010, only 14.4% of directors of the 100 largest Canadian publicly-listed corporations were women. In the same year, roughly 7% of board members were new and in only one-in-five instances was the new member female, according to the 2010 Spencer Stuart Board Index.

Even to a patient, passive observer, that rate of change is glacially slow. At one time, there were plausible reasons to explain the weak representation of women on boards — the historical lag in the number of women with management degrees or the established networks from which board candidates were chosen. But the ratio of women in graduating MBA classes has increased swiftly in the past 20 years. In Canada, a Catalyst survey reports, that ratio has hovered above 33% since the early 2000s, yet the ratio of women on Canadian and U.S. boards in 2011 is closer to that of women MBA graduates in 1975 at a mere 11%.

"The ratio of women on Canadian and U.S. boards in 2011 is closer to that of women MBA graduates in 1975 at a mere 11%."

Governments have opted for one of two approaches to increase the number of women on boards. In January 2011, the French government enacted a law obliging companies to meet a female director quota of 20% by 2014 and 40% by 2015. The percentage of women on the boards of the 120 largest publicly-listed French companies was 11.4% in 2010. Any appointment to the board by a company which contravenes these obligations will be declared void and board meeting fees will be withheld until the situation is corrected.

In February 2011, a task force, created by the British government, submitted its report calling on British corporations to set a firm female director target of 25% by 2015. In 2010, the percentage of women on the boards of targeted British corporations was 12.5%. The French option risks triggering perceptions of affirmative action, a most damaging consequence for the whole effort. The British approach, unsupported by public and binding commitments, may turn out to be mere window dressing.

There is another issue: the turnover rate of board membership. The 2010 Spencer Stuart Board Index showed there were some 87 new directors out of a total 1,150 directors of the 100 largest Canadian corporations, a rate of slightly more than 7%. With that turnover rate, board membership only changes entirely every 10 years; with a turnover rate of 10%, the board would turn-over 1.5 times in 10 years; and with a turnover of 15%, it would change completely over a five-year period, or three times in 10 years.

The turnover rate may accelerate as board members age and policies continue to be adopted to limit directors’ age and years of service. The rate will also increase as boards do a better job of evaluating directors and removing those who do not meet high standards. But it is doubtful that a rate much higher than 7% is sustainable long term and it may not be wise governance to experience too high a rate of board turnover.

Given current turnover rates and the observed rate of one woman for every five vacancies, women would account for 16.6% of board members in five years and 18.8% in 10 years (up from 14.4% in 2010). Raising the ratio from the current one-in-five to one-in-two would bring the ratio of women on boards close to 40% in 10 years. That may seem like a long time, but it does account for the fairly slow rate of board turnover.

Corporations must make vigorous and public commitments to raise the participation of women on boards. Policies targeting a reasonable turnover rate of board membership should be adopted; boards should commit to a policy of appointing one woman for every two board vacancies until women represent 40% of the board. That may not meet the calendar and deadline of some activists on the subject, but it is a fair and balanced way to generate benefits for all parties.
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