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Bombardier Inc. executive chairman Pierre Beaudoin is relinquishing his management role and taking a major pay cut after an unprecedented revolt by taxpayers and investors against what the company's biggest outside shareholder called a "lapse of governance" at the beleaguered Canadian plane maker.

The grandson of Bombardier's founder will cede his position as executive chairman of Bombardier effective June 30, but continue to lead the board of directors as chairman, the company said on Thursday. It is believed to be the first time a member of Bombardier's controlling family will not hold a senior management role in the company since it was founded 75 years ago.

Members of Bombardier's board characterized the move as a natural transition, saying it made sense for Mr. Beaudoin to assume a more traditional chairman's role now that Alain Bellemare, who replaced Mr. Beaudoin as chief executive in 2015, has a good handle on the business. But observers saw it as a partial capitulation, a gesture by Mr. Beaudoin to give up some of his power after being pressured by the Caisse de dépôt et placement du Québec and other institutional investors to give up the chairmanship.

"There was an error in judgment and Mr. Beaudoin is paying for that," said Michel Nadeau, director of Montreal's Institute for Governance of Private and Public Organizations. "He has lost credibility."

Bombardier sparked public fury, especially in its home province of Quebec, with a decision to raise the 2016 pay of its top executives by nearly 50 per cent at a time it is receiving more than $1-billion in support from taxpayers for its C Series program and cutting thousands of jobs. The company said the increases were necessary to attract talented managers. But critics said Mr. Beaudoin's pay hike was egregious because he did not need to be recruited from outside.

In an exceptional display of ire against one of Quebec's corporate jewels, protesters held demonstrations in Montreal denouncing Bombardier for the pay hikes. Politicians who had approved public aid for the plane maker expressed their discomfort. Then this week, even after the company corrected course and delayed payments to the executive team until its turnaround is further ahead, several of Bombardier's biggest investors weighed in and admonished the manufacturer for what they said was a corporate-governance collapse. They said Bombardier's board had failed to properly appreciate and balance the interests of its stakeholders, including governments and communities.

In a direct challenge to Bombardier's founding family, several large pension funds including the Caisse and the Canadian Pension Plan Investment Board called for a shakeup of the board, saying the company should be chaired by an independent director and withdrawing their voting support for Mr. Beaudoin as executive chairman. In the end, he was re-elected as a director on Thursday with roughly 92-per-cent support, down from 96 per cent the year before. The company's revised executive-compensation policy was approved with 93.5-per-cent support.

Mr. Beaudoin's family controls the company through a special class of shares with 10 votes each, giving it 53-per-cent voting control despite owning only 13 per cent of the equity. Bombardier doesn't break out the results of votes by class so it's difficult to get an accurate picture of how shareholders not affiliated with the family voted.

The controversy came to a head on Thursday, when an estimated 600 shareholders gathered at Bombardier's business-jet completion centre near Montreal's Trudeau airport for the company's annual meeting. While shareholders expressed plenty of frustration, the event didn't deliver the high drama many had expected.

Some investors offered encouragement to the plane maker's leadership and praised the founding family for driving manufacturing innovation in Canada. Others had more pointed messages, such as the investor who clamoured for a return of the dividend: "If we can allow senior executives to get all those millions, there's got to be money somewhere for us," he said to applause. Outside, a small group of people gathered once again to denounce the pay hikes.

"The board of directors is satisfied with the role being assumed by Pierre Beaudoin," Jean Monty, the head of Bombardier's compensation committee, told shareholders in his last meeting as a director. Together with the independent directors on the board, it represents "the appropriate governance" for Bombardier's particular situation at this time, he said.

"Today, there was strong support for this board" among Bombardier shareholders, Mr. Bellemare told reporters. He said he believed the backing was proof the company addressed the pay controversy properly in the end.

Laurent Beaudoin – Pierre's father and a current director and former CEO widely credited with building Bombardier into the multinational manufacturing giant it is today – acknowledged the company could have done a better job explaining the reasons for the compensation. He said was surprised and disappointed that the Caisse chose to air its grievances publicly. "It's not normal," he said. "It seems to me that we could have come to an understanding rather than them making a public declaration."

The move to change Pierre Beaudoin's role is "a major departure" for the family, said long-time Bombardier watcher Peter Hadekel, author of Silent Partners, Taxpayers and the Bankrolling of Bombardier. He said investors who harboured doubts about the degree of independence that Mr. Bellemare had to run the company free from family interference will find some solace in the change.

"They're going to be a little bit more reassured that he really is operating with a free hand," Mr. Hadekel said. "Before, there was always the suggestion that he had to run things by Pierre."

Charles Lemonides, founder of ValueWorks LLC, a New York-based investment management firm that owns about three million Bombardier shares, agreed that having professional management take over the full day-to-day operation of Bombardier is a positive outcome. He said he's also "completely comfortable" with the founding family holding five of Bombardier's 15 board seats, including the chairmanship.

"Quite frankly, I think the strategic direction of the company is not where the fault has been," Mr. Lemonides said. "Over the years, it's been on execution. And you have people in there today that can execute well."

The Caisse said Bombardier's leadership shift did not go far enough. "The change announced today removes ambiguity at the top of the company. In that sense, it's a step in the right direction," Caisse spokesman Maxime Chagnon said. "That said, on the matter of principle, we continue to believe Bombardier needs an independent chair."

Bombardier brought in Mr. Bellemare, an aerospace-industry veteran with United Technologies, as chief executive in February, 2015, to replace Pierre Beaudoin, who was struggling to manage three new aircraft-development programs as the company burned through cash. Mr. Beaudoin subsequently took on the role of executive chairman while Mr. Bellemare set to work reducing the company's risk profile and rebuilding its trust with Bay Street and other stakeholders.

That effort is yielding early signs of progress. The company on Thursday narrowed its loss for its latest quarter to $31-million, or 2 cents a share, on revenue of $3.58-billion, boosting its margins on two of its four units as it delivered fewer aircraft. Cash usage of $593-million in the quarter was better than expected.

Bombardier said it remains on track to ship 30 to 35 C Series planes by the end of the year. Asked on a conference call why they haven't seen C Series orders pick up despite exceptional early performance for the airliner, Mr. Bellemare said it was a matter of timing in a soft market: "There's nothing more to it. It's really related to customer readiness to move forward with the orders."

Mr. Bellemare also addressed the anti-dumping petition its rival Boeing Co. has filed in the United States against the sale of its C Series there, alleging unfair price points due to Canadian government subsidies. "We believe this action could have a serious impact on airlines, the travelling public, innovation and competition in the aerospace industry," he said.

As executive chairman, Mr. Beaudoin participated in internal and external meetings on business and product strategy and was deeply involved in the efforts of its plane and train sales teams. Last year, Bombardier says he travelled more than 100 days to represent the company and support marketing campaigns. In his new role, both his pay and his responsibilities will be reduced.

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