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National Bank of Canada’s newest study on the stock market performance of Canadian family-owned companies appears to make a powerful argument for multiple-voting shares. But by ignoring the elephant in the room – a generally weaker corporate governance record at family-controlled firms – it leaves out a critical factor that goes to the heart of corporate democracy and the long-term desirability of insulating owners from the demands of the market.

As such, it serves more to fuel the debate over dual-class shares than settle it.

The report released Monday compares the annual and absolute returns of 43 companies included in the bank’s NBC Canadian Family Total Return Index against the almost 250 firms that make up the S&P/TSX Composite Index over 13 years. According to the report, family-controlled public companies generated an absolute return of 206 per cent between 2005 and 2018, while the TSX index returned 133 per cent over the same period – or 73 percentage points less.

Oddly, the report makes no mention of the findings of a similar, 2015 report by the bank that looked at only 30 family-controlled Canadian public companies. That study found that family-controlled firms beat the S&P/TSX Composite Index by 120 percentage points over a 10-year period starting in 2005. So, if anything, the performance gap narrowed as both the number of family-controlled companies grew and the period of comparison lengthened.

What’s more, the new report uses a more expansive definition of family-controlled companies. The 2015 report looked at 30 firms at which the controlling family held at least 25 per cent of the votes and exercised “significant influence” over management. The new report includes 43 publicly traded companies at which the founding family owns as little as 10 per cent of the voting rights or an individual directly or indirectly owns a third of the votes.

This has the effect of including companies with vastly different ownership structures, some of which don’t have multiple-voting shares at all. It puts West Fraser Timber, which is only 11-per-cent controlled by the Ketcham family, in the same category as Rogers Communications, which is 91-per-cent controlled by the Rogers family through a dual-class share structure. Is it only a coincidence that West Fraser gets much higher marks for corporate governance?

Indeed, closely held companies at which family members continue to dominate the board of directors and management typically get lower marks on The Globe and Mail’s annual corporate governance scorecard than widely held ones. Desmarais family-controlled Power Corp. Canada got a score of only 49 out of 100 according to the latest Board Games. West Fraser scored 81.

The National Bank study cites plenty of advocates for closely held family-owned companies. The problem is, almost all of them are members of the families who control the firms studied in the report.

“Without multiple-voting shares, CGI would have been sold at least 10 times and our head office would no longer be Canadian-based,” according to company founder and controlling shareholder Serge Godin, who is cited in the report. “Multiple-voting shares are a great means of counterweight to today’s hyperactive trading and offers organizations more stability and continuity which are key for long-term decision making.”

There are plenty of Bombardier, Power and Quebecor shareholders who may beg to differ.

And therein lies the rub: At what point do the negative effects of multiple-voting shares and family control start to outweigh the positive ones?

It’s one thing to bemoan the tyranny of quarterly earnings reports and the tactics of some activist shareholders that force widely held companies to focus on short-term results and share buybacks instead of long-term strategic investments and decisions. It’s quite another to hide behind multiple-voting shares to ignore the concerns of minority investors or to hand the reins to a second- or third-generation family member who may not have the chops for the job.

Just as there is a strong case to be made for eliminating quarterly earnings reports, which U.S. President Donald Trump has asked the Securities and Exchange Commission to consider, there is a good argument to be made for sunset clauses on multiple-voting shares, as at Alimentation Couche-Tard. And it will take more than a single report on the stock market performance of family-controlled companies to persuade the critics of dual-class share structures otherwise.

Of course, the real problem lies not so much with the founding families who control some of Canada’s biggest public companies. It’s only natural that many would want to protect their life’s work from hostile corporate raiders who might break it all into pieces to make a quick buck.

The problem lies with investors, including Canada’s big institutions, that seem all too willing to load up on multiple-voting shares until they discover their downsides.

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