Shareholders should have the right to vote on material changes to the business of a corporation and other major changes that may materially dilute the equity or erode their economic interests or share ownership rights. This means that shareholders approval should be obtained for major acquisitions. The right of shareholders to vote on major acquisitions has been endorsed by organizations that develop global corporate governance practices including the Organization for Economic Cooperation and Development (“OECD”) and the International Corporate Governance Network (“ICGN”). Members of the OECD (including Canada) have unanimously endorsed the OECD Principles of Corporate Governance.
Shareholder approval for major acquisitions where the company is proposing to issue more than 20% of its shares would be consistent with international corporate governance standards in all the major English common law capital markets except Canada.
The TSX and securities regulators have failed to implement international corporate governance best practice even though Canada has endorsed the OECD Principles of Corporate Governance. In Canada, the management of a TSX listed company is permitted to make a major acquisition that materially dilutes existing shareholders without shareholder approval even in the face of significant shareholder opposition. Perversely, in Canada shareholders who suffer major dilution and loss of shareholder value are deprived of the right to vote while shareholders of the target company who are offered a premium and benefit from a gain in the value of their shares are given the right to vote on the transaction.
The issue of shareholder approval for major transactions was raised in 2006 in the Goldcorp- Glamis merger when the former CEO of Goldcorp sought to force a Goldcorp shareholder vote and was supported by many minority shareholders. Shareholder approval was not required by the TSX, OSC or the Canadian courts in the Goldcorp case. NYSE listing rules require shareholder approval when share dilution exceeds 25%. (Goldcorp was listed on the NYSE and would normally have been subject to this rule, however it was not subject to this NYSE rule because the rule exempts foreign companies listed on the TSX which are subject to TSX requirements).
Canada fails to meet international standards of corporate governance. It is the position of the Foundation that shareholder approval should be required when a company issues more than 25% its issued and outstanding securities for an acquisition, whether for the acquisition of a private or a listed company. This would align Canada with U.S. corporate governance and international corporate governance standards.
We also plan to address the question of whether shareholder approval should be required when the transaction is for cash and exceeds a similar 25% threshold.
