Looking up at four of Canada's major banks from the southwest corner of King Street West and Bay Street in Toronto on March 30, 2015.Fred Lum/The Globe and Mail
A push by major institutional investors to improve the boardroom behaviour of U.S. public companies is getting support from Canadian heavyweights.
RBC Global Asset Management and Sun Life Financial Inc.'s Boston-based money manager MFS Investment Management have joined a contingent of large institutions laying out a new corporate governance road map – including a move to shun dual-class share structures and assert that shareholders deserve "voting rights in proportion to their economic interest."
That message is being sent at a time when many companies, particularly in the technology sector, are launching dual-class initial public offerings. The upcoming IPO of Snap Inc., parent company to social media phenomenon Snapchat, is planning to adopt a structure with non-voting shares, according to reports. Other Canadian firms have also recently come to market with subordinate and multiple-voting shares.
"Certainly we support a one-share, one-vote structure," said Judy Cotte, head of corporate governance and responsible investing at RBC Global Asset Management. "But the document itself recognizes that if you have a dual-class structure you should just periodically review it and you should justify why it remains in the best interest of company."
The newly formed Investor Stewardship Group (ISG) represents a total of $17-trillion (U.S.) in assets under management with the support of large managers including BlackRock Inc. and Vanguard Group, as well as other institutions such as Singapore's sovereign wealth fund.
They have adopted a six-principle framework for corporate boards, and a second framework that outlines institutional money managers' responsibility to investors. The broader goal of the group is to boost the long-term value of U.S. companies and the U.S. economy. They're giving companies until 2018 to get in line with expectations.
"I don't think any of them are difficult or onerous for companies," Ms. Cotte said of the principles. She joined RBC from a senior role at the Canadian Coalition for Good Governance a few years ago. RBC's institutional investor clients such as pension funds, foundations and endowments have been asking for more environmental, social and corporate governance oversight over the last few years.
"The idea was for investors to get together to try and codify what they have in common, to articulate the stewardship principles upon which we all agree," Ms. Cotte said. "You know, in an effort to encourage companies to abide by those baseline corporate governance principles."
The ISG principles are the minimum that RBC wants to see – many of its guidelines are already more stringent, Ms. Cotte said.
In Canada, companies backed by wealthy Canadian families have long favoured the dual-class structure. While some have performed well over time, others, such as Bombardier Inc., have come under pressure to give up some control.
More recently, fashion retailer Aritzia Inc. went public with a dual-class structure in September last year, and on Tuesday restaurant chain Freshii Inc. hit the Toronto Stock Exchange after selling Class A shares entitled to one vote each, while Class B shares get 10 votes. RBC Dominion Securities, another unit of Royal Bank of Canada, was among the underwriters of the Freshii deal.
Ms. Cotte said that RBC Global Asset Management operates autonomously from the rest of the bank.
"First and foremost, our consideration is what is in the best interests of our clients," she said. "I mean, that's the regulatory expectation in all markets as well as consistent with our fiduciary duty."
Many pension funds, sovereign wealth funds and insurance companies have adopted stricter sustainability and governance standards in recent years.
Last fall, the Canada Pension Plan Investment Board helped launch research and advocacy group FCLT Global, which wants to bring an end to tactics that push for quick profits at the expense of more significant gains years down the road. That initiative is also backed by BlackRock Inc., as well as other corporate partners.
Ms. Cotte said that it was important to have a separate U.S. stewardship code in part to reflect the unique facets of the market, the way Japan, the U.K. and Canada do. "For example in the U.S. it's less common to have a separate CEO and [board] chair than in other markets, like Canada, where that is the norm," she said.