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	<title>IGOPPShareholders &#8211; IGOPP</title>
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		<title>At Gildan, a board’s defeat offers lessons in shareholder management</title>
		<link>https://igopp.org/en/at-gildan-a-boards-defeat-offers-lessons-in-shareholder-management/</link>
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		<pubDate>Fri, 24 May 2024 20:53:17 +0000</pubDate>
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		<description><![CDATA[Glenn Chamandy, co-founder of Gildan Activewear Inc. GIL-T, left his job as chief executive officer last year in a cloud of mystery after relations with his board soured. Now he returns triumphant – and under more pressure than ever before to deliver returns for the investors who won his job back. The raucous five-month battle that engulfed [&#8230;]]]></description>
		<content><![CDATA[Glenn Chamandy, co-founder of Gildan Activewear Inc. GIL-T, left his job as chief executive officer last year in a cloud of mystery after relations with his board soured. Now he returns triumphant – and under more pressure than ever before to deliver returns for the investors who won his job back.

The raucous five-month battle that engulfed the T-shirt maker came to a sudden conclusion late Thursday, when Gildan’s entire board of directors and CEO Vince Tyra quit [1], admitting defeat at the hands of activist investor Browning West. The Los Angeles-based firm, which owns about 5 per cent of Gildan’s shares, has now taken control of the company and will reinstate Mr. Chamandy as CEO, with United Rentals Inc. CEO Michael Kneeland becoming chairman.

Mr. Tyra’s bio has already been scrubbed from the Gildan [2] website.

The feud was a rare case of activists pushing for the status quo. And though it’s often hazardous to predict whether the fallout from such cases will have a lasting impact on the Canadian corporate landscape, observers say it does provide a cautionary tale for other boards overseeing strong-willed executives who directors think might be past their best-before date.

Gildan’s legacy board, the directors who dismissed [3] Mr. Chamandy last December, weren’t fast or blunt enough in explaining publicly why they showed him the door, according to one insider who spoke openly on condition they not be named.

Other experts say those directors underestimated the strength of Mr. Chamandy’s backing from Browning West and other institutional investors – and their resolve.

“It does show that sometimes the personality, the charisma, and the history of a long-time CEO and founder with investors is not something you can break easily,” said François Dauphin, president of the Institute of Governance for Public and Private Organizations. “Once you start pushing against that, it’s really hard to get yourself out.”

Former Gildan chairman Don Berg and the other directors who dismissed Mr. Chamandy initially said that they didn’t see eye to eye with the CEO on the timing of a leadership handover and they worked until the very last moment to try to hammer out a compromise with him. It wasn’t until after Mr. Chamandy was gone that they took a harsher tone, saying he’d become increasingly detached from his job and unable to articulate a credible long-term growth strategy for the company.

Even if the board’s process to address CEO succession was appropriate – engaging advisers and considering Mr. Chamandy’s proposals, for example – the announcement of his termination still took investors by surprise. And if there’s one warning for other companies from this saga, it’s to communicate with shareholders more closely when working through leadership issues, said Catherine McCall, executive director of the Canadian Coalition for Good Governance.

“I don’t think the lesson is that shareholders should micromanage the board because I think the situation, the circumstances, don’t encourage that takeaway,” Ms. McCall said. “[But] they should have maybe been talking to shareholders more. ... If anything, this is going to prompt or encourage more shareholder engagement.”

Read more [4]

