Good Governance Starts With Shareholders
By: Joe Hornyak
In June 2002, Stephen Jarislowsky, chairman and chief executive officer of Jarislowsky Fraser Limited, and Claude Lamoureux, president and chief executive officer of the Ontario Teachers’ Pension Plan, founded the Canadian Coalition for Good Governance. Don Reed, president and CEO of Franklin Templeton Investments, one of 12 original members of the coalition, shares his thoughts on why this organization is a step forward for governance in Canada.
Stephen Jarislowsky believes it is up to shareholders – not lawmakers – to work to restore confidence in capital markets by demanding improved corporate governance standards.
He also believes shareholders have an obligation to take action to restore confidence because, as the chairman and chief executive officer of Jarislowsky Fraser Limited said in a speech to the Montreal financial community, it is investors who failed to exercise their “rightful power as owners or representatives of the owners of the controlling shares.”
And that explains his involvement with Claude Lamoureux, president and chief executive officer of the Ontario Teachers’ Pension Plan, in the founding in June 2002 of the Canadian Coalition for Good Governance. The coalition brings together Canada’s largest pension funds, mutual funds, and money managers to fight for improved governance at Canadian companies.
For Don Reed, president and CEO of Franklin Templeton Investments, the decision to be one of the original 12 members of the coalition was easy. His involvement and interest in governance dates back to the early 1980s when he was president of the Toronto Society of Financial Analysts and appearing before a parliamentary committee on pension reform, which he calls “a governance issue.
“I thought it was a great idea for several reasons,” says Reed. The “big picture” reason was investor confidence which was shaken by the corporate scandals, such as Enron, being unearthed at the time.
Painted With The Same Brush
Even though Reed believes the vast majority of corporations have good procedures in place “it only takes a few to upset the apple cart and then they all get painted with the same brush.
“I think you can break down confidence very quickly and it takes a long time to rebuild it. My sense is that corporations are working very hard to rebuild the confidence that has been lost.”
The coalition adds to that effort to rebuild confidence, he says. It sends a signal to corporate Canada that people are “interested in how their boards respond to various issues.”
Reed says one of the attractions of the coalition is that it is set up as a forum to discuss issues. “Essentially, at the end of the day, what we want as a group is to have the shareholders, the boards, and the management thinking the same way, going in the same direction.”
Fortunately, while there are a lot of issues out there, “basically the thinking isn’t that much different on a lot of these issues.”
Some of the initiatives set out by the coalition to hold management accountable for growing long-term shareholder value include:
- Monitoring the composition and performance of boards
- Sharing information on candidates to recommend to nominating committees
- Insisting that key board committees have a majority of independent outside directors
The coalition believes proxy voting, for example, is important in the fight to change corporate behaviour on governance issues. “One of the things I think we should really push is shareholders voting their proxies. Shareholders will say there are 100 million shares outstanding and I own a thousand, big deal. But somehow those thousands add up. To me, it is a democratic right. I have always been big on this. I vote every opportunity I have where I am given a voting franchise,” says Reed.
60 Per Cent Vote Proxies
Yet, the coalition cites statistics that in Canada approximately60 per cent of shareholders actually vote their proxies and when the issue is contentious, that percentage drops. So it is also working on a code of guidelines for proxy voting which would cover issues such as:
- stock option plans that cause excessive dilution
- takeover protection
- shareholder rights plans
The bottom line, however, is that investors will reward companies with better governance policies in place “especially after the misfires we have had,” says Reed. “They will not buy the shares if there are issues behind the scenes. The stock market is based on supply and demand. If there are many more people who want to own the shares than there are people who want to buy the shares, that will drive the price up. But, if there is not good governance behind the company, you’ll see fewer buyers and fewer buyers means not as good performance.”
So the “best way to ensure good corporate governance is to invest in those companies which have i t and don’t invest i n those companies which don’t.”
Joe Hornyak is executive editor of Benefits and Pensions Monitor.
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