ISS includes Economic Value Added in its Compensation Reports

Institutional Shareholder Services (ISS) announced earlier this year that, in its 2019 proxy research reports, it will be displaying financial ratios derived from a base measure called Economic Value Added (EVA). The EVA ratios will initially be used for informational purposes only, meaning they will not factor in to say-on-pay voting recommendations or evaluations of compensation policies. Nevertheless, boards should understand EVA’s value as a means of assessing management performance, and how ISS intends to use the measure in its reports.

EVA is an estimate of a firm’s true economic profit, that is, its after-tax operating … Continue Reading

A UK dispute sheds light on the duties of a dissident director

A recent decision of the UK’s High Court — Stobart v Tinkler [2019] EWHC 258 (Comm) — has been released following a dispute between directors of a large infrastructure company (the “Company”). The decision, and the circumstances preceding it, serve as a cautionary tale about the duties of a dissident director and of board members in the context of proxy contests.

The board dispute was initiated by a founder and significant shareholder of the company (the “Dissident Director”). After his resignation from the office of CEO in 2017, the Dissident Director remained with the Company as … Continue Reading

Shareholder Activism Reaches Record Levels

Activist Insight recently published the sixth edition of its annual report, entitled “The Activist Investing Annual Review 2019” (the “Review”). The Review analyzes recent global shareholder activism trends, forecasts expected developments in 2019, and highlights and compares jurisdictional data.

Oh, Canada: Increased Canadian Activism

As the Review outlines, 2018 was a notable year in Canada for shareholder activism. Not only did one of the biggest proxy fights of the year stem from Canada, but 75 Canadian companies received public demands from activist investors. The number of public demands received last year is significant considering there were 56 Canadian … Continue Reading

Share Buybacks & Executive Compensation: Aligning Management’s Incentives

As we previously discussed, the use of share buybacks has accelerated in recent years, both in Canada and the United States. This has sparked anxious debate over the extent to which buybacks can form part of an effective long-term growth strategy. Particularly in the United States—where buybacks hit a record of more than $1 trillion USD in 2018 following tax reforms—commentators have blamed buybacks for various ills, including wage stagnation, income inequality, and underinvestment in R&D. In response, some U.S. legislators have sought to curb their use, such as by tying buybacks to conditions including paying employees a certain … Continue Reading

When defamation in hostile proceedings leads to serious consequences

It will come as no surprise to those who have participated in a proxy fight to learn that these disputes can be heated affairs.   Parties to a fight will routinely seek to discredit the other side to bolster their own narrative or otherwise gain a strategic advantage.  In such an atmosphere, it can be difficult to draw the line between behaviour that’s merely aggressive and behaviour that crosses into unethical or illegal territory.  A recent U.S. District Court case, Eshelman v. Auerbach et al, ­provides an example of the serious consequences that can ensue for those who cross this … Continue Reading

Addressing Flawed Corporate Culture

A glimpse at recent news headlines is telling of a mass social awakening underway. From the #MeToo movement to public reprimand against organizations’ unrealistic sales targets, it is clear that it is becoming increasingly important for companies to foster a positive “corporate culture”.  These scandals, once in the public eye, can have long-lasting damaging effects on businesses’ profitability, brand, and marketability.  Indeed, as noted in this previous post, millennials’ investment decisions are heavily influenced by a company’s brand.

But when these scandals do arise, what recourse is available? An article by Jennifer G. Hill, a Professor of Corporate Law … Continue Reading

Access to Corporate Records Amidst Controversy

The rights of shareholders and directors to access corporate books and records is undisputed, but what about the rights of a former Chief Executive Officer, especially when the termination was contentious?

US Jurisprudence:

In the United States, a recent decision by the Delaware Court of Chancery dealt with this scenario. In that case, the CEO was involved in a highly publicized controversy believed to be injurious to the company’s image. An investigation was launched, and a special committee was formed, and the relationship quickly deteriorated. The board severed contractual ties with him, and sought his resignation despite him being the … Continue Reading

Privacy Breaches: The Question of When, Not If

In recent years, a spate of high-profile privacy breaches have made it increasingly clear to consumers and regulators that businesses must take stronger precautions in safeguarding user data and protecting privacy rights. These incidents have become so common that for many companies, the question of whether they will fall victim to cybercrimes has become a matter of when, not if.

The consequences of a privacy breach may be drastic. Companies such as Equifax, Yahoo, and Target – which have all suffered data breaches involving more than 100 million customer accounts – have borne significant reputational costs. Given the importance of … Continue Reading

Lesson Learned: An Examination of Trends in Shareholder Proposals

Shareholder proposals are often viewed as an essential tool for maintaining corporate accountability, but what role do they play in shaping corporate governance? ISS Analytics recently published a study  (the Study) that reviewed the impact of shareholder proposals on corporate governance practices among U.S. companies since 2000. The Study offers helpful insights into shifting trends in corporate governance and investor attitudes, and provides important lessons for Canadian issuers.

A brief history of shareholder proposals in the U.S.

According to the Study, after a significant surge in the number of governance proposals in the early 2000s, the number of proposals … Continue Reading

The Importance of Corporate Governance in Cannabis Companies

Every year The Globe and Mail’s Report on Business ranks governance of Canada’s corporate boards in the “Board Games.” In the recently published 2018 edition, the boards of directors of 242 companies and trusts in the S&P/TSX index were assessed. The companies are awarded points for various categories, namely, board composition, shareholding and compensation, shareholder rights, and disclosure. Companies with more stringent governance policies in place are awarded higher points. For example, a company with two-thirds independent directors will be awarded more points for that category than a company that has the majority of its directors being related … Continue Reading

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