Legal news and trends for Canadian in-house counsel and c-suite executives
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information they are relying on is accu- rate. "Sometimes there's a concern that, do these guys actually spend time ana- lyzing things?" Balfour also recommends immediate contact with large institutional share- holders once a potential deal has been announced. The communication should be used to explain why the transaction makes sense, and hopefully help demon- strate the advice that may subsequently come from a proxy advisory service is just that — an option that may or may not make sense for them. Craig Thorburn, an M&A partner at he says. It's wise, for example, to meet quarterly with institutional sharehold- ers after financial figures have been released. Such meetings are often facili- tated by investment banks. "It provides a forum . . . to answer questions and talk about things that are in the pub- lic disclosure documents, and the like. That's an ongoing process that's really a multi-year process," says Thorburn. "You are best placed, as a company, if your CEO and CFO already have good working relationships with the principal shareholders. If you have those doors that are already open, you've shown So even though [RiskMetrics is] charging you for reviewing the plan, they can't guarantee what the advisory side of their business will actually recommend to shareholders. It does raise some real confl ict issues. RICHARD BALFOUR, McCarthy Tétrault LLP So, for example, it will make recom- mendations on the basis of a company's compensation plan, but will also help a company develop a compensation plan for a fee. While RiskMetrics has struc- tures in place to avoid any conflicts — including a strong separation between its different branches — some critics say it is misguided to offer both types of services. Balfour suggests companies are con- Blake Cassels & Graydon LLP's Toronto office, is one person who believes many large institutional investors vote in line with RiskMetrics' recommendations by default. "If the recommendation, from your perspective, goes the wrong way, you've got a lot of work to do with your principal institutional sharehold- ers." While the urge may be to plan a response should a negative opinion come forward from a proxy advisory service, Thorburn says by that time it may be too late. Management of companies that may be targeted must constantly work at building strong relationships with shareholders if they hope to gain a posi- tive recommendation down the line, yourself to be responsible quarter after quarter, and if there are problems in the business [and] you're explaining them in a way that satisfies the major shareholders, then you're much more likely to have a sympathetic ear when it comes to dealing with a RiskMetrics or an ISS recommendation that goes the wrong way." While RiskMetrics — which is con- sidered the main player in the field in Canada — often weighs in on contro- versial deals and shareholder votes, it too has been the target of controversy. Some have voiced concern that the organization offers both proxy advisory services to aid shareholders, as well as providing consulting services to issuers. cerned about this perceived conflict. He says that while the services "notion- ally have a Chinese wall" separating the consulting and proxy advisory branches of their operations, the combination of services offered may seem unsavory. "It strikes you as odd that if a company is planning to put in place, let's say, some kind of a compensation plan, it has to go before shareholders at an annual general meeting, the company would probably like to get a sense of what's important to RiskMetrics and what isn't when designing their plan, in terms of getting a favourable review by RiskMetrics," he says. However, he notes that RiskMetrics offers no guar- antee that a plan its consulting opera- tion creates will be backed if it goes to a vote. "So even though they're charging you for reviewing the plan, they can't guarantee what the advisory side of their business will actually recommend to shareholders. It does raise some real conflict issues." O'Donoghue, meanwhile, says she is not concerned about such alleged con- flicts. She suggests the fact RiskMetrics continues to offer varied services sug- gests the market is satisfied with the independence of its work. "Because it's their business, and ultimately if there's any perception that they're not inde- pendent, I think their value diminishes substantially." Patrick McGurn, special counsel at RiskMetrics in Rockville, Md., says the organization has erected firewalls that prevent any potential conflicts. As men- tioned, those efforts begin with a separa- tion of employees within the organization INHOUSE APRIL 2010 • 21