TORONTO - The Ontario Teachers' Pension Plan and Jarislowsky Fraser are leading a group of Canadian institutional investors to pressure Canadian companies to use better corporate governance practices.
The Canadian Coalition for Good Governance - whose members' combined assets exceed C$500 billion (US $315.3 billion) - is the brainchild of Claude Lamoureux, president and chief executive of Ontario Teachers, Toronto, and Stephen Jarislowsky, chairman and CEO of investment manager Jarislowsky Fraser Ltd., Montreal.
"Stephen called me; he was frustrated and I was frustrated," said Mr. Lamoureux in an interview. "We decided to get a group of people together who would only focus on good corporate governance. We found enough people who were interested to put this group together."
"Investors have to act like owners," said Mr. Lamoureux, explaining the main philosophy behind the group's formation.
One of the goals of the coalition is to create a code of conduct for companies.
"I'm concerned about the behavior of all corporations - there's been highway robbery going on," said Mr. Jarislowsky in an interview. "I think we need to do our homework and consult with a lot of people to come out with a code by the end of the summer."
"I want this (coalition) to do what the OSC (Ontario Securities Commission) and government with its laws have not been able to do," said Mr. Jarislowsky. "We want these companies to understand if they don't have good governance, they'll have trouble with us. If they fake figures, the accountants will have trouble with us. If companies give too many stock options, they will have trouble with us."
Monitoring the board
Among the issues the group will monitor is the composition and performance of corporate boards of directors - it will share with companies information on candidates to recommend to nominating committees, insist that key board committees have a majority of independent outside directors and share comments with companies on the qualifications of audit committee members.
The other members of the coalition are Altamira Financial Services Ltd.; Beutel, Goodman & Co.; Burgundy Asset Management; Franklin Templeton Investments; Investment Counsel Association of Canada; KBSH Capital Management; Mackenzie Financial Corp.; Manulife Financial; Ontario Municipal Employees Retirement System; and Standard Life Portfolio Management Ltd. Other firms or funds that want to join would be welcomed, according to Lee Fullerton, spokeswoman for Ontario Teachers.
The coalition wants an oversight committee to review the work of big accounting firms. The Canadian Institute of Chartered Accountants has proposed setting up a committee to review the work of big accounting firms, but the coalition is concerned because investors are not included in the proposal. Mr. Lamoureux said he would like the majority of members of the committee to be "investors - bondholders, banks and stockholders. After all, the reports are written for them."
Mr. Lamoureux said the coalition will lobby for changes in laws involving corporate behavior. One area he feels strongly about is "making sure the penalties for bad behavior are strong enough."
The coalition also plans to sponsor studies on various aspects of corporate governance. Mr. Lamoureux said Peter Chant, a partner in Deloitte & Touche, Toronto, has been asked to do a study on accounting for stock options.
Mr. Lamoureux feels strongly about the stock options issue. He doesn't think they should be given out as freely as they are now. "There are other ways to reward people," he said. "If a division has been particularly successful, then I don't mind giving an executive a reward," he added.
The tax treatment of compensation in the form of stock options or stock itself should be equitable, according to Mr. Lamoureux. Under current law, compensation in the form of stock options is taxed at a lower rate than compensation in the form of stock. Payment in options is tax deferred while payment in shares is not.
"We don't want to beat up on companies - we want to work with companies," said Mr. Lamoureux. He likes to quote corporate governance expert and attorney Ira Millstein, who said "good governance lowers the cost of capital."
"We prefer to work quietly with companies and let the credit go to the companies for having good governance standards," said Mr. Lamoureux.
"We want to have a dialogue with directors - we think at the end of the day they will do the right thing."
"It is to the advantage of everybody to have tough corporate governance standards."
Ontario Teachers now discloses on its website how it plans to vote proxies for companies in which it is a shareholder.
Mr. Lamoureux said he would like to see more institutional investors disclose how they will vote their proxies.