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	<title>IGOPPRisk management &#8211; IGOPP</title>
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		<title>« Bombardier has a 50% chance of being in rail business in three years »</title>
		<link>https://igopp.org/bombardier-has-a-50-chance-of-being-in-rail-business-in-three-years/</link>
		<comments>https://igopp.org/bombardier-has-a-50-chance-of-being-in-rail-business-in-three-years/#respond</comments>
		<pubDate>Fri, 17 Jan 2020 19:47:41 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP dans les médias]]></category>
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		<category><![CDATA[Chef de la direction]]></category>
		<category><![CDATA[Gestion des risques]]></category>
		<category><![CDATA[Risk management]]></category>

		<guid isPermaLink="false">https://igopp.org/bombardier-has-a-50-chance-of-being-in-rail-business-in-three-years/</guid>
		<description><![CDATA[« Michel Nadeau, executive manager at the Institute for Governance and former deputy CEO at Caisse de dépôt, weighs in on Bombardier&#8217;s struggles. He says that while he believes the company will survive, it will be a much small corporation. He also says that there is a 50% chance that the Montreal-based business will still [&#8230;]]]></description>
		<content><![CDATA[« Michel Nadeau, executive manager at the Institute for Governance and former deputy CEO at Caisse de dépôt, weighs in on Bombardier's struggles. He says that while he believes the company will survive, it will be a much small corporation. He also says that there is a 50% chance that the Montreal-based business will still be in the rail business in the next three-five years. »

Pour voir l'entrevue, veuillez cliquer ici. [1]

 [2]

[1] https://www.bnnbloomberg.ca/video/~1878681
[2] https://www.bnnbloomberg.ca/video/~1878681]]></content>
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		</item>
		<item>
		<title>« How a proposed new ‘right’ for shareholders could badly damage corporate boards »</title>
		<link>https://igopp.org/who-should-pick-board-members-3/</link>
		<comments>https://igopp.org/who-should-pick-board-members-3/#respond</comments>
		<pubDate>Thu, 07 Dec 2017 15:52:15 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[Articles d’actualités]]></category>
		<category><![CDATA[Actionnaires]]></category>
		<category><![CDATA[Gestion des risques]]></category>
		<category><![CDATA[Indépendance des administrateurs]]></category>
		<category><![CDATA[Institutional investors]]></category>
		<category><![CDATA[Investisseurs institutionnels]]></category>
		<category><![CDATA[Parties prenantes]]></category>
		<category><![CDATA[Risk management]]></category>
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		<guid isPermaLink="false">https://igopp.org/who-should-pick-board-members-3/</guid>
		<description><![CDATA[« There is a frenzied rush to get/give a new ‘right” to shareholders, the right to put up their own nominees for board membership. Boards of directors, so goes a dominant opinion, are not to be fully trusted to pick the right kind of people as directors or to shift the membership swiftly as circumstances [&#8230;]]]></description>
		<content><![CDATA[« There is a frenzied rush to get/give a new ‘right” to shareholders, the right to put up their own nominees for board membership. Boards of directors, so goes a dominant opinion, are not to be fully trusted to pick the right kind of people as directors or to shift the membership swiftly as circumstances change, unless some Damocles sword is installed over their heads.

By the end of the 2017 proxy season, 60% of S&#38;P 500 companies had, voluntarily or forcibly, adopted proxy access for board nominations. The following provisions have become standard: ownership of 3% of a company’s voting shares for at least three years, and the right to nominate up to 20% of the board by a shareholder or group of up to 20 shareholders.

This access to voting proxies is about to become an integral part of corporate governance in Canada. All banks have come on board, though still claiming that the existing legal threshold of 5% should be maintained.

The Canadian Coalition for Good Governance (CCGG) has now come out swinging in support of this practice for all publicly traded companies. (Janet McFarland and James Bradshaw, Globe and Mail; November 30th 2017)

It is very unlikely that major corporations will try to oppose the movement as many institutional investors are fiercely supportive of this measure. However, the eventual impact of this initiative on corporate governance raises important issues that seem totally absent from the discussions around this new “right” of shareholders.

