Academic

Last week I gave a lecture in Canada on shareholder activism. I had the very unique experience of being in Canada as Canadians vigorously celebrated their Olympic hockey victory over the US, which triggered mixed reactions from me. Disappointment over the US loss, but a bit of relief--although the Canadians were all very friendly, who knows what kind of reception I'd have gotten if the Canadian hockey team had lost! In addition to this experience, I also had the chance to get a Canadian perspective on shareholder activism, which perspective may call into question whether the rights shareholders are seeking in the US will have their intended results.

On the one hand, there are some similarities between the voting rights afforded US shareholders and those granted to Canadians. For example, like the US, not only is Canada's default rule for director elections a plurality voting standard, but Canadian companies have been experiencing significant pressure to alter that standard in favor of majority voting in director elections.

On the other hand, there are some pretty dramatic differences. Most notably, Canadian shareholders have proxy access. As we know, US shareholders have sought proxy access for years. And while the SEC has proposed such access, it has been met with serious opposition, and as one Canadian commentator noted, the US opposition seems to suggest that they sky would fall if proxy access is granted. Obviously that has not occurred in Canada. So what has occurred? In essence, nothing.  That is, apparently shareholder activists do not use make use of the corporation's proxy materials when seeking to unseat directors or otherwise elect their own slate of directors. One Canadian lawyer (admitting that his views were anecdotal) suggested that the reason for the lack of use relates primarily to the feeling that proxy access would put shareholder activists at a tactical disadvantage. This is because if such activists rely on proxy access, it generally means that they cannot engage in their own separate proxy solicitation without incurring the very costs that proxy access sought to avoid. In other words, by relying on proxy access, shareholder activists also would have to rely on the corporation's proxy machinery as the sole means for seeking to persuade shareholders to displace current management. In the Canadian lawyer?s view, shareholder activists see the inability to engage in their own separate proxy solicitation, and thereby control the solicitation process, as a non-starter. As a result, they believe the tactical advantages they gain by waging their own proxy contests outweigh any cost-savings inherent in proxy access.

To be sure, there are differences between the two countries, their markets, and their shareholder class that may make any comparisons difficult. Then too, perhaps there are shareholders for whom cost savings would be more important than tactical advantage. Moreover, it could be that there are indirect benefits to proxy access even if shareholders do not directly use such a mechanism. However, the Canadian experience with proxy access at least raises the specter that the proxy access right may not be as beneficial as US shareholders believe.  And instead, like e-proxy, proxy access may generate consequences that may undermine its effectiveness in enhancing shareholders' voice.