The Canadian Securities Administrators (the “CSA”) have issued CSA Staff Notice 61-303 and Request for Comment – Soliciting Dealer Arrangements (the “Notice”) on the use of soliciting dealer arrangements. “Soliciting dealer arrangements” generally refer to agreements entered into between issuers and investment dealers under which the issuer agrees to pay to the dealers a fee for each security successfully solicited to tender to a bid in the case of a take-over bid, or to vote in favour of a matter requiring securityholder approval. In many cases, the payment of any fee is contingent on “success” and/or … Continue Reading
Activist Insight recently published the fifth annual edition of The Activist Investing Annual Review (the Review). The Review analyzes global activist investing trends over the past few years, with an emphasis on 2017, forecasts developments expected in 2018, and breaks out key statistics by jurisdiction.
The 2018 Forecast
The Review identifies four big trends expected to make their mark on 2018 activism:
- Return to large-cap targets. With more institutional investors recognizing the benefits of an activist approach, such investors have become more and more willing to support activist campaigns. This support allows activists to challenge larger and larger
Discussions around board gender diversity are picking up steam in the lead up to the 2018 proxy season. Some of the leading proxy advisory firms, namely the Institutional Shareholder Services (ISS) and Glass Lewis & Co. LLC (Glass Lewis), appear to have caught wind of the discussions – both firms added a voting policy in respect of board gender diversity to their 2018 proxy voting guidelines for Canada.
Glass, Lewis & Co., LLC (Glass Lewis), a leading governance and proxy voting firm, has recently released its 2018 Policy Guidelines for Proxy Advice in Canada. The following are three of its key changes from the 2017 Policy Guidelines:
Board Gender Diversity
In the new year, Glass Lewis will not make voting recommendations solely on the basis of board diversity. However, starting in 2019, Glass Lewis claims that it will generally recommend voting against the nominating committee chair of a board that has no female members, or has not adopted a formal written gender diversity policy. This … Continue Reading
On November 1, 2017, the staff of the US Securities and Exchange Commission’s Division of Corporation Finance (Staff) provided important guidance to companies and shareholders on how Staff will evaluate arguments to exclude shareholder proposals from proxy materials. Among other considerations, the Staff Legal Bulletin No. 14I (CF) (the Bulletin) deals primarily with the “ordinary business” and “economic relevance” exclusions found in Rule 14a-8 of the Securities Exchange Act of 1934 (the Rule). The Bulletin reflects Staff’s continuing effort to address issues arising under the Rule, and among other things, transfers to boards of directors the … Continue Reading
Shareholder activism is now a global phenomenon. Activists commonly seek to shake up the board of a target company in hopes of instilling change and increasing shareholder value. The impact on target companies can be both disruptive and enduring – often resulting in turnover among top management and in particular chief executive officers (CEOs). A recent study by Lazard found that since 2013, the average annual turnover rate of CEOs at target companies was 23 percent, compared to 12 percent at non-target companies.
It should not come as a surprise that successful activists who secure board seats may have greater … Continue Reading
On November 16, 2017, Institutional Shareholder Services (ISS) released its 2018 Americas Proxy Voting Guidelines Updates (the Updates). These updates implement changes in a number of areas, with the most significant being a gender diversity policy and new criteria for determining when a director is “overboarded”. Except where indicated below, the changes are effective for meetings held on or after February 1, 2018.
The Updates implement ISS’s proposal, in its 2018 Benchmark Policy Consultation, to implement a gender diversity policy. For S&P/TSX Composite Index companies, ISS will generally recommend a withhold vote for … Continue Reading
The Canadian Real Estate sector may be in for a shake-up. Reuters recently reported (here) that activists may be eyeing real estate investment trusts (REITs), and their approximate combined C$67 billion in market capitalization, as ripe targets for activist campaigns in light of: attractive prices, vulnerability in the market based on uncertainty surrounding the effects of interest rate shifts, and potential opportunities to unlock unrealized value.
