Dissidents hold sway at Granite

The bruising proxy battle at Granite REIT ended rather meekly Wednesday with a release indicating three incumbent trustees and directors would not be standing for re-election. Instead, those three are being replaced by nominees of the dissidents, FrontFour Capital and Sandpiper Group.

But getting to the stage where the dissidents were elected required a myriad of behind the scenes activities that, in total, represent shareholder democracy in action.

And just as in politics where the will of the people must prevail, the will of the shareholders must also be determined in a contested proxy battle, a process that involves financial advisers, proxy advisory firms and transfer agents.

But it’s a bit of a jungle. “Service providers are doing the best job they can in a system that doesn’t work very well,” said a report by Davis Ward Phillips Vineberg in 2010. It’s not clear how much improvement has been made since then.

On the Granite battle, Trimaven Capital Advisors, Norton Rose Fulbright and Kingsdale Advisors acted for the dissidents, while BMO Capital Markets, Blake Cassels & Graydon, and D.F. King acted for Granite. Computershare was the transfer agent and Broadridge Financial Solutions managed the voting process.

With great simplification, here’s the plumbing at work.

It starts when management issues a circular and a proxy form; the dissidents then release their documents. Granite issued its material in mid-May. The proxy forms come in different colours: those supporting management complete the white form; those supporting the dissidents complete a blue form. And the information on the two is different — management only listed its eight nominees; while the dissidents used a fourpage universal proxy to list its three nominees plus the eight put forward by Granite. For each of the 11 nominees the choice was either for or withhold. Shareholders can vote for up to eight directors and trustees.

In making their decision, shareholders can use email, fax or mail. And there were two cut-off dates: June 12 for the dissidents and June 13 for the management slate. (One reason for that is the dissidents are required to deliver their proxies to the transfer agent on June 13.)

It’s understood about 60 per cent of the outstanding units were voted on the blue dissident form — though not all would have been cast in favour of the dissidents. Hence, it couldn’t be said, at that time, that the dissidents were winning as only Granite has perfect information.

“But we felt highly confident of our three given the support we had received and the historical voting at past annual meetings,” noted Amy Freedman chief executive at Kingsdale Advisors. At its 2016 annual meeting, about 80 per cent of the 47 million units outstanding were voted.

Freedman termed the fight “an epic battle,” based on the perceived quality of the directors, and the performance of the company. “We had a well thought-out strategy, we didn’t ask for control but a significant presence and made a very nuanced argument,” she said noting support from advisory firms, ISS and Glass Lewis was “significant,” given the link between their recommendations and institutional voting. “But we question some of the shareholder advice that Granite was given along the way.”

But before victory could be declared, management unveiled its support. It is allowed to try and convince those who didn’t vote for its slate to change their mind. Presumably support for three of its eight wasn’t enough to make that effort worthwhile.

After the meeting Granite said the eight were elected by show of hands but didn’t disclose the actual votes for the elected directors.