Proxy access may have adverse effect on internal board dynamics 

Shareholder access to the director nomination process brings forth a host of issues related to its application as well as a significant risk of adverse effects on board dynamics including:

 	A partial takeover of a responsibility historically assumed exclusively by the board;
 	the implicit belief that directors are only accountable to the shareholders and have a duty to promote exclusively the interests of shareholders, in spite of two Supreme court’s interpretation of the board’s responsibility to include other stakeholders;
 	the reputational issues of the directors submitted to a contested election and the self‑protective behaviour this would bring about;
 	the actual risk of secret negotiations being held between management and investors who are intending to propose nominees;
 	the overwhelming influence accruing to proxy voting advisory firms, whose clients would expect their voting recommendations on the nominees;
 	the risk that the independence of directors nominated by shareholders would be compromised or so perceived;
 	the risk of creating factions and a poisonous atmosphere within the board, which would hinder the proper functioning of the board;
 	the risk of ending up with a board deficient in relevant experience or competence;
 	the risk that the process be hijacked by single-issue groups of shareholders.

The consequences for an individual director being very publicly voted out of a board would be significant and painful, both in economic and reputational terms; this is true for both incumbent nominees and the new nominees proposed by the shareholders.

Faced with the risk and arbitrary nature of a contested election, the directors would try to promote their personal contributions with institutional investors (and proxy advisors), thus generating an unhealthy competition among colleagues. In any event, how would the thousands of shareholders, called upon to choose between several nominees, decide for which nominees to vote, which nominees to dismiss when the voting proxy contains more nominees than available seats?

Smaller institutional funds may well come to rely on proxy advisors (such as ISS or Glass Lewis), again increasing by tenfold the influence of these outfits on the governance of public corporations. These proxy advisors will propose, as per their usual practice, some obvious, measurable criteria to make this choice: age of the directors, number of years as a member of the board, which are, in fact, arbitrary criteria, uncorrelated with actual performance.

Even more likely, boards of directors will initiate discussions and negotiations with institutional investors who have indicated their intention to propose their own nominees in an effort to reach common ground. These secret negotiations are likely to result in some of the nominees proposed by institutional investors becoming the nominees of management and some current directors presumably viewed, more or less deservedly, as being weaker (older, longer tenure) forcibly retired.

Anyone believing that this process is likely to produce stronger boards in the long run needs to consider anew the risks imposed on current and prospective board members as well as the likely impact on the climate and dynamics of boards.

This list of plausible consequences from granting shareholders the right to propose their nominees for the board should give pause to this seemingly unstoppable rush and get some thoughtful governance specialists to push back. »

&#160;

Les opinions exprimées dans ce texte n'engagent que l'auteur.
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		<title>« Dow-Jones goes nuclear on dual class of shares »</title>
		<link>https://igopp.org/dow-jones-goes-nuclear-on-dual-class-of-shares/</link>
		<comments>https://igopp.org/dow-jones-goes-nuclear-on-dual-class-of-shares/#respond</comments>
		<pubDate>Thu, 24 Aug 2017 14:41:18 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[Articles d’actualités]]></category>
		<category><![CDATA[Actions multivotantes]]></category>
		<category><![CDATA[American governance]]></category>
		<category><![CDATA[Gestion des risques]]></category>
		<category><![CDATA[Gouvernance américaine]]></category>
		<category><![CDATA[Institutional investors]]></category>
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		<category><![CDATA[Risk management]]></category>

		<guid isPermaLink="false">https://igopp.org/dow-jones-goes-nuclear-on-dual-class-of-shares/</guid>
		<description><![CDATA[« In July of this year, Dow-Jones, goaded by the reaction to Snapchat having gone public with a class of shares without voting rights, announced that, after extensive consultation, it had decided to henceforth eliminate dual-class companies from its indices, in particular the S&#38;P 500 Index. Over the last ten years, putting money in passive index funds has [&#8230;]]]></description>
		<content><![CDATA[« In July of this year, Dow-Jones, goaded by the reaction to Snapchat having gone public with a class of shares without voting rights, announced that, after extensive consultation, it had decided to henceforth eliminate dual-class companies from its indices, in particular the S&#38;P 500 Index.

Over the last ten years, putting money in passive index funds has become a popular form of investment. An index fund is a pool of money invested in a way that is proportional to the composition of an overall index, the S&#38;P 500 being the most popular. Already in 2016, index funds managed some 506 billion $US in assets, accounting for 29% of all shares traded on American stock exchanges.

For a company to be excluded from the indices means that none of this large pool of money will be channeled into its shares, reducing demand and possibly depressing its share price. Of course, Dow-Jones quickly grand-fathered such notable large dual-class companies as Alphabet (Google), Facebook, Berkshire Hathaway (Warren Buffet’s company) and so on.

Targeting family companies and entrepreneurs

The Dow-Jones decision is actually meant to scare budding entrepreneurs when the time comes for them to “go public”. It is a well-known and important fact that entrepreneurs want to keep control of their business so that they can implement their strategic vision unhindered by short-term shareholders and their financial coterie.

As tapping into public markets to finance their growth usually meant listing their company on a stock exchange, entrepreneurs sought to keep control of their company by issuing two classes of shares, one with multiple votes, which they retained and through which they would control their company over time.

Entrepreneurs usually found very receptive investors who did understand that dual class of shares were the price to pay to ride the value creation of these entrepreneurs. Actually, some 11% of all traded companies on U.S. exchanges have adopted a dual class of shares.

In 2015, according to Prosoaker Research (2016), 24% of all new share offerings (IPOs) in the U.S. were made with a dual class structure, a sharp increase from 15% in 2014 and 18% in 2013. So, young companies such as Alphabet (i.e. Google), Facebook, LinkedIn, TripAdvisor.  (and, in Canada, Cara, BRP, Shopify, Spin Master, Stingray) have issued two classes of shares to assure an unassailable control over their companies and relative imperviousness to the short-term gyrations of earnings and stock price.

The surging popularity of this type of capital structures has agitated institutional investors and other types of shareholders who pretend, with nary a legal support, to be the «owners» of the companies. Skirmishes about dual class of shares then turned into an all-out war led by index fund managers, some institutional investors, influential academics, the governance industry, investment bankers et alia. They allege that a dual class of shares results in a discounted value and a poor relative performance. They are prone to claim that the “one share-one vote” principle is the moral equivalent of the sacrosanct “one person-one vote” of electoral democracy.

Of course that equivalence between electoral democracy and shareholding is totally bogus. The real equivalence would call for “one shareholder-one vote”. In a democracy, the fact that one pays a million dollars in taxes does not translate in a thousand votes as compared to one who pays one thousand dollars in taxes!

Furthermore, in an electoral democracy, new comers have to wait for a considerable period of time before being granted citizenship and thus the right to vote; and certainly visitors and tourists who happen to be in a foreign country on its election day do not get to vote. That’s how democracies work; but “corporate democracy” gives the right to vote immediately upon purchase and share-swappers, tourists in effect, do get the right to vote if they happen to be around on record date.

What about the performance of companies with a dual class of shares?

The Canadian evidence, as the following table suggests, is pretty overwhelming that dual-class companies actually perform well.

 Performance of Canadian dual class firms, compared to single class firms  (or reference index) over 5, 10 and 15 years periods



As for the U.S. case, it is ironic that at virtually the same time Dow-Jones was issuing its edict, a team of respected authorities on family firms and dual class of shares made public the results of a vast study based on 2,379 industrial firms (non-financial and non-utility) over the years 2001 to 2015.

What do they conclude?

“Striking, we find a very strong association between founding family ownership and dual class firms. Founders or their descendants control nearly 89% of dual class firms but only about 28% of single class firms.”….“[W]e find that a buy-and-hold strategy of dual class family firms earns excess returns of about 350 basis points [3.5%] more per year relative to our benchmark (single class nonfamily firms). Results from the matched sample suggest an even greater excess return – about 430 basis points more per year versus the reference firms. After controlling for time, industry, and a wide variety of firm-specific factors, our analysis does not lend support to the notion that dual class structures harm outside investors.”

(Anderson, Ronald, Ezgi Ottolenghi and David Reeb, “The dual class premium: a family affair”, SSRN July 19, 2017)

Who really gains from the Dow-Jones decision?

Clearly, short-term investors and activist hedge funds stand to gain from the Dow-Jones license to push and shove emerging family companies to undertake financial engineering manoeuvers, or sell their company in order to produce quick gains in share price. Thus, an additional group of companies usually out of their reach will now become potential targets.

How will entrepreneurs of the future react to this threat?

