Tuesday, March 4, 1997

OTTAWA - Today, Democracy Watch released its new report, Owning Up: The Case for Making Corporate Managers More Responsive to Shareholder Values . The 46-page report calls for changes to Canadian corporate and securities laws to facilitate increased shareholder participation in corporate decision-making. Democracy Watch is releasing its report as shareholder activist Yves MichaudÕs corporate governance proposals are voted on at the annual meetings of the Royal Bank and the National Bank in the next two weeks.

 "The obstacles Michaud had to overcome in order to have his proposals heard is a sign of how unresponsive Canadian corporate managers have become to the concerns of shareholders, the true owners of corporations," said Craig Forcese, author of the report and a member of Democracy Watch's board of directors. Managers of the two banks refused to circulate Michaud's proposals to other shareholders until they lost Michaud's legal challenge of their decisions and faced orders by the courts.

 Democracy Watch's report outlines the increase in ethical investing in Canada, highlighted by the growth over the past 10 years from one to 15 ethical mutual funds with over 90,000 investors and assets of $2.2 billion. "Shareholders are increasingly looking for opportunities to invest in ways that reflect their values," said Forcese, "