[1] https://www.theglobeandmail.com/business/article-gildan-board-resigns-clearing-the-way-for-glenn-chamandy-to-retake/
[2] https://www.theglobeandmail.com/topics/gildan-activewear-inc/
[3] https://www.theglobeandmail.com/business/article-gildan-activewear-replaces-ceo-in-sudden-shakeup/
[4] https://igopp.org/wp-content/uploads/2024/05/At-Gildan-a-board’s-defeat-offers-lessons-in-shareholder-management_Globe-and-Mail_May-2024.pdf]]></content>
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		<title>Browning West seeks court order to prevent Gildan sale before vote on new directors</title>
		<link>https://igopp.org/en/browning-west-seeks-court-order-to-prevent-gildan-sale-before-vote-on-new-directors/</link>
		<comments>https://igopp.org/en/browning-west-seeks-court-order-to-prevent-gildan-sale-before-vote-on-new-directors/#respond</comments>
		<pubDate>Mon, 08 Apr 2024 03:25:58 +0000</pubDate>
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		<description><![CDATA[U.S. investment firm Browning West is seeking a court order preventing the board of Gildan Activewear Inc. from signing any binding deal to sell the clothing maker until shareholders vote on new directors. The request was made last week as an amendment to an existing suit in the Quebec Superior Court’s commercial division, filed by [&#8230;]]]></description>
		<content><![CDATA[U.S. investment firm Browning West is seeking a court order preventing the board of Gildan Activewear Inc. from signing any binding deal to sell the clothing maker until shareholders vote on new directors.
The request was made last week as an amendment to an existing suit in the Quebec Superior Court’s commercial division, filed by Browning West, which has a roughly 5-per-cent stake in Gildan [1].
“We do not believe the current board has a mandate to be making any decisions about the future of the company,” Browning West founders Usman Nabi and Peter Lee said in an e-mailed statement.
Gildan dismissed Browning’s gambit to hamstring existing directors as “ridiculous.”
It’s the latest in a series of legal volleys between Montreal-based Gildan and Browning West in what has become one of the most acrimonious corporate power struggles in recent years in Canada. As the clock ticks down on an April 10 deadline [2] for initial offers for the apparel manufacturer, the clash has taken on another level of urgency.
The saga, now in its fourth month, started when the board fired co-founder and long-time chief executive Glenn Chamandy last December. The board concluded he had run out of ideas to increase sales and profits, and hired former Fruit of the Loom executive Vince Tyra to replace him. Dissident shareholders unhappy about that decision are trying to push current directors out and demanding the reinstatement of Mr. Chamandy back at the helm.
[...]
Gildan punched back Sunday.
“This latest tactic is ridiculous and without precedent or merit,” Gildan spokesman Simon Beauchemin said by e-mail. “It appears designed solely as an attempt to generate headlines and obstruct a potential sale of the company.”
At least one court decision has confirmed boards can do what they believe is in the best interest of the company for the entirety of their term. In a 2011 case concerning Bennett Environmental, then in the midst of a proxy battle, Justice Ruth Mesbur, an Ontario Superior Court judge, said: “A board need not curtail its activities in the face of a fight for control.”
In an interview with The Globe and Mail on March 27, Gildan chairman Donald Berg said the board chose to launch a sales process because the takeover approach it received was a “serious offer.” Shareholders will ultimately have the last say in any case, he said.
It’s not in the best interest of shareholders and other stakeholders to seek to tie the hands of the board of directors and prevent its work, said François Dauphin, chief executive of Montreal’s Institute for Governance of Private and Public Organizations, who’s been following the Gildan drama. Regardless of the recriminations some shareholders might have against the current board, directors must consider and analyze any offer received, which might mean having to incur costs, he said.
Said Mr. Dauphin: “Browning West put forth its plan and vision for Gildan. Vince Tyra’s plan is expected soon. Shareholders will have the choice between those two visions and a proposed purchase offer, if there is one. It would be reasonable to let shareholders decide on these choices. Everything else is just noise.”
Read more [3]

[1] https://www.theglobeandmail.com/topics/gildan-activewear-inc/
[2] https://www.theglobeandmail.com/business/article-gildan-sets-april-10-deadline-for-initial-takeover-offers/
[3] https://igopp.org/wp-content/uploads/2024/04/Browning-West-seeks-court-order-to-prevent-Gildan-sale-before-vote-on-new-directors-The-Globe-and-Mail_April-2024.pdf]]></content>
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		<item>
		<title>Gildan to hold shareholder meetings in late spring for board of directors vote</title>
		<link>https://igopp.org/en/gildan-to-hold-shareholder-meetings-in-late-spring-for-board-of-directors-vote/</link>
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		<pubDate>Mon, 29 Jan 2024 14:56:02 +0000</pubDate>
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		<guid isPermaLink="false">https://igopp.org/?p=16421/</guid>
		<description><![CDATA[Canadian clothing maker Gildan Activewear Inc., GIL-T locked in a fight with dissident investors over its decision to sack its chief executive officer in December, is convening its shareholders in late spring to vote on whether they want a new board. The company says the timeline for the meeting on May 28 will give investors “a reasonable [&#8230;]]]></description>
		<content><![CDATA[Canadian clothing maker Gildan Activewear Inc., GIL-T [1] locked in a fight with dissident investors over its decision to sack its chief executive officer in December, is convening its shareholders in late spring to vote on whether they want a new board.
The company says the timeline for the meeting on May 28 will give investors “a reasonable period” to evaluate the dissidents’ plan for the company while providing more opportunity to judge the competence of the new CEO brought in by the board, Vince Tyra. U.S. investment fund Browning West, which is leading the dissidents, called it an “attempt to buy time for a seemingly unqualified chief executive officer with a record of value destruction.”
Montreal-based Gildan is under pressure from Browning West and other shareholders to hold a meeting as soon as possible to consider bringing in a new board that would back the return of former CEO [2] Glenn Chamandy. Gildan says Mr. Chamandy sought to entrench himself as CEO and that giving him his job back would jeopardize the company’s future because he’s no longer up to the task.


