If they had their druthers, many corporate chiefs would prefer to treat their annual shareholder gatherings as an opportunity to trumpet successes, rubber-stamp appointments to the board, skate around any management missteps and race through the required agenda with as little dissent or unpleasant questioning as possible. That, with occasional exceptions, has been the pattern in Canada … at least until recently.
Last week, telecommunications heavyweight Telus Corp. was forced to withdraw a plan to collapse its antiquated dual share structure after a New York hedge fund mustered enough votes to block the change at the annual meeting. The board of an older corporate icon, Canadian Pacific Railway Ltd., is expected to lose a long-running public battle with Bill Ackman, another New York activist hedge-fund manager, at its shareholders’ meeting in Calgary on Thursday.
Mr. Ackman, who heads Pershing Square Capital Management LP, is demanding sweeping changes to CP’s board and top management and appears to have won more than enough support from restive shareholders to elect a dissident slate of directors and toss out board members who are defending the status quo.
There is nothing new about a big U.S. hedge fund pressing a targeted board to take measures to boost corporate performance and share prices and, hence, the hedge fund’s own profit. Pershing, which has become CP’s largest shareholder with 14.2 per cent of the stock, was drawn to the Canadian rail giant in the first place because it viewed the company as an industry laggard with plenty of room for improvement.
What’s different this time is that Mr. Ackman has enlisted such influential Canadian supporters as the Ontario Teachers’ Pension Plan and Canada Pension Plan Investment Board – longer-term investors not exactly noted for leading shareholder revolts. This is a welcome development.
In the past, unhappy institutional investors in Canada have typically worked behind the scenes or voted with their feet, quietly selling their stock rather than noisily agitating for change. But unlike ordinary investors, big pension and mutual funds cannot easily exit from their huge positions unless they can find similar-sized institutions willing to buy millions of shares. So it is in their financial interest to demand greater accountability from corporate boards, if they believe a company is going off the rails or failing to deliver on its strategic plans.
In Mr. Ackman’s frontal assault, the funds rightly recognize that this is not merely a case of a U.S. corporate raider trying to take advantage of a vulnerable Canadian icon, but a legitimate exercise in shareholder democracy.
It is not a board’s job to manage the stock price. But it is the board’s job to act in the best interests of shareholders, which is not possible without paying careful attention to their concerns.
Mr. Ackman has laid out a detailed brief against CP. In the process, he has rattled the golden cages of some Canadian establishment directors, who are deeply affronted that anyone would challenge their collective wisdom. In doing so, he is serving as a change agent for a fairly conservative bunch of institutional investors. They may not completely agree with Mr. Ackman’s methods or all aspects of his critique, but they plainly relish the chance to hold both the company’s board and its management more accountable.
Complacent boards should take note. Activist U.S. hedge funds may have opened the window, but otherwise low-key Canadian investors like the fresh air.