Dissidents claim five-year win in Canadian proxy battles

Rising proxy contests have seen investors battle Canadian companies more than 100 times over the past five years, with 87 proxy contests focused on change in the boardroom. This is an 84 percent increase on the 55 cases studied by business law and litigation firm Fasken Martineau between 2003 and 2007.

The increase is even bigger when it comes to board-related battles – the focus of the report – which have risen by 98 percent compared with the company’s previous study, and covers several high-profile cases, including proxy contests at Canadian Pacific Railway, RONA and Agrium in 2012.

‘Once a proxy contest is publicly launched it is often too late to stop the momentum,’ explains Brad Freelan, who co-wrote the research with Aaron Atkinson and Dan Batista. ‘The best defense for boards is to be prepared in advance to address the concerns of shareholders.’

Such shareholder scraps have taken center stage in the Canadian corporate landscape, say the researchers in a press release, adding that with proxy contests targeting companies of all sizes and in all industries, no one is immune. ‘Indeed, the composition of companies targeted in these 87 proxy contests almost mirrored the composition of Canadian listed issuers by size and industry sector,’ they explain.

And with investors winning more than half (54 percent) of board-related fights, the 2013 Canadian Proxy Contest Study adds that ‘the success rate achieved by dissidents in waging proxy battles may be of even greater concern in boardrooms across Canada than the rise in the number of proxy contests seen during the study period.’ The study also points out, however, that even ‘partial wins’ are tallied up on the side of dissidents as they bring in at least some change in the boardroom.

‘While our study confirms the common perception that proxy contests are indeed on the rise, what we find more interesting is the success shareholders have had and the tactics they employed that may have helped them achieve their objectives,’ says Atkinson in the press release. The research finds that dissidents who take a ‘high-stakes’ approach are more likely to win their proxy contests. These include having ‘more skin in the game’, seeking a full change in the boardroom or waging a long, public campaign.

Researchers say they also found a causal link between the number of proxy contests and stock market returns. While they add that the relationship ‘does not hold uniformly’, it is strong enough to ‘at least call into question whether the increase in the number of proxy contests in Canada witnessed during the past five years reflects the ushering in of a new order or whether instead it is simply a sign of the (economic) times.’

‘Given shareholders’ success over the last five years, I would not be surprised to see proxy contests continue to increase in frequency if market returns remain depressed, but the real question is whether they will continue in frequency even in more buoyant markets,’ Batista concludes.