Shareholder Activism in Canada

Shareholder Activism Trends

  • 2018 was a record year for shareholder activism in Canada and globally.

  • Experts anticipate continued activism in the coming years.

Canada: An Activist-Friendly Jurisdiction

  • Canada is considered the most shareholder activist-friendly jurisdiction in the Western world.

  • The regulatory and policy environment provides activists with strong tools to launch campaigns.

  • This environment fosters activism in various sectors, including mining, real estate and cannabis.

Regulatory Advantages for Activists

  • One key advantage is the ability for shareholders to requisition an annual general meeting (AGM) between regular AGMs.

  • It's similar to a recall mechanism in a democracy, allowing shareholders to effect change midterm.

  • Shareholders only need 5% of shares, individually or as a group, to require a company to hold such a meeting.

Activity Levels and Key Players

  • Special situations teams are extremely busy, indicating high levels of activity.

  • Activism is not limited to domestic players; international funds recognize Canada's favorable environment.

  • Top Canadian funds, like Sandpiper Asset Management, are highly successful in this space.

  • Sandpiper has a strong track record of board takeovers and delivering substantial returns to shareholders.

Concerns and Balancing Act

  • There are concerns about the "hollowing out" of Canadian companies due to activist pressure.

  • Boards need to balance being aware of activist threats with ensuring long-term success for all stakeholders.

  • Companies that are well-run and focused on winning may be less likely to attract activists.

Types of Activists

  • It's important to distinguish between abusive agitators and those doing good work.

  • Abusive short sellers are a dangerous phenomenon that needs to be fought.

  • Activists seeking short-term gains by loading companies with debt should also be checked.

  • However, activists with strong theses for underperforming companies can play a positive role.

Short Sellers

  • Short sellers who present non-exaggerated theses about problems in underperforming companies can be valuable.

  • The system should support strong theses on both the long and short sides.

  • Regulators and boards must be careful of abusive short sellers and long activists seeking short-term gains.

Companies in Crisis: SNC Example

  • Boards of directors need to proactively assess whether there is a better way to drive long-term value.

  • Companies should not wait for activists or short sellers to react; they should take their initiative.

  • Boards should consider actions to make themselves less attractive to short sellers.

Social Media and Responsiveness

  • Activists use social media effectively to disseminate their messages.

  • Canadian companies are often slow to respond in the 24-hour news cycle.

  • Many board members and CEOs are not regular social media users, which can be a disadvantage.

  • The use of platforms like Twitter can allow for misrepresentation and exaggerated claims.

  • Issuers need to be nimble in their responses and cannot afford slow, lawyer-driven press releases.

Regulatory Scrutiny of Social Media

  • Regulators are closely examining the use of social media for potentially misleading or manipulative purposes.

  • The focus is on shutting down activities similar to the old "bull boards" but now conducted on social media platforms.

Formulae and Equations

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