Robert Yalden is the Stephen Sigurdson Professor in Corporate Law and Finance at Queen’s University and previously a senior partner at Osler, Hoskin & Harcourt LLP, where he served as co-chair of its M&A Group.
The year 2019 has barely begun, yet some have already started wringing their hands in public about the fate of corporate Canada. This time, the focus is a set of changes that are unfolding at Barrick Gold Corporation, a Canadian company that the legendary Peter Munk built into one of the world’s largest gold-mining businesses. The changes include Barrick’s decision to acquire Randgold Resources Ltd., announced in September, 2018, and completed on Jan. 1, 2019, after receiving shareholder and regulatory approvals. The transaction forms part of Barrick’s plan to refocus its business and implement other related initiatives that have now suddenly caught people’s attention: revamping Barrick’s board of directors, so that instead of having several resident Canadian directors, it will have only one with Canadian roots; and reducing the number of positions in Barrick’s Toronto head office from the 150 or so that were there in September to approximately 65 to 70.
Pierre Lassonde, chair of the board of Franco-Nevada Corp., was quoted in The Globe and Mail on Jan. 4 as saying that he thought Mr. Munk, Barrick’s founder, “is going to roll over in his grave 10 times.” Mr Lassonde went on to observe: “Don’t tell me in the Canadian mining industry there’s not great people to run a company like Barrick.” A day later, The Globe’s Eric Reguly bemoaned Barrick’s fate, suggesting that it may eventually take further steps to disconnect from Canada.
Public hand-wringing of this kind is rarely productive unless it ultimately leads to some clear-eyed analysis of the public-policy issues at play. In this case, we are not off to a good start. Allusions are being made to the fate of companies such as Inco, Falconbridge and Alcan and to the spectre of a hollowed-out mining sector in Canada, all of which risks overshadowing questions that warrant careful analysis. So let’s review what is going on here in an attempt to clarify at least some of the policy issues that this episode shines a light on.
First, unlike one kind of transaction that has got some in Canada excited in recent years, Barrick is not being taken over by a foreign company. Instead, it is Barrick’s board of directors that decided to pursue a transformative merger because it concluded this was in Barrick’s best interests. Moreover, the board (including those Canadians who served on it prior to the recent turnover) presumably did so well aware of the implications for Barrick’s Canadian presence. Time will tell whether that board made the right decision and much will of course turn on how effectively the reconstituted board and the new management team (including chief executive Mark Bristow, previously CEO at Randgold) implement plans for the business (including the role of its head office).
The point, then, is that this is not a case that should be conflated with foreign acquisitions of companies such as Inco, Falconbridge or Alcan. The policy challenges that Canada faces when confronted with foreign takeovers and the tools available to address those challenges are not the same as when a company with roots in Canada decides it is necessary to transform its business, its board or its head office in ways that will result in a company with fewer ties to Canada, but that in the board’s estimation will nevertheless provide for a more viable business. The Investment Canada review process is one mechanism available to the federal government if it wishes to secure commitments from foreign buyers, and we should certainly engage in vigorous discussion about whether and how best to use that process to preserve head-office jobs. But this tool is not available when a Canadian company such as Barrick is doing the buying. What, then, would those concerned about Barrick’s strategy propose? Mandate that Canadian companies cannot initiate significant acquisitions abroad without committing to preserve a certain percentage of existing board seats or head-office jobs for Canadians?
Notwithstanding claims made about the hollowing out of corporate Canada as a result of mergers and acquisitions, data from organizations such as Crosbie & Company consistently show that Canadian companies buy far more companies abroad than vice versa. Foreign acquisitions are in fact integral to the growth of a good many successful Canadian businesses. So we need to be careful not to lose sight of that reality (and the flexibility that we should be giving Canadian companies to bring non-Canadians onto their boards or senior management teams) because some are concerned about the business decisions being made by those in charge at Barrick.
This brings us to a second point: It has been clear since Barrick announced its deal with Randgold last September that Barrick wanted to get out from under director residency constraints and that significant change would be forthcoming at the board level. Indeed, the media release announcing the deal stated that Barrick was proposing to change its jurisdiction of incorporation from Ontario to British Columbia. In this regard, it is worth noting that in Canada, we have a patchwork of approaches to director residency. Some corporate law statutes, such as the one in place in Ontario, mandate that at least a quarter of the board be resident Canadians. Others, such as the ones in place in B.C., do not have this requirement. On the whole, since the introduction of residency requirements in some jurisdictions at the height of nationalist fervour in the 1970s (which in some cases required half the board to be resident Canadians), the trend in recent years in Canada has been to loosen these requirements or do away with them altogether.
It is also worth noting that Barrick’s decision to move to B.C. in order to get out from under director residency requirements was not just the board’s call. Canadian corporate law statutes give shareholders an opportunity to vote on a proposal to continue to another jurisdiction and it is open to them to veto such a move. In Barrick’s case, the decision to approve the move to B.C. is all the more interesting because many of Barrick’s shareholders (a significant percentage of whom are highly sophisticated investors) voted in favour of the continuance and remain shareholders with a continuing economic stake in Barrick’s financial performance. Barrick’s shareholders have therefore had a very real interest throughout the piece in who would be on Barrick’s board and saw merit in the proposal to get it out from under residency requirements.
We should therefore be asking ourselves what policy lessons to take away from Barrick’s continuance into British Columbia. Do director residency requirements serve a useful purpose? Or are they instead of limited value, especially if a company can easily continue into another jurisdiction in Canada that does not impose these requirements? What are the implications of all this for efforts on the part of any one government in our federation to mandate other rules with respect to board composition? And in a world where companies can readily change the jurisdiction in Canada whose corporate law they are subject to, what are we to make of suggestions that the federal government’s recent amendments to its corporate law designed to encourage gender balance and diversity on boards do not go far enough because instead of mandating hard quotas they will mandate disclosure about these matters?
If we are going to wring our hands about Barrick’s fate, let’s at least do so in a way that ensures we discuss some of the policy issues that this episode should have us focus on: the ease with which Canadian companies can get out from under director residency requirements (and the implications for other potential board composition requirements) and the absence of any requirement for a Canadian company not being bought by foreign interests to keep head-office jobs in Canada. This author suspects there is limited appetite in Canada to revert to the stricter director residency regime we once had and that there is even less of an appetite for having government mandate what head-office jobs must be filled by Canadians. But there is certainly value in having a well-focused debate about these important public-policy issues. So let’s have at it.