They meet, they chat, they draft paradigm-shifting proposals to change Canada's securities laws.
A group of senior and retired businessmen in Toronto, who call themselves The Investor's Symposium because of their mutual interest in investing, has drafted a radical new proposal to change the way corporate directors are elected to public company boards. The bottom line is that big shareholders such as mutual funds and pension funds would have to get a lot more active in overseeing companies when they buy their shares.
Dubbed the "Roxborough Initiative" by the business group, the proposal would require a wholesale change in the way corporate directors are elected in Canada to ensure these are truly the chosen representatives of shareholders and can represent their interests directly.
The drafters -- who include Doug Peters, former secretary of state for finance; Jerry Grafstein, former senator and co-founder of Citytv; David Robertson, former CEO of Royal Bank Venture Capital Corp.; and long-time businessman Ed Weiss, former CFO of Triarch Corp. -- say directors are too far removed from the companies they run and the shareholders they represent, and don't personally have much interest in the success or failure of a corporation.
With only a small ownership stake in the companies, the proposal says directors risk falling under the influence of management, and a board becomes "a self perpetuating oligarchy of self-interested 'non-owners.'"
The group's solution would see the 15 largest shareholders of a public company each nominate one person for a company's board. Of the 15 nominees, only 10 would be elected by shareholders. Investors would receive 10 votes for each share they hold, and could divide those 10 votes in any proportion among the 15 nominees. The 10 people with the most votes would form the board.
Those pitching the plan say corporate owners, including mutual funds or pension funds, would ideally name one of their own employees as their nominee, ensuring their director would directly represent the shareholder's interests. Shareholders could, however, nominate a "proxy director" to represent them if they don't feel they have someone in-house to fit the job. They could also pass entirely on the chore -- which would then pass to the 16th largest investor and so on down the line -- if they don't wish to participate.
As a final twist, directors would be paid by the shareholders who nominate them, not by the corporations, ensuring they would avoid any conflict of interest. Two members of management would also join the board, but, like all other directors, would not receive any stock options.
Mr. Weiss says his concerns rose after the financial crisis in 2008 and 2009 when he became convinced that many of the strongest institutions were those that were privately run by partners who had a direct ownership stake and who shared the financial risks personally, leading them to manage far more prudently. That convinced him shareholders needed far closer representation at the companies they own.
"The closer you get to the people who stand to make or lose in the entity's activities, the better managed it will be," he said in an interview.
Regulators at the Ontario Securities Commission and the Toronto Stock Exchange are weighing proposals to make modest changes to the proxy voting system in Canada. The TSX, for example, has published a rule -- currently open for public comment -- that would require all listed companies to allow shareholders to vote for each of their directors individually instead of the whole board as a slate.
Mr. Weiss says both organizations are merely tinkering, and their proposals won't fix critical weaknesses in the current system. The Investor's Symposium has sent its ground-shifting pitch to both the OSC and TSX, outlining its alternative proposals.
"What this really does is eliminate a lot of the problems the TSX and OSC are tinkering with now and are trying to put a bandage on," Mr. Weiss says.
Janet McFarland