They may shun public funding and stock market listing, curtailing their growth or finding alternative modes of financing. They may resist trading their control for “inclusion” in an index.

They may correctly surmise that “passive” investors in index funds will complain bitterly to sellers of these funds about the exclusion of new, high-tech, high-performance companies from their index.

Some enterprising fund manager may well create an index strictly reserved for dual-class companies.

Unfortunately, some, too many, entrepreneurs may give up their control under threat of exclusion from indices. Dow-Jones’ short-sighted, poorly grounded decision will be responsible for this outcome.

Conclusion

 It would have been far wiser for Dow-Jones to use its leverage to get dual class companies to abide by some simple rules in order to be included in their indices, such as was proposed by the Canadian Coalition for Good Governance and IGOPP:

 	Ban any company with a class of shares without voting rights;
 	Impose a mandatory pro rata distribution of change-of-control consideration, what is called a “coattail” provision in Canada;
 	Cap the ratio of multiple votes so that controlling shareholder must hold a substantial economic interest to maintain absolute control of the corporation;
 	Demand some form of acceptable sunset provision from a vast gamut of choices. “Careful selection of such provisions can satisfy both the desire of entrepreneurs to pursue their idiosyncratic visions for value creation without fear of interference or dismissal and the need of investors for a voice to ensure management accountability. Prohibition [of dual class of shares]and strict time-based [sunset clause] are neither necessary nor appropriate given the plethora of other alternatives”

(“Sunrise, Sunset:An Empirical and Theoretical Assessment of Dual-Class Stock Structures”, Andrew William Winden, SSRN, 2017) 

&#160;

The author is solely responsible for the opinions expressed herein. »
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		<title>« Trump-era shift: CEOs find a voice for moral outrage »</title>
		<link>https://igopp.org/trump-era-shift-ceos-find-a-voice-for-moral-outrage/</link>
		<comments>https://igopp.org/trump-era-shift-ceos-find-a-voice-for-moral-outrage/#respond</comments>
		<pubDate>Thu, 17 Aug 2017 15:19:07 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
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		<guid isPermaLink="false">https://igopp.org/trump-era-shift-ceos-find-a-voice-for-moral-outrage/</guid>
		<description><![CDATA[« Corporate America started the year ready to engage with a controversial but business-minded president. This week CEOs have risen in chorus to denounce Trump&#8217;s lackluster response to racism. Not since the 1930s, when prominent business heads publicly broke with Franklin Roosevelt, has a US president seen such a revolt by leading business executives. [ [&#8230;]]]></description>
		<content><![CDATA[« Corporate America started the year ready to engage with a controversial but business-minded president. This week CEOs have risen in chorus to denounce Trump's lackluster response to racism.

Not since the 1930s, when prominent business heads publicly broke with Franklin Roosevelt, has a US president seen such a revolt by leading business executives.

[ ... ]

Today, a string of business leaders are upbraiding a conservative president because of his character, specifically his fumbled attempts at denouncing neo-Nazis and white supremacists holding a rally turned violent in Charlottesville, Va., over the weekend.

In 1936, Roosevelt seized the moral high ground, saying he was battling “the forces of selfishness” and went on to a landslide election victory.

Now, it appears it’s the CEOs who have the high ground. While President Trump waited two days before specifically denouncing the ideologies of white supremacists, the KKK, and others, then seemed to undercut that denunciation in a subsequent press conference, executives made clear their opposition to hate groups and quit two White House advisory boards in droves –a rare and stinging rebuke from the business community to a sitting president.

[ ... ]

Taking such high-profile positions on nonbusiness issues is an uncomfortable position for many CEOs. They want to avoid controversy, but the president’s comments were so out-of the-mainstream that taking a stand against them offered no downside.

“This was a no-brainer,” says Yvan Allaire, executive chair of the Institute for Governance in Montreal. But he cautions that this does not signal a new era of corporate outspokenness, because CEOs can’t say anything that would hurt their company’s value. Shareholders and hedge funds would be quick to punish the stock.

“CEOs are as moral a group of people as any other,” he says. “But their ability to take moral stands is constrained.” »

Lire la suite [1]

[1] https://www.csmonitor.com/Business/2017/0817/Trump-era-shift-CEOs-find-a-voice-for-moral-outrage]]></content>
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