Shareholder activism is spreading like either a corporate virus or a vaccination depending on your taste for compensation disclosures, declassified boards and market consolidation. And Canada is emerging as the testing ground for new strategies.
The shareholder spring, as it has been coined in the UK, is about to overtake Europe according to attorneys speaking at the International Bar Associations M&A conference last week.
And the spike in US shareholder activism, starting last year, has crossed the Canadian border. A recent example saw Canadian Pacific Railway CEO Fred Green ousted last month in response to a campaign led by activist shareholder William Ackman, founder of Pershing Square Capital Management.
William Anderson, a managing director at Goldman Sachs, said it was a big change when the Ontario Teachers Pension Fund backed Ackmans plan to support Hunter Harrison, the former CEO of Canadian National Railway.
Ive always thought this was a risky strategy to try to take out a sitting CEO, Anderson said. They did that and it seems to have worked. I think this a sea change in proxy fights.
Research in Motion, another Canadian company, is dealing with dissident shareholders over its executive compensation packages.
David Chaikof, a Toronto-based Torys partner , said RIM was ahead of the curve in negotiating with NEI Investments to have a shareholder proposal withdrawn before the companys annual meeting last year.
The activists didnt step off, Chaikof said. The RIM story is not yet over.
Canadian activists differ from their southern neighbors in their advocacy for say-on-pay voting which can lead to other areas of corporate governance contention, like majority voting of directors.
The latest Institutional Shareholder Services (ISS) US policy guidelines suggest shareholders vote case-by-case on compensation committee members and managements say-on-pay proposal if the previous proposal received less than 70% support an increase from the less than 50% threshold of years prior.
Arthur Crozier, chairman of Innisfree M&A in New York, said this was particularly troubling because a lot of US companies have adopted majority voting policies. If a directors compensation receives less than 70% support, they could be required to resign the following year.
These votes which could be say-on-pay could result in negative recommendations on the board the following year, [and] could provide an opening to activists because you already have a certain block of shares voting against the directors because of possible ISS recommendations, Crozier said. Its been a very big concern in the United States.
While Canadian boards do not face the same level of scrutiny on compensation as their US counterparts, Canadian pension funds are active in supporting these policies in foreign jurisdictions.
The activism front has certainly gone global, Chaikof said. We see our pension funds going offshore and taking very activists positions on the M&A front or the executive compensation front.
Say-on-pay could have the largest impact on corporate governance in the UK, where a proposal on making executive compensation votes legally binding sits before Parliament.
Freshfields Bruckhaus Deringer partner Julian Pritchard said there is much more public dissent from institutional investors over say-on-pay in the UK. The same can be said for corporate mergers.
The other area, and since everyone has to find a catch-phrase for everything these days is falter-at-the-alter, and that is where companies are putting strategic proposals and transactions to their shareholders and the shareholders are voting those down, Pritchard said.
Public companies in other European jurisdictions are expected to be the next to face say-on-pay and majority voting proposals as the shareholder spring migrates from offshore. Our expectation is this will be a global phenomenon, Antonio Weiss, global head of investment banking at Lazard, said.