He adds, however, that West Face’s first read of the company was just as wrong. This is what McCain calls activists’ “mythology” about incumbent management. “He could come in and say management is entrenched and just cares about their jobs and is not interested in shareholder value. I think we both recognized that we were probably both not exactly on the mark on first impression,” he says.
That is a polite way of saying West Face and Maple Leaf Foods were at loggerheads for months. West Face partner Tom Dea, who had teamed up with Boland in 2006 after a career as an Onex Corp. dealmaker, shouldered the task of telling McCain and his team in painstaking detail how they were mismanaging the company. According to people familiar with these private discussions in the fall of 2010, Dea did not sugar-coat his message—that Maple Leaf had not done its homework regarding its ambitious overhaul. He pointed to the unimpressive precedent of the company’s makeover of its primary meat-processing plant in Brandon, and cited other management lapses. Maple Leaf responded to its impertinent new shareholder by tasking a special committee of directors and advisers to examine options.
As the months dragged on with little communication, Boland and his team concluded they were being stonewalled. “There was some distance,” Boland says in his usual neutral style. The silence was interrupted on Dec. 3, 2010, when West Face issued a manifesto. It called for a meeting of shareholders to vote for a smaller board of new directors that would not be dominated by McCain family friends and associates. “The deficiencies of Maple Leaf in critical areas such as board independence and corporate governance are well known,” West Face said.
In the American activist playbook, such proxy contests are a frontal attack on the credibility of corporate directors. Private investigators are hired to dig up dirt on directors, embarrassing details are leaked to the media and proxy advisers are hired to solicit support for activists’ proposed slates of directors. The assault, if successful, leaves incumbent directors humiliated.
But Boland’s approach was more nuanced. West Face took many of the standard steps at Maple Leaf. Investigators unearthed ties between the company and some of its directors—that, for instance, Purdy Crawford’s daughter was employed as a manager at Maple Leaf. Organizations that employed two other directors had received donations or contracts from either Maple Leaf or the McCain family. These details, according to sources, were spelled out in a proxy circular that was prepared but not deployed.
Not only did West Face keep its powder dry, but the proxy vote that it had called for would not be binding. This was not a full-scale revolt, but rather a message to the board that it had to fix itself by adding more independent directors and doing a better job of scrutinizing the company’s operations. The tactic goes to the heart of Boland’s investment approach. Reflecting his training at manners-conscious RBC Securities and his desire to be seen as a positive influence in troubled companies, he is loath to engage in public feuds. Before Maple Leaf, he had launched only one other proxy contest—against Air Canada parent ACE Aviation, a fight that was called off after Boland was offered a seat on the board. The less blood spilled in a fight with West Face, the easier it would be to peacefully convince targets that change was necessary. “Constructive criticism of a company is tolerated today,” Boland says. “It is up to us to be viewed as constructive and reasonable.”
The soft-punch approach hit the mark at Maple Leaf. Two months after the December call for a vote, the activist and the target announced a ceasefire. The directors, in the end, had little choice. West Face’s rallying cry had galvanized shareholders, and a quick survey of investors by Maple Leaf directors revealed that the hedge fund had enough support to win its proxy contest. On Feb. 3, Maple Leaf announced that Boland had agreed to join its board, and new independent directors would be appointed by the spring of 2012.