Skip to main content

Fairfax Financial Holdings Ltd. chairman and chief executive officer Prem Watsa speaks during the company's annual meeting in Toronto April 11, 2013.

© Aaron Harris / Reuters/REUTERS

Shareholders of Fairfax Financial Holdings Ltd. have approved a proposal to lock in the voting control of founder Prem Watsa's shares.

The insurance and investment company said Monday that its move to modify the terms of the company's dual-class share structure passed its shareholder vote by a narrow margin after twice being delayed to rally more support. The company needed two-thirds of subordinate shareholders to consent to the changes and received support of 69.7 per cent.

The change means that Mr. Watsa will be able to freeze the 41.8-per-cent voting control held through his multiple-voting shares as the company issues more equity over time. Fairfax's share structure has included the multiple-voting shares for about 30 years and Mr. Watsa and his family are the sole holders of these shares. In exchange for this new power, Mr. Watsa made the promise to never to sell the shares, to stay on as CEO for a decade and take an annual salary of $600,000 during that period.

Story continues below advertisement

In Mr. Watsa's view, shareholders were deciding how they want the company to grow in the future, because he was unwilling to dilute his position of control any further. Mr. Watsa said his current holdings make it easier to guide the philosophies and approaches to Fairfax's investments: "If we continue to issue [subordinate] shares, that 42 per cent drops. We went to the shareholders and we said, listen, we can be in a position of not issuing shares, which is fine we'll just grow internally. Or, if you trust us, give us the ability to issue shares, like we've done in the past." Issuing equity would make the company more likely to pursue acquisitions.

Mr. Watsa said most large institutional shareholders supported the move, especially once the company explained its reasoning. But some funds that are broadly against multiple voting shares did not support the move.

The changes were proposed in mid-June, but the vote was postponed in July to give smaller shareholders more time to consider the changes and vote their shares. Then in August, the company delayed the vote again, saying it needed more support from institutional shareholders. Modifications were made to the suggested amendment along the way to gain more support.

The move came amid frothy equity market conditions earlier this year, which saw most new initial public offerings come to market with dual-class share structures. Investors didn't appear to apply much of a discount to newly listed companies, such as Shopify Inc., that award multiple votes to a small group of shareholders. At the same time, several successful launches of special-purpose acquisition companies were launched, a structure that also puts plenty of trust and power in management teams' hands.

Mr. Watsa said it is a coincidence that the changes were proposed around the same time. The move was brought on by an equity issuance of one million shares earlier this year, which Mr. Watsa said was the edge of his comfort zone in terms of warding off takeover attempts that could change the culture of the company, move its headquarters or sell its investments. Including his subordinate voting shares, Mr. Watsa controls about 43 per cent of the company.

One of the modifications to the original proposal was to add a shareholder ratification procedure within five years of Mr. Watsa leaving the role of CEO and chairman. That would give minority shareholders the ability to reassess the voting power attributed to the multiple-voting shares. Without shareholder support, it could limit some power that the Watsa family maintains in the future.

Mr. Watsa clarified that he has not been grooming his children to be executives of Fairfax. His son was appointed to the company's board within the past year. "Fairfax is a big company, it's not easy to run … you can't expect my son or my daughters to have the experience to do that," he said. "They'll be on the board, they'll help guard the culture of the company with the board of directors."

Story continues below advertisement

Mr. Watsa says he would support other companies trying to make similar moves if he had confidence in the management team and the company's long-term track record. "We like buying a company where there's a controlling shareholder," he said. "With corporate governance today, we are a bit concerned about buying companies where there isn't a strong shareholder behind the company."

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter
To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies