Bombardier dust-up highlights challenges

Continued from FP1

The issues at Bombardier began with complaints about executive compensation. The firm handed out raises to its top five executives after taking hundreds of millions of dollars in loans and other government funding, and following two rounds of layoffs affecting thousands of employees around the world.

The focus then landed on Beaudoin, whose family started Bombardier and continues to control the company through multiple voting shares. His role as executive chair was criticized because he occupied a role in management as well as leading the board. Institutional shareholders wanted a board chair who was independent of management and the controlling shareholder.

Over several days last week, pension funds including the Ontario Teachers’ Pension Plan Board, the Caisse de dépôt et Placement du Québec, and the Canada Pension Plan Investment Board lined up and declared they would withhold their votes for Beaudoin’s re-election to Bombardier’s board.

In a letter sent to Bombardier on May 8, Kim Thomassin, executive vice-president of legal affairs at the Caisse, said even though adjustments were made to the compensation plans, the pension fund would also vote against the company’s resolution on compensation because of concerns over the “lapse in governance” that led to the initial decisions.

Under public pressure, Beaudoin gave up his management role but he remained at the helm of the board, to which he was reelected Thursday.

Bombardier’s compensation resolution also passed.

But the company’s response to the activist stance was considered “a step in the right direction” by the institutional shareholders, as expressed by Caisse spokesperson Maxime Chagnon.

Shareholders are somewhat limited in what they can accomplish by voting down company resolutions — particularly when there is a majority shareholder, as is the case with Bombardier. Rejections of “say-on-pay” compensation votes aren’t necessarily binding on a board. And even Toronto Stock Exchange rules that compel a director to offer to step aside if investors withhold more than 50 per cent of votes needed for election don’t apply to majority-held companies.

Still, the CCGG, which counts the Caisse among its members, says institutional investors have a duty to engage with firms they invest in on behalf of their beneficiaries and clients. According to the organization’s new stewardship principles, this should include actively monitoring companies, collaborating with other institutional investors, and working with policy-makers, with a focus on long-term sustainable value. In the document to be published Monday, the CCGG urges institutional money managers to speak at shareholder meetings and submit proposals, even if they have to requisition a special meeting to address specific concerns.