Browning wants a majority of Gildan’s current 11-director board out. Earlier this month, it made a formal request to the company for a special meeting so investors can vote on the investment fund’s own slate of candidates, which is supported by five institutional shareholders.
Gildan responded Monday and says it has called two shareholders meetings for May 28, one a special meeting and the other an annual meeting. But the clothing maker says it will seek a court ruling on whether the Browning West requisition is legal. If a judge rules in Gildan’s favour, the company would hold just an annual meeting that day and drop the special meeting. Browning could still try to get its directors elected at the AGM.
“Over the last few weeks, the company has heard from numerous shareholders, both those who have indicated preliminary support for Browning West and those who have not,” Gildan said in a news release. “The board and shareholders are aligned in the view that a speedy resolution of this unnecessary proxy contest is in the best interests of the company and its shareholder owners.”
The timing of the May meeting isn’t sitting well with at least two shareholders, who could mount a legal challenge to it.
Browning West blasted the board for setting a date that will come nearly five months after it submitted its special meeting requisition. “It appears the board has learned nothing from its recent string of ill-conceived decisions and publicity stunts, which seem to have only succeeded in alienating shareholders,” the firm’s founders said in a statement.
Toronto-based Turtle Creek Asset Management echoed that view. “The board’s tactics are just another slap in the face of Gildan’s long-term shareholders,” the firm said in an e-mailed statement.
Gildan has held its last eight annual general meetings at the end of April or in the first week of May, meaning this year’s May 28 AGM would come later than normal.
“We do have a sense of urgency here on the activist side,” said François Dauphin, chief executive of Montreal’s Institute for Governance of Private and Public Organizations. “Every hour, every week that goes by makes the possibility of getting Mr. Chamandy back at the helm that much harder.”
Gildan said it “remains ready and willing” to engage with Browning West and other shareholders to find a resolution to the dispute. It said while it has offered the investment fund an opportunity to meet with the new CEO, it has not been offered access in turn to Browning’s director nominees.
The decision to hold the shareholders meeting in May takes into account statements by investors expressing support for a spring meeting and a desire to limit disruption to the business, Gildan said. Combining a special meeting with an AGM on the same day avoids having two meetings within a month or two of each other that would address similar issues, Gildan said.
On the question of whether the Browning West meeting requisition is legitimate, Gildan wants a court to decide. The company said it would file an application for declaratory judgment to the Quebec Court on Monday seeking a ruling that the Browning West requisition is null and void.
Read more [3]

[1] https://www.theglobeandmail.com/investing/markets/stocks/GIL-T/
[2] https://www.theglobeandmail.com/business/article-gildan-ceo-shareholders-stock/
[3] https://igopp.org/wp-content/uploads/2024/01/Gildan-to-hold-shareholder-meetings-in-late-spring-for-board-of-directors-vote-The-Globe-and-Mail_January-2024.pdf]]></content>
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		<item>
		<title>Is the Sun Setting on Dual Class Share Structures?</title>
		<link>https://igopp.org/en/is-the-sun-setting-on-dual-class-share-structures/</link>
		<comments>https://igopp.org/en/is-the-sun-setting-on-dual-class-share-structures/#respond</comments>
		<pubDate>Tue, 16 May 2023 16:45:04 +0000</pubDate>
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		<description><![CDATA[Teck’s Dual Class Amendment Teck Resources Limited (“Teck”) recently announced that it will be collapsing its dual class share structure (“DCSS”) by introducing a six-year sunset for the multiple voting rights attached to its Class A common shares (the “Dual Class Amendment”). An overwhelming majority of Teck’s shareholders voted in favour of the Dual Class [&#8230;]]]></description>
		<content><![CDATA[Teck’s Dual Class Amendment

Teck Resources Limited (“Teck”) recently announced that it will be collapsing its dual class share structure (“DCSS”) by introducing a six-year sunset for the multiple voting rights attached to its Class A common shares (the “Dual Class Amendment”). An overwhelming majority of Teck’s shareholders voted in favour of the Dual Class Amendment at the annual and special meeting of shareholders on April 26, 2023.

Prior to the Dual Class Amendment, Teck’s Class A common shares each had 100 votes per share, whereas the Class B common subordinate voting shares each had one. On Friday, May 12, 2023, the effective date, each outstanding Class A common share was exchanged for one new Class A common share and 0.67 of a Class B subordinate voting share. The terms of the new Class A common shares are identical to the terms of old Class A common shares, but provide that six years from the effective date, all new Class A common shares will automatically be exchanged for Class B subordinate voting shares, all of which will be renamed “common shares.” In effect, the Dual Class Amendment will collapse Teck’s DCSS by May 12, 2029.

While not common among publicly traded corporations in Canada, DCSS have long been a part of the Canadian securities market and continue to be employed by many corporations.[1] [1] This bulletin will discuss the basic components of a DCSS, its advantages and disadvantages, as well as common measures implemented alongside DCSS to increase shareholder protection.

[...]

