Shareholder revolts like the one that is building at Rona Inc. are an uncommon sight in Quebec.
Historically, Quebec Inc. worked in a quintessentially Canadian way. Disputes got resolved discreetly, behind closed doors. And while you could always count on Stephen Jarislowsky to come out swinging against a sleepy board, few other investor heavyweights would add their voices to his.
To have the Caisse de dépôt et placement du Québec criticize the oversight of SNC-Lavalin Group Inc.'s board of directors, as it did recently, would have been unthinkable just five years ago. As a former Power Corp. of Canada spokesperson loved to say: "We have no comment, and this is off the record."
The province's business community watched from afar as a new breed of activist shareholders from the United States, more impatient and aggressive in the face of poor results, started tearing down the old wallpaper and shaking the dusty curtains in some of the country's fossilized boardrooms. While Bill Ackman targeted Canadian Pacific Railway, turfing members of the Canadian establishment from the board, Quebeckers were falling asleep on their late-night TV shows. Only one New York activist investor truly likes to shop in Montreal and to shake things up in Quebec: Eric Rosenfeld, chairman and CEO of Crescendo Partners. But he has set his sights on smaller companies, like Ad Opt Technologies or BCE Emergis.
These activist investors tend to be opportunistic in nature, banking on a rapid exit and a quick profit. But the same cannot be said of Invesco Canada Ltd., which has held more than 10 per cent of Rona's shares for at least two years, according to regulatory filings, and which now wants to get rid of the board.
Invesco has a legitimate beef with Rona. While Canada's No. 1 hardware chain remains (oh so slightly) profitable, its share price stands where it sank at the deep end of the financial crisis. More damning, its renovation plan remains a blueprint. Major shareholders are skeptical of the company's ability to turn its operations around, even if Robert Dutton's ousting last week as president and CEO will make way for new leadership.
As of last evening, the Boucherville, Que., retailer had not responded to Invesco's request for a shareholders' meeting "for the purpose of removing Rona's current directors and electing new directors in their place." No one would be surprised if Rona's board, which convened late Monday afternoon, opposed Invesco's request.
But why not invite an Invesco representative into the boardroom, and a Caisse representative for that matter? As Lyndon B. Johnson famously said of FBI director J. Edgar Hoover, "It's probably better to have him inside the tent pissing out, than outside the tent pissing in."
Astonishingly, Rona's two biggest institutional investors, who together own about one-quarter of the company, have no representation on the retailer's board. There would be no better way for these shareholders to have a say on Rona's business strategy – and to subscribe to it – than if they were brought in. And the retailer could profit from a wider array of experiences and perspectives.
Rona's board is pure Quebec Inc., with the notable exception of James Pantelidis, an Ontario director who spent most of his career in the energy industry.
Led by chairman Robert Paré, a Fasken Martineau Dumoulin lawyer, the board includes the president and CEO of the Montreal Canadiens (Geoff Molson), the former chief financial officer of Alimentation Couche-Tard (Richard Fortin), a board member for Rotisseries St-Hubert Ltd. (Jean-Roch Vachon), the president and CEO of Cascades Tissue Group (Suzanne Blanchet), alongside two store operators (Jean-Guy Hébert and Louise Caya) and other directors.
There are all fine individuals. But as a group it has almost no representation from outside Quebec, the province that Rona has now long outgrown. Nor does it have much business intelligence on Rona's Canadian and American competition.
The Quebec government is opposed to a sale of Rona to foreign interests and the Caisse's stance on the emerging shareholder revolt is elusive – it refused to comment on Wednesday.
So Invesco may find it difficult to beat Rona and replace its board. But it could join it.