Playbook offers rules for engagement
Institutional activism can spark change
Canadians can expect more of the type of institutional investor activism and pressure that led Bombardier Inc. executive chairman Pierre Beaudoin to relinquish the first part of his title.
A governance organization backed by more than 50 institutional investors — including a handful of large pension funds that publicly revealed their intention to withhold support for Beaudoin’s election to Bombardier’s board — is rolling out seven new principles encouraging such engagement with companies.
In what reads like a playbook for the events that unfolded last week around transportation company Bombardier, the Canadian Coalition for Good Governance is laying out how to “escalate engagement activities if a board is unresponsive to the concerns communicated.”
For example, institutional investors such as pensions and wealth managers are urged to withhold votes for directors, or to oppose so-called say on pay resolutions that seek shareholder approval for executive compensation. They are also encouraged to make public statements about their concerns, and to report on their voting activities.
“The public action taken by the institutional investors last week in relation to Bombardier is a prime example of institutions following several of CCGG’s stewardship principles,” Stephen Erlichman, executive director of the Toronto-based shareholder rights’ organization, said in an interview.
He said the principles are “designed to assist institutional investors fulfil their responsibilities to their beneficiaries or clients and enhance the value of their investments.”
The issues at Bombardier began with complaints about executive compensation.
The focus then landed on Beaudoin, whose family started Bombardier and continues to control the company through multiple voting shares. His role as executive chairman was criticized because he occupied a role in management as well as leading the board of directors. In addition, institutional shareholders wanted a board chairman who was independent of the company’s management and the controlling shareholder.
Pension funds lined up and declared they would withhold their votes for Beaudoin’s reelection to Bombardier’s board of directors.
Under public pressure, Beaudoin gave up his management role but he remained at the helm of the board, to which he was re-elected 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.