Concerns with DCSS

Conversely, DCSS can give rise to corporate governance concerns. By their nature, DCSS result in a misalignment between voting rights and economic interest within a company. For example, in Teck’s case, the holders of approximately 1.5% of the total number of outstanding Teck shares are entitled to exercise approximately 60.5% of the votes attached to all Teck shares. Critics of DCSS claim that these structures allow company executives to “have their cake and eat it too” because they permit executives to raise capital without giving up control.[2] [2] Further, because DCSS can allow executives to hold relatively small equity stakes within their companies, they can be insulated from the financial repercussions of poor decision-making and corresponding share price decreases.

Simultaneously, DCSS expose minority shareholders to significant risks and potential undesirable outcomes. In addition to restricting the control that the subordinate voting shareholders have over board composition and company strategy, DCSS can also result in executive compensation for the holders of the superior voting class shares, leadership transition issues, and payment of significant premiums to collapse the DCSS. In 2021, the battle for control of Rogers Communications revealed that DCSS can also result in a unilateral determination of a board’s makeup, which may or may not be in the best interest of all shareholders.[3] [3]



Shareholder Protection in DCSS

The concerns notwithstanding, there are ways to reduce risks for shareholders of subordinate voting shares, while allowing all shareholders to reap the benefits of DCSS. By enacting certain shareholder protections, such as coattail provisions and sunset clauses, companies can create DCSS that provide for greater alignment of interests between all common shareholders.

(1) Coattail Provisions

Canadian DCSS companies have almost universally adopted a coattail provisions.[4] [4] Coattail provisions ensure that holders of subordinate voting shares can convert their holdings to superior voting shares in the event of a takeover offer, thus allowing them to participate in the offer on the same terms. Coattail provisions have been a TSX listing requirement since 1987 and have removed most of the potential “private benefits of control” through a DCSS.

(2) Sunset Clauses

Sunset clauses impose a pre-determined end date for DCSS. These sunsets limit the relative freedom given to the shareholders of the superior voting right shares. Sunsets come in a variety of forms, including:

 	Time-based sunsets: whereby the superior voting rights cease after a specified time period (e.g., Teck’s Sunset).
 	Dilution sunsets: whereby the multiple voting shares return to single votes when the controlling shareholder’s voting power falls below a given threshold.
 	Event-driven sunsets: where the DCSS collapse follows a certain event, usually the death or disability of founder/controlling shareholder.

Certain proxy advisory services have started to recommend against voting in favour of multi-class share structures and unequal voting rights amongst shareholders, unless the company provides for a reasonable sunset of its multi-class share structure. Glass Lewis and the Institutional Shareholder Services consider sunsets of seven years or less to be reasonable, according to their 2023 proxy voting guidelines.[5] [5]

Conclusion

While Teck’s Dual Class Amendment marks another step in the growing trend towards the disappearance of DCSS in Canada, it might be too soon to say that the sun is setting on them entirely. Where shareholder concerns can be properly alleviated, these structures are a great way for founders to raise capital and confidently pursue their business goals. For the time being however, it does appear that the sun is rising on shareholder rights and protections in DCSS. The team at McMillan will continue to report on these developments.

[...]

[4] Institute for Governance of Private and Public Organizations, “The Case for Dual-Class of Shares – Policy Paper Number 11 [6]” (2019), page 8.

Read more [7]

