Governance on the radar for 2018
Blockchain, cryptocurrencies, cannabis legislation, proxy contests, proxy access, diversity and climate change.
Those topics, either emerging issues or front and centre topics in 2017, are expected to continue to be major themes in 2018, all part of the relentless pressure exerted by institutional shareholders — and regulators and various levels of government — for issuers to embrace a wider set of objectives than profit maximization.
The law firm Osler discussed most of those themes in the 2017 legal year in review with the issue of growth targets, a matter that accompanied a healthy increase in initial public offering activity in 2017, attracting special attention.
Osler noted, “the quality of a company’s growth strategy and management’s track record for achieving growth can significantly impact the success of an IPO as well as ongoing share price performance.”
The report didn’t focus on any particular IPO, but some have performed better than others, in part because the jockey riding the new-tothe- market company has a track record that provides a level of comfort to potential investors.
The recent IPO by Stelco Holdings is one such example: the company, which has twice gone through bankruptcy protection, was acquired by Alan Kestenbaum, chairman of Bedrock Industries in late 2016, and taken public at $ 17 a share last month. It now trades at $ 22.94. Kestenbaum enjoys a stellar reputation for acquiring, fixing up and selling companies.
Some other IPOs haven’t performed as well.
In an interview, Jeremy Fraiberg, an Osler partner, said growth targets, when combined with guidance, represent a new development and raises questions, including the duty to update and the hardness of those targets.
In short, are the forecasts five years out aspirational? “It’s an interesting area. It’s loose but important. Future information is what we care about,” said Fraiberg, who argues a balance is required between a desire “to tell investors what you think without hamstringing yourself to managing quarter by quarter.”
Fraiberg doesn’t expect proxy access — a practice established in the U.S. that came north this year with proposals put to shareholders at TD and Royal Bank — to be a major theme in 2018.
“I think it may be a big nothing,” he said, because there is already some “form of proxy access” at a five-percent threshold under existing statutes. “And it hasn’t been used to great effect. If one is determined to change a board, more often than not, they need to run a campaign.”
Fraiberg’s view is different from that held by Mark Wilson, a partner at Wildeboer Dell el ce, who believes proxy access will extend to medium- sized companies, because it has been “acceded to” by two major banks and because the Canadian Coalition for Good Governance is a major supporter.
“Institutional shareholders will take notice. I don’t think they cannot,” he said, noting it’s far easier for large shareholders to meet the rules for proxy access: have a three-per-cent stake and own that stake for six months.
“It’s much more practical,” given that Canada is home to many companies with a $1-billion market cap or less, and given the “concentration of institutional investment” in those companies.
Wilson believes there will be a flow- on benefit if proxy access grows in importance: it will change the idea of proxy contests.
“If it gains traction, the ability of institutional shareholders to positively affect companies will change. It builds a co- operative approach and is consistent with institutional shareholders working with companies for long-term strategies,” said Wilson, noting proxy access could arise from one or two ways: a shareholder proposal that would amend a bylaw, or a policy change initiated by the company.