It seems Canadians are starting to rethink their approach
to the shareholder rights plan. The
Globe and Mail report on a paper published by former Ontario
Securities Commission chief Edward Waitzer (now at Osgoode Hall Law School) and his
colleague at Strikeman Elliot, Sean Vanderpol. They think it might be
time for Canada to take a more US approach to regulating the pill:
Traditionally, Canadian regulators have tended to toss
aside the poison pills and other defences used by corporate boards to fend off
hostile takeovers - an approach long criticized for leaving domestic companies
too vulnerable to foreign predators, resulting in what some call a "hollowing
out" of Corporate Canada. ...
In Canada, securities regulators have generally allowed
poison pills to stand for limited time periods, usually 40 to 70 days, long
enough only to give boards time to seek alternative buyers, not to "just say
no" to an unwanted takeover bid.
This seems like a replay of the debate that has gone here
for years about the "defining tension" in the corporate law. From
former Justice Veasey's piece:
The defining tension in corporate governance today is the
tension between deference to directors' decisions and the scope of judicial
review. Decisions of directors which can be attributed to any rational business
purpose will be respected if they are made by directors who are independent and
act with due care and in good faith. Otherwise, courts may becalled upon to
apply some form of enhanced scrutiny.
Indeed, in Airgas, the Chancery Court drew the
line on the side of deference to the board in the context of unsolicited bids.
Boards are permitted, even required, to be active in the defense of the
corporation from an unwanted bid.
Canadians are looking around now and, I guess, taking
stock of where their current hands off approach leaves them. The hollowing out
of corporate Canada has led Waitzer and Vanderpol to weigh in that courts,
rather than the securities regulators, are better positioned to determine
whether or not a board must pull its pill in the face of an unwanted bid.
This new paper, Mediating Rights and Responsibilities in Control
Transaction, is now appearing in the current issue of the Osgoode Hall Law
Journal. The paper provides a good overview of current Canadian
jurisprudence on the pill for those of us uninitiated in the ways of The Great
Abstract: There is a
growing debate as to the relative merits and consequences of a shift to a
more shareholder-centric corporate governance framework. How much "direct
democracy" makes sense in corporate decision making? If power is to be
transferred to shareholders, should responsibilities be imposed (and, if
so, how)? These issues have long been addressed by courts and regulators
in the context of unsolicited control transactions. In its recent
Air Products & Chemicals v. Airgas decision, the Delaware Chancery
Court canvassed the evolution of its law on this point and concluded that
implicit in the power (and responsibility) of the board of directors to
manage the business and affairs of the corporation is the power to
determine the long-term strategy of the corporation, including when and if a
sale of control of the corporation should be pursued. By contrast,
Canadian securities regulation has consistently adopted a shareholder-centric
approach to unsolicited change of control transactions. This is an
approach that is increasingly difficult to reconcile with
Canadian corporate law as it has evolved since these issues were first
considered by securities regulators. The answer to this growing inconsistency,
we suggest, is for Canadian securities
regulators to repeal their "defensive tactics" policy in the recognition that
our courts have become better equipped to adjudicate such matters.
[I won't include the abstract in French. It seemed a bit much.]
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