The corporate hunting season is officially underway, an annual ritual during which shareholder parties, armed with proxies and other weapons of democratic destruction, set out to bag executives and directors for failing to deliver. The list of potential corporate failings is all encompassing. Anything and everything is a target, from executive compensation to diversity policies to return on equity, from investment strategies to social responsibility and whether there are an adequate number of people of varying genders in key positions.<\/p>\n
The scene for these hunting expeditions is the corporate annual meeting.<\/p>\n
One of the early hunts this year took place last week at TD Bank\u2019s annual event where CEO Bharat Masrani came face-to-face with Alex Speers-Roesch, described by The Globe and Mail as \u201cone shareholder representing Greenpeace Canada.\u201d In reality, Speers-Roesch is Greenpeace\u2019s Arctic campaigner and anti-pipeline crusader. He wanted to know when TD Bank was going to stop funding the Trans Mountain pipeline.<\/p>\n
Masrani brushed off this mild Greenpeace shareholder intervention, saying that the bank will continue to fund fossil fuels as an essential part of Canada\u2019s economy \u2014 although, as the head of a relentlessly politically correct Canadian financial institution, Masrani drew attention to TD\u2019s new \u201cReady Commitment\u201d to corporate social and environmental responsibility that will dedicate $100 billion over the next 12 years to support \u201cthe transition to a low-carbon economy,\u201d including low-carbon lending, financing, asset management and other programs.<\/p>\n
The TD Ready Commitment plan includes planting one million new trees across North America. Masrani did not explain what planting trees has to do with banking. It is taken for granted that this is what banks have to do to cater to the shareholder activists and other political troublemakers who have been gradually expanding their infiltration of corporate governance.<\/p>\n
As annual general meeting season arrives, many forms of corporate shareholder activism, accompanied by increasing regulatory interventions, will be on display. Executive compensation, say on pay, gender composition of boards, majority-voting requirements, mandatory board engagement with shareholders, withholding votes for certain directors, mandated ratios of independent directors. Some of this comes from regulators, some from the proxy advisory firms whose role is increasing, apparently because institutional investors are too dumb or disinterested to undertake their own analyses and make their own decisions.<\/p>\n
On top of these so-called good-governance activists and regulators are the Greenpeaces and other social-policy activists who at heart essentially believe corporations are scum that should be scraped off the face of the planet.<\/p>\n
Also busy are various leftist think tanks, such as the Canadian Centre for Alternatives to Good Policy. The centre, with boosts from the media, promotes the idea (among others) that executive compensation should be measured as a percentage of the average industrial wage. It produces data showing that the average Canadian CEO compensation of $9.5 million in 2015 exceeded average worker wages by 193 per cent. Maybe the centre should run a \u201cwork of equal value\u201d test on the data.<\/p>\n
Executive compensation has long been touted as a problem in need of reform, as Montreal management consultant Yvan Allaire notes elsewhere in FP Comment today. Reform is one thing. But the objective of the CEO-to-worker comparisons is to spark a little Marxist unrest within the population, promote government action to further regulate and tax corporations and executives, and stimulate shareholder revolts at annual meetings.<\/p>\n
The justifications for all the promotional hype around shareholder activism and regulatory interventions are based on two warped and contradictory concepts of corporations whose shares trade on stock markets.<\/p>\n
The first justification: It is now an entrenched belief that corporations are somehow micro-democracies, little self-contained condo boards in which shareholders should have increased voting control over aspects of governance. Ottawa\u2019s Social Sciences and Humanities Council recently awarded a $153,000 grant to two academics to research \u201cShareholder Democracy in Public Corporations: An Empirical and Economic Analysis.\u201d<\/p>\n
One of the academics on the project, Christopher Nicholls at the University of Western Ontario\u2019s law school, says the objective is to examine the \u201cnew wave of activism\u201d and ask: \u201cIs shareholder democracy an unqualified good?\u201d Or do \u201cimportant tools of accountability ever lead to costly interference with effective long-term corporate decision making?\u201d<\/p>\n
Good questions. A bigger issue looms, however, that the project needs to address. Publicly traded corporations are not democracies. How can shareholders who can trade in and out of companies at will \u2014 making \u201ccitizenship,\u201d as it were, something bought and sold instantly \u2014 assume power over corporate decision-making, strategies and governance? Publicly traded corporations are essentially private operations in which shareholders invest for profit. If they don\u2019t like the profits, they can sell. That has always been and remains the shareholder\u2019s power over corporate boards and management in a competitive environment.<\/p>\n
The second justification for rising intervention in corporate governance contradicts the first: The imposition of regulatory and legal control over public corporations as if they exist under government licence. Under such claims, governments and regulators assume the right to dictate voting systems for boards, gender composition of management, and compensation disclosure, as if corporations exist as remote creatures of the state.<\/p>\n
Which is it? Are corporations shareholder democracies? Or are they state-regulated institutions whose purposes and operations are matters for government intervention?<\/p>\n