[1] https://mcmillan.ca/insights/publications/is-the-sun-setting-on-dual-class-share-structures/#1
[2] https://mcmillan.ca/insights/publications/is-the-sun-setting-on-dual-class-share-structures/#2
[3] https://mcmillan.ca/insights/publications/is-the-sun-setting-on-dual-class-share-structures/#3
[4] https://mcmillan.ca/insights/publications/is-the-sun-setting-on-dual-class-share-structures/#4
[5] https://mcmillan.ca/insights/publications/is-the-sun-setting-on-dual-class-share-structures/#5
[6] https://igopp.org/wp-content/uploads/2019/09/IGOPP_PP_CaseDualShareClass_PP11_EN_v13_WEB.pdf
[7] https://igopp.org/wp-content/uploads/2023/05/McMillan-Is-the-sun-setting-on-dual-class-share-structures_May-2023.pdf]]></content>
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		<title>Shopify shares rise as tech company announces 10-for-1 stock split</title>
		<link>https://igopp.org/en/shopify-shares-rise-as-tech-company-announces-10-for-1-stock-split/</link>
		<comments>https://igopp.org/en/shopify-shares-rise-as-tech-company-announces-10-for-1-stock-split/#respond</comments>
		<pubDate>Mon, 11 Apr 2022 17:52:18 +0000</pubDate>
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		<description><![CDATA[Shopify Inc. co-founder, chair and chief executive Tobias Lutke has three young children. The billionaire is willing to give up the opportunity to pass along the company to his offspring in exchange for maintaining control for as long he works at the online commerce giant. Ottawa-based Shopify, Canada’s largest tech company, announced on Monday it plans [&#8230;]]]></description>
		<content><![CDATA[Shopify Inc. co-founder, chair and chief executive Tobias Lutke has three young children. The billionaire is willing to give up the opportunity to pass along the company to his offspring in exchange for maintaining control for as long he works at the online commerce giant.
Ottawa-based Shopify, Canada’s largest tech company, announced on Monday it plans a 10-for-1 stock split in late June; the share price promptly jumped by 3 per cent on the Toronto Stock Exchange. Shopify is the latest tech company to see its shares soar on news of a split; similar moves took place at Amazon.com Inc. and Tesla Inc. in recent weeks.
The Shopify board also unveiled a governance structure that would award Mr. Lutke newly minted founder’s shares that lock in 40 per cent voting control, even if the company issues additional stock – for example, to pay for a takeover – or Mr. Lutke sells a significant portion of his stake, currently worth more than $5-billion.
The wrinkle here is the 41-year-old founder’s new shares come with a sunset clause – they expire when Mr. Lutke leaves Shopify, or his holding falls to less than 30 per cent of current levels.
If shareholders approve Shopify’s restructuring at a vote scheduled for June 7, the country’s tech flagship will go from a dual-share company that can pass control through generations to a one-share, one-vote structure after the founder’s departure.
“These changes will enhance Shopify’s strategic flexibility,” Robert Ashe, Shopify’s lead independent director, said in a news release. “Tobi is key to supporting and executing Shopify’s strategic vision, and this proposal ensures his interests are aligned with long-term shareholder value creation.”
Shopify’s board unanimously recommended shareholders vote in favour of the new structure, along with the stock split. Investors should applaud this evolution. In a 2019 report, Institute for Governance of Private and Public Organizations chair Yvan Allaire said sunset clauses have “gained salience as institutional shareholders and various agencies try to curtail, rein in and put a time limit on the relative freedom that a dual-class of shares provides to entrepreneurs and family corporations.”
Shopify’s plans are a welcome break from the entrenched ownership at many family-controlled companies, including Rogers Communications Inc., and at entrepreneur-controlled tech businesses such as Facebook parent Meta Platforms Inc.
While more than 60 companies with dual-class shares are listed on the Toronto Stock Exchange, a number of entrepreneur-led companies, such as Onex Corp. and Alimentation Couche-Tard Inc., feature sunset clauses, similar to the planned structure at Shopify. It’s worth noting that Couche-Tard’s founders tried to extend their control of the company in 2015, only to abandon the move in the face of shareholder resistance.
Mr. Lutke founded Shopify in 2004 after writing the software needed to operate his online snowboard business. The company went public in 2015, with investors offered Class A shares that carry one vote, while Mr. Lutke and other insiders maintained control by owning Class B shares that carry 10 votes each, stock that can be transferred to spouses or offspring.
Last year, regulatory filings show, Mr. Lutke cashed out $623-million in Shopify stock under an automatic sales program put in place more than two years ago.
Right now, Mr. Lutke and Shopify director John Phillips, a retired lawyer and early investor, control 97 per cent of the company’s Class B shares, while current and former employees and directors own the rest. If shareholders approve the founder’s share, Mr. Phillips will convert all his class B shares into single-vote shares.
After Mr. Phillips swaps his multiple voting stock, Mr. Lutke will hold about 40 per cent of the votes at Shopify. In a news release, the board said using the founder’s shares to preserve this stake “was appropriate as it is approximately the voting power he would hold under the current share structure.”
Read more [1]

[1] https://mcusercontent.com/d1c76e2e88e07148ab7072c66/files/6bdb1d3c-f5a5-178f-9570-119892ca2d06/The_Globe_and_Mail_Shopify_shares_rise_as_tech_company_announces_10_for_1_stock_split_May_2022_.pdf]]></content>
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		<title>Couche-Tard’s end of special voting rights will be closely watched by critics, defenders of dual-class share structures</title>
		<link>https://igopp.org/en/couche-tards-end-of-special-voting-rights-will-be-closely-watched-by-critics-defenders-of-dual-class-share-structures/</link>
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		<pubDate>Sun, 05 Dec 2021 19:53:34 +0000</pubDate>
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		<description><![CDATA[n will set this week on the special voting rights held by the four founders of Alimentation Couche-Tard Inc., leaving the Canadian convenience store giant more exposed to investor pressure than ever before. Its fate will be closely watched by both critics and defenders of dual class share structures. Laval, Que.-based Couche-Tard is one of [&#8230;]]]></description>
		<content><![CDATA[n will set this week on the special voting rights held by the four founders of Alimentation Couche-Tard Inc., leaving the Canadian convenience store giant more exposed to investor pressure than ever before. Its fate will be closely watched by both critics and defenders of dual class share structures.
Laval, Que.-based Couche-Tard is one of Canada’s biggest companies, with a current market capitalization of $50.6-billion. It’s controlled by executive chairman Alain Bouchard and three other founders through a special class of stock that gives them 10 votes for every share they own. A so-called sunset clause – put in place in 1995 when the founders were in their 30s and 40s – says those super-voting rights will end when the youngest of them turns 65 or dies.
That clause will be triggered on Dec. 8, when the youngest founder, Jacques D’Amours, celebrates his birthday. The company’s two classes of shares will subsequently become one class, with uniform voting power. All of the company’s Class B shares will be delisted from the TSX at the close of trading on Dec. 7, and only Class A shares will trade at open the next day under the same ticker, ATD, Couche-Tard said Friday evening in an update on the process.
Mr. Bouchard, who grew up living in a trailer with five siblings and climbed from poverty to become one of Canada’s richest men through his corner store empire, has said that while this is an important moment in Couche-Tard’s history, the end of the company’s dual class share structure is largely a “non-event” for its operations. In his view, Couche’s continued strong performance will help keep any activist investors at bay, while its sheer size will limit the number of companies that could raise the amount of money needed to mount a hostile takeover attempt.
“We have been planning for this for some time,” Mr. Bouchard said in the update. He added that the founders will remain as directors and stay closely involved in the organization. “My commitment and leadership of the business will not change, and I am more confident than ever before that our size, our winning culture and strategy, and the structures that we have put in place … will serve the business well.”
There is more at stake, however, than the emotions of the founders, all of whom are now billionaires as a result of the company’s share price appreciation over the years. At a time when dual class share structures have once again come under scrutiny – a result of the family battle at Rogers Communications Inc. – what happens to Couche-Tard in the months and years ahead could have broader repercussions for the Canadian corporate landscape, observers say.
The number of companies adopting dual class share structures in both Canada and the United States is rising, even as governance experts continue to warn about the drawbacks of such systems. Critics say dual class shares can entrench a company’s leadership when it performs poorly, by limiting the power of shareholders to vote in new directors.
More companies with dual class systems listed on the TSX in the first nine months of 2021 than in the prior two years combined, according to data from the TMX Group.
In Canada, companies that unwind their dual class share structures are “really rare,” said Catherine McCall, executive director of the Canadian Coalition for Good Governance (CCGG). She said what happens at Couche-Tard will be a petri dish experiment that will show how things can unfold for other companies. Her organization represents 54 major institutional investors in Canada, which collectively manage $5-trillion in assets.
The results at Couche-Tard could fuel arguments on both sides of the dual class share debate, Ms. McCall said. “If there are issues with control, then the people that are very much in favour of dual class shares are going to say ‘we told you so.’ And especially in Quebec, that’s an issue.”
All four founders have been selling some of their stakes in the company this year as the sunset date approaches.
[...]
Together, the four founders own 22 per cent of the company’s equity, and they will continue to have 66 per cent of its voting rights while the multiple-voting system still exists. After their special rights expire, that stake, in combination with the support of friendly shareholders such as the Caisse de dépôt et placement du Québec, will still give them “almost a blockage type of group if there’s something we don’t like,” Mr. Bouchard has said.
While that might be true, Couche-Tard will lose the immunity it had against unsolicited bids when the dual class system is dissolved, said François Dauphin, chief executive of Montreal’s Institute for Governance of Private and Public Organizations.
More generally, the company will be more vulnerable to external pressure than it has ever been, he added. For example, institutional investors or proxy advisory firms could press Couche-Tard to change elements of its governance and it will have to respond. Already, the company has signalled it will move to taking analyst questions in real time on its quarterly calls instead of compiling their queries in advance.
“Some people will be happy about this,” Mr. Dauphin said of the move to a single class of shares. “We will see in a few years. If we lose a company like Couche-Tard due to a hostile takeover or reverse takeover by another company somewhere, we might be disappointed.”
In 2016, the founders proposed extending their voting rights, but the company cancelled a shareholder vote on the proposal at the last minute after concluding that it did not have the two-thirds support needed from subordinate shareholders. Behind the scenes, investors expressed uneasiness about the founders’ children inheriting control of Couche-Tard.
Mr. Bouchard took the rejection personally. But time, and the company’s growth since then, appear to have healed what was once a raw wound.
Read more [1]

[1] https://igopp.org/wp-content/uploads/2021/12/Couche-Tard’s-end-of-special-voting-rights_The-Globe-and-Mail_December-2021.pdf]]></content>
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		<title>Rogers is ‘worst case scenario’ for otherwise profitable dual-class share structures</title>
		<link>https://igopp.org/en/rogers-is-worst-case-scenario-for-otherwise-profitable-dual-class-share-structures/</link>
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		<pubDate>Mon, 08 Nov 2021 16:37:58 +0000</pubDate>
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		<description><![CDATA[A recent boardroom clash at Rogers Communications Inc. has revealed the governance risk associated with dual-class share companies, but experts say businesses with that structure can be hard to avoid for investors because they’re big profit generators. Companies with dual-class shares issue different sets of common shares that have different voting and control rights. This [&#8230;]]]></description>
		<content><![CDATA[A recent boardroom clash at Rogers Communications Inc. has revealed the governance risk associated with dual-class share companies, but experts say businesses with that structure can be hard to avoid for investors because they’re big profit generators.
Companies with dual-class shares issue different sets of common shares that have different voting and control rights. This often gives one group of shareholders an outsized share of those rights, typically the firm’s founders, family members or executives.
The structure is used by companies as wide-ranging as Google parent Alphabet and Ford Motor Company. In Canada, the list includes Shopify Inc., Canada Goose Holdings Inc., Bombardier Inc. and Alimentation Couche-Tard Inc.
Investment experts say the structure can be problematic when one class of shareholders wants to take the company in a contested direction, like Edward Rogers did with his late father’s company.
Because Edward Rogers controlled 97.5 per cent of the telecommunication’s firm’s Class A shares, he was able to replace five board members over objections from other directors including his mother and sisters.
A court on Friday confirmed Edward Rogers’ right to make the changes since he held voting control.
“The worst case (with dual-class shares) is what we see at Rogers now,” said François Dauphin, chief executive of the Institute for Governance of Private and Public Organizations in Montreal.
But even these scenarios don’t often cause investors to balk at putting money behind companies with dual-class shares because the structure is so common, especially at top-earning companies, he said.






[...]






Dauphin pointed out that a lot of the names on that list — Shopify, Stingray Group Inc., Lightspeed Commerce Inc. and Nuvei Corp.-- have performed well on the stock market in recent years, making them hard to ignore for investors concerned about dual-class structures.
For example, Shopify shares were worth about $50 five years ago, but are worth nearly $2,000 now.
“Someone not investing in new class share structures would have missed out on a lot of very good, nice new companies, which do have the growth potential that no other companies do have now,” said Dauphin.
While Dauphin understands why people might worry about dual-class shares, he thinks they often make favourable investments because of the influence they have on entrepreneurs.
“They can really have a longer term horizon ... which is extremely interesting for those new technology companies that need that time in order to get those new ideas to mature,” he said.
He also likes the structure because it typically offers some immunity to hostile takeovers, as the higher class and number of shares held by family members or founders is often enough to thwart an acquisition or merger, even if it’s supported by another class of shareholders.
However, for Alexander Dyck, professor of finance, economic analysis and policy at the University of Toronto, the protection against hostile takeovers is what he finds problematic.
“After the founder is no longer in charge, it might be very useful to have someone else coming in and overviewing and if management is not up to task, replacing them or having a take over in some other way,” he said.
Dyck finds the longer a company goes with a dual-class structure, the more likely it is to encounter problems, especially as a firm changes hands to a new generation of a family, sometimes one with less business acumen.
Despite the challenges and his belief in the need for oversight in corporate governance, Dyck agrees many dual-class share companies have had tremendous returns.
“It’s a risk, but when you’re trying to take a look at risk and return, you might find that there’s more return relative to the risk in this company,” he said.
“Investors understand that, so there is a cost.”
Read more [1]

[1] https://igopp.org/wp-content/uploads/2021/11/Rogers-is-‘worst-case-scenario’-for-otherwise-profitable-dual-class-share-structures-_-The-Star_November-2021.pdf]]></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>
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		<pubDate>Thu, 04 Nov 2021 20:39:51 +0000</pubDate>
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		<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>Corporate Purpose, ESG, stakeholders: what’s the deal?</title>
		<link>https://igopp.org/en/corporate-purpose-esg-stakeholders-whats-the-deal/</link>
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		<pubDate>Tue, 17 Nov 2020 15:15:16 +0000</pubDate>
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		<description><![CDATA[Since the publication in 1932 of Berle and Means’ The Modern Corporation and Private Property, “capitalist” societies have been engaged in a forlorn quest for an appropriate definition of the role, justification and “raison d’être” of large corporations. Except for the legal fiction of shareholders as owners, corporations of the 1950’s, 60’s and 70’s, were [&#8230;]]]></description>
		<content><![CDATA[Since the publication in 1932 of Berle and Means’ The Modern Corporation and Private Property, “capitalist” societies have been engaged in a forlorn quest for an appropriate definition of the role, justification and “raison d’être” of large corporations.

Except for the legal fiction of shareholders as owners, corporations of the 1950’s, 60’s and 70’s, were not really “owned” by anyone but controlled by management. In this context, the manager had to be a man (or a woman) of many constituencies, a nimble balancer of conflicting interests, an impartial purveyor of amenities to one and all, a human synthesizer of the rights and interests of all parties which might directly or indirectly be affected by the actions of the corporation. Whether managers actually internalized these norms of conduct is a moot point. That concept of the corporation gave rise to formidable, dominant companies, such as IBM, Johnson and Johnson, GM, GE.

However for the last 40 years or so, with the rise of “financial capitalism” and the clever linking of executive compensation to share price, “creating shareholder value” became the driver of management, the rallying cry of the executive corps. That worked well for the managerial class. No matter that all large corporations proudly brandish statements about their Vision, Mission, Values and Ethics, recriminations and discontent simmered and eventually crystallized around a bundle of expectations now assembled under the ESG banner. [Environment, Social and Governance]

Institutional funds, pension funds, asset managers of various stripes and index funds particularly have joined, indeed led the bandwagon, relentlessly pushing corporations to include ESG issues in their management. Most corporations have given in to the pressure with various degrees of enthusiasm.

The proxy advisory firms (ISS in particular), their noses firmly in the wind, have sniffed the trend and now intend to include ESG factors in their assessment of corporate governance.

That’s the context which led some 181 CEOs of large (mainly American) corporations, under the aegis of the Business Roundtable, to sign a solemn undertaking, a year ago or so. They committed to adopt and impose on themselves a “Purpose” of care for, and nurturing of, their stakeholders. Henceforth, corporate decisions will factor in the interests of various parties, including the civic society and Mother Earth.

Professor Colin Mayer, one of the promoters of the ‘corporate purpose”, puts it this way: “the purpose of business is to solve the problems of people and planet profitably, and not profit from causing problems”. Hum, all leaders of large corporations will subscribe to this broad and vague agenda.

Business circumstances, at least for the oligopolistic leviathans, are changing; the greatest threat to these corporations’ survival often comes from the social and political environment, not mainly or solely from the economic and competitive environment. Large companies with slack resources can cope with the piling up of new demands and expectations in matters of environment, social responsibility, diversity and so on. But three points need to be emphasized here:

1. In this quest for a stakeholder oriented corporation and the multiplication of new ESG mandates, what’s the role of the entrepreneurial spirit, the drive to create and build a business in a world of sharp competition and evolving technologies? The vibrancy of an economy rests on entrepreneurial activity. Let’s be careful, lest we collectively stifle the entrepreneurial drive.

2. As the demands and legal requirements imposed on business corporations largely single out stock-market listed corporations, the current drought of new businesses listing on a stock exchange may worsen as entrepreneurs weigh the costs and benefits of “going public” and private sources of funding mushroom.

3. In Canada, two rulings by the Supreme Court clarified the meaning of acting in “the interest of the corporation” as stipulated in the Canadian Business Corporation Act. Boards of directors in their decisions must give equal consideration to stakeholders and shareholders; boards should not favor any particular group in its decision-making. Basically, we have in Canada a stakeholder model of governance. The U.S. jurisprudence is not that clear on this issue; several legal scholars still argue that maximizing shareholder wealth should be the prime objective of boards of directors. For instance, Professor Bainbridge writes “The law of corporate purpose remains that directors have an obligation to put shareholder interests ahead of those of other stakeholders and maximize profits for those shareholders”.

That is the context for the BRT’s “Purpose” initiative: an unclear American legal framework combined with investor and societal/political pressures on management to adopt a sort of stakeholder model.

But In Canada, this whole agitation about “Corporate Purpose” is moot as stakeholder governance is the law! Canadian boards of directors should be governed accordingly although there is yet little empirical evidence as to how that legal fact has impacted governance in Canada.

When all is said and done, managing for the long term, factoring in the multiple interests of the broader society, desirable goals indeed, will only happen when the games of some financial types are checked and executive compensation is re-arranged to support these objectives. Otherwise, all this agitation is perfunctory, pro-forma, “sound and fury signifying nothing”.

&#160;

Opinions expressed in this article are strictly those of the authors.
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		<title>The &#8221;Purpose&#8221; of a Corporation</title>
		<link>https://igopp.org/en/la-nouvelle-raison-detre-des-entreprises-rediffusion-de-la-conference/</link>
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		<pubDate>Wed, 30 Sep 2020 18:48:14 +0000</pubDate>
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		<description><![CDATA[You have missed our virtual event on &#8221; The Purpose of a Corporation and the Stakeholder Model &#8221; with the renowned lawyer from New York,  Martin Lipton, founding partner of the prominent law firm Wachtell, Lipton, Rosen &#38; Katz  ? With the attendance of more than 300 participants, this conference, organised in partnership with ICD, tackled multiple governance [&#8230;]]]></description>
		<content><![CDATA[You have missed our virtual event on '' The Purpose of a Corporation and the Stakeholder Model '' with the renowned lawyer from New York,  Martin Lipton, founding partner of the prominent law firm Wachtell, Lipton, Rosen &#38; Katz  ?

With the attendance of more than 300 participants, this conference, organised in partnership with ICD, tackled multiple governance challenges including  the transition towards the ''Stakeholder Model'' and concerns about ESG factors.

This conference is now available as a rebroadcast by clicking on the image below.
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