In particular, with the Canadian REIT index down approximately 7% since August 2016, activists may ramp up efforts to target REITs for activist campaigns. Recent interest rate hikes may have … Continue Reading
Kingsdale Advisors (Kingsdale) recently released its annual Proxy Season Review for 2017. The report examines trends observed in 2017 and provides analysis on what the future may hold for Canadian proxy contests. The report also outlines strategic recommendations for Canadian companies.
Looking back – trends from 2017
- Shareholder activism: alive and well. Kingsdale reports that despite a drop-off in the number of public campaigns so far in 2017 (21) as compared to 2015 (55) and 2016 (33), the number of public campaigns to-date demonstrates the continued prevalence of activism in Canada with respect to public companies. The
Activist investors engaged in proxy fights typically mount aggressive public relations campaigns in order to undermine shareholder confidence in a target company’s performance and leadership, whether through social media, online forums or by using the more traditional PR channels. In response, target companies have turned to a number of defensive measures, many of which have been previously discussed on this blog. As part of their proxy defence playbooks, target companies may threaten or actively pursue legal action, such as by filing complaints with securities regulators or by suing for defamation.
Naturally, the decision to commence legal action must take into … Continue Reading
Shareholders are placing increased value on non-financial factors when making investment decisions. Some of these factors are environmental and social issues. In particular, shareholder proposals on climate change have recently gained some traction.
In 2016, a record breaking number of climate change resolutions were filed. This shift in focus is attributed to the 2015 Paris Accord, where 195 nations committed to take measures to mitigate global warming. The accord’s objective was to garner a global response to climate change, and it succeeded in enlisting a pledge from these nations to limit temperature increases to well below 2 degrees Celsius.
Interestingly, … Continue Reading
Social media has changed how we live. We have access to extensive information and global connections at our finger tips. Given its already well-established presence in our personal lives, it comes as no surprise that social media has become a popular platform for campaigning activists. In fact, 2017 marks one decade since an individual shareholder of a web service provider voiced his disagreement with the company’s business strategy on YouTube. The videos ultimately resulted in the replacement of the company’s chief executive and opened the floodgates for activist shareholders.
Twitter has been the platform of choice for a famous … Continue Reading
In a report entitled “M&A Activism: A Special Report” (the Report), the editor-in-chief of Activist Insight describes the types of companies most at risk of being targeted by shareholder demands, providing steps that can be taken to increase the resilience of M&A transactions.
The Report identifies a number of trends and findings, as summarized below:
- Deal Prevention: M&A demands from shareholders have increased in recent years in both Canada and the United States, most commonly by activists seeking to prevent deals, to pursue appraisal rights, and to make their own takeover bids. Notably, 45% of Canadian shareholder activism
Activist hedge funds have grown up and gone global, reinforcing the need for companies of all shapes and sizes to plan ahead for the possibility of an attack. A recent article by Martin Lipton in the Harvard Law School Forum of Corporate Governance and Financial Regulation reviews recent developments in the activist landscape and reconfirms the importance of preparing for an attack.
The Fight Has Gone Global
One recent development is the expansion of hedge fund activism across the globe within the past two years. Mr. Lipton suggests that activism typically associated with the American marketplace is quickly gaining traction … Continue Reading
Activist interventions are being increasingly resolved by way of settlement agreements, with 3% of activist interventions in 2000 having resulted in a settlement agreement versus 16% in 2011. In light of this emerging trend, the Columbia Business School recently published a paper, Dancing with Activists, in which the authors sought to provide the first systematic analysis of the drivers, nature, and consequences of such settlements. The authors identified 4 main drivers of settlement agreements: (1) the activist’s stake; (2) market reaction to a SEC Schedule 13(d) filing; (3) settlements in past engagements; and (4) past firm performance.… Continue Reading
Last month, the Canadian Coalition for Good Governance (CCGG) published its new Stewardship Principles paper designed to assist institutional investors fulfil their responsibilities to their beneficiaries or clients and enhance the value of their investments. The principles reflect what the CCGG believes are appropriate stewardship responsibilities for institutions investing in Canadian public equities and are directed to both asset owners and asset managers. While it is not the institutional investor’s role to manage the public companies in which it invests, in order to fulfil its role as fiduciary to its beneficiaries and clients, the CCGG believes an institutional … Continue Reading
Members of Norton Rose Fulbright’s Canadian Special Situations team have weighed in on shareholder activism in Canada with an article in the Spring Edition of Ethical Boardroom Magazine. The article, written by Trevor Zeyl (assisted by Joe Bricker), offers insights on shareholder activism in Canada in the past year, and some predictions for 2017 and beyond. The Spring Edition of Ethical Boardroom can be viewed here (free subscription required): https://ethicalboardroom.com/ethical-boardroom-spring-2017/.
Following recent amendments to Canada’s takeover bid rules, private placements in the face of hostile bids have become newly controversial. Private placements in the context of proxy contests have received less attention. Yet this is somewhat surprising, because they are another facet of the same underlying question: whether regulators should allow a financing that may significantly affect the voting power of hostile shareholders in an ongoing shareholder persuasion campaign.
The Alberta Securities Commission (ASC) has just released its reasons for upholding the TSXV’s allowance of a private placement in the context of a proxy contest, without requiring shareholder … Continue Reading
In a move likely to have significant impacts on corporate governance, a group of institutional investors managing upwards of US $17 trillion has announced the formation of the Investor Stewardship Group (the Group). The Group has adopted a framework of certain non-binding investor-friendly principles, many of which are either common or already legally recognized in Canada, illustrating one of Canada’s greatest attractions as an investment destination: its strong protections of investor rights. On the other hand, the Group takes a skeptical view of a common practice in Canada: dual-class share structures.
The Group is a collective of … Continue Reading
In a corporate directors survey (the Survey) entitled “The swinging pendulum: Board governance in the age of shareholder empowerment”, PricewaterhouseCoopers LLP (PwC) presents current trends in investor influence and their impact on governance practices of boards and management teams.
Conducted amongst 884 company directors in the summer of 2016 with respondents representing over 24 industries, the Survey highlights the increasing influence of investors and board sentiment in this “new age of shareholder empowerment”.
When recruiting new board members, investor recommendations appear to carry increasing weight. The Survey notes that there has been an … Continue Reading
Further to our post on the Dolly Varden Silver Corp. (Dolly Varden) and Hecla Mining Co. (Hecla) decision, the Ontario and British Columbia Securities Commissions (the Commissions) recently released their reasons for their decision in July, 2016 (the Reasons) allowing Dolly Varden to proceed with a proposed private placement announced shortly after Hecla launched a hostile bid for Dolly Varden. Following the decision, Hecla promptly withdrew its bid.
The Dolly Varden bid has been closely watched because it is the first decision to consider the use of a private placement by a target since … Continue Reading
In response to the threat of a shareholder ambush of director nominations at a shareholder meeting, many Canadian companies have adopted advance notice provisions (ANPs). ANPs require that shareholders inform a company by a certain deadline if they wish to nominate directors to the board. For annual shareholder meetings, this deadline is typically no less than 30 days in advance of the meeting. For special meetings, it is typically no less than 15 days after the announcement of the meeting. Norton Rose Fulbright’s Special Situations team has been at the forefront of this development, having been involved in … Continue Reading
Kingsdale Shareholder Services (Kingsdale) recently released its annual Proxy Season Review. As in previous years, the report discusses trends observed in 2016 and offers predictions of what we might see looking forward. The report also outlines strategic recommendations for Canadian companies.
Trends from 2016
Contested Activity “Back to Earth”: After a record setting year in 2015, Kingsdale reports that activist activity has returned to its pre-2015 levels, which had been fairly consistent for about five years. Kingsdale attributes this reduction to strong share performance, increased adoption of defence tactics by vulnerable companies, and political and economic … Continue Reading
On September 28, 2016, Canada’s federal government introduced a bill proposing amendments (the Amendments) to the Canada Business Corporations Act (the CBCA), among other acts. The Amendments include new requirements for electing directors, mandatory diversity disclosure, and changes to shareholder communications. These proposed changes, if enacted, will have significant effects on corporate governance and shareholder activism in Canada. Here are some of the key things issuers and investors will need to know.
Election of directors
The Amendments introduce several changes to the election of directors. They will require publicly traded corporations, with some prescribed exceptions, to: