Canadian Lawyer

52 J A N U A R Y 2 0 1 8 w w w . C A N A D I A N L a w y e r m a g . c o m hareholder engagement, or activ- ism, has increased tremendously over the past decade, with a few high-profile proxy fights — such as Pershing Square Capi- tal Management's engagement at Canadian Pacific Rail- way and Jana Partners LLC's engagement at Agrium Inc. — garnering headlines. In 2011, the U.S. hedge fund Persh- ing Square Capital Management acquired 14.2 per cent of Canadian Pacific Railway's outstanding shares. One of Canada's most iconic companies had been underperform- ing, and following a high-profile proxy fight, Pershing Square emerged victorious, with a new CEO in place at CP, new board members and a new corporate strategy. By the end of 2014, CP's stock price had jumped to more than $220 from less than $49 per share. Enhancing the performance of a pub- licly traded company, holding managers to account and increasing confidence in the securities market are all arguments in favour of shareholder activism, says Mohamed Khimji, a professor at the Queen's Uni- versity Faculty of Law and the inaugural holder of the David Allgood Professorship in Business Law. But, says Khimji — who recently won a Social Sciences and Human- ities Research Council Insight Grant as principal investigator for the project "Share- holder Democracy in Public Corporations — An Empirical and Economic Analysis" — shareholder engagement is "a bit of a polarizing debate." The counter-argument is that "there are a variety of constituencies within cor- porations with heterogeneous preferences," he says. "The board's role is to aggregate all these preferences into collective deci- sion-making for the collective good. Even shareholders themselves are not a hom- ogenous group; some will be sophisticated, some not, and they will want different things … To some extent, we have to think about the impact on society, employees, creditors, suppliers, customers and so on." The board of directors, being a smaller body, makes the decisions and charts the course for a company "in a more efficient and less costly manner" and in the best interests of all the various constituencies, he says, while shareholders, with their own immediate interests at heart, may favour distribution of earnings to themselves over longer-term investment in research and development, for example. Either way, shareholder engagement is "very much a key issue right now, in terms of regulation and corporate governance," Khimji notes. Although loud public fights may more often be conducted behind the scenes now — and the targets in Canada more like- ly to be small-cap companies rather than large corporations such as CP — corporate management teams and their counsel must be vigilant and prepared for that engage- ment, advise corporate lawyers. The best advice? "Think like an activist," says Sharon Geraghty, who practises in the areas of mergers and acquisitions, corporate L E G A L R E P O RT \ C O R P O R AT E L AW HUAN TRAN Shareholder activism Despite a recent drop in public proxy battles, corporate lawyers say boards should think like an activist to avoid a fight By Elizabeth Raymer S

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