TORONTO - Canadian shareholder activism got a significant boost from a report issued by the Pension Investment Association of Canada, the trade group for the country's pension funds.
The report provided a code against which institutional investors can measure corporate governance performance of companies, in much the same way as did the Cadbury Report by a committee of the London Stock Exchange led by Sir Adrian Cadbury in the United Kingdom. Like the Cadbury code of best conduct, the PIAC standards are voluntary. But next year, the group plans to start rating companies by their compliance with the 18-point code and announce those ratings to the public, according to a report by Stephen Davis, director of the Global Shareholder Service of the Investor Responsibility Research Center, Washington.
The code asserts - as did the Avon letter of the U.S. Department of Labor in 1988 - that proxy votes are a financial asset.
"From my perspective, corporations and corporate managements and boards seem to be receptive to the guidelines, more than I would have expected ... I think pension funds will for the most part follow the guidelines," said James A. Maunder, retired head of equities of the Ontario Municipal Employees Retirement System and chairman of the corporate governance committee of the PIAC, which represents 106 Canadian pension funds with $210 billion ($160 billion U.S.) in assets.
The large number of pension funds that leave proxy voting to their outside managers can ask them to incorporate the PIAC standards, he said.
But the association also is "trying to get the point across that the proxy vote is an important responsibility that shouldn't always be delegated."
In other key corporate governance developments:
The Canadian federal government is looking at corporate governance issues to help boards of directors of state-owned enterprises better perform their jobs, according to Patrick Lenouvel, policy analyst with the Crown Corporations and Privatizations sector of the federal government in Ottawa. Canada has 48 crown corporations, some of which are frequent issuers of debt, such as the Export Development Corp. and the Canadian Mortgage Housing Corp. Last summer, the government began providing board members with a guide detailing their roles and responsibilities with regard to corporate governance, and it is considering holding an annual conference where directors can raise their concerns.
On Sept. 28, a special committee of the Toronto Stock Exchange held the first of a series of public hearings on Canadian corporate governance. The committee is expected by the end of the first quarter of 1994 to detail steps that would enhance corporate governance. It received 79 written submissions from corporations and institutional investors on the subject, according to Peter Dey, chairman of the Toronto Stock Exchange Committee on Corporate Governance.
The report will assess the state of corporate governance and how it may be improved; board composition; defining board responsibilities; the board's relationship to management and shareholders; the position of directors of closely held companies; and self-regulation by companies through disclosure of a company's governance approach, Mr. Dey said.
Such measures would "have more clout than a voluntary code such as PIAC's," said the IRRC report. But only two committee members - representatives of the Ontario Teachers Retirement System and Caisse des Depot et Placements de Quebec - represent institutional investors, "and shareholder activists are cynical about what the group will accomplish," said the IRRC report.
The PIAC code recommends public companies have a board composed of a majority of independent outsiders, with a total of no more than 15 members. Each board also should have nominating, audit and compensation committees controlled and headed by outsiders, and the roles of chairman and chief executive should be split between two individuals, an idea popular in the United Kingdom that is gaining favor among some activist U.S. pension funds.
On executive pay, the code calls on investors to reject certain specific types of stock option plans.
The code did not, however, call for enhanced executive pay disclosure, an idea embraced by Fairvest Securities Corp., a Toronto institutional stock brokerage firm specializing in corporate governance formerly called Allenvest Group Ltd.
The code denounces poison pills, staggered boards and unequal voting rights.
Fairvest's submission to the TSE committee went further than the PIAC code in several respects, calling for boards not to exceed 12 directors; for directors not to serve on more than seven boards; and for the same principles of corporate governance to apply to boards of corporations that effectively are controlled by a majority shareholder - in other words, 75% of TSE-listed corporations.
Fairvest called on the Toronto exchange not to include in any of its indexes companies with dual-class capital structures. It also said extraordinary payments to senior management such as golden parachutes should be disclosed to shareholders and submitted for their approval.
It denounced the fact Canadian shareholders may only submit resolutions on a given subject every three years and called for easing rules on communications among shareholders along the lines of the Securities and Exchange Commission's proxy reform.
It even suggested inclusion of a dissident's viewpoint along with a shareholder proposal in proxy materials distributed by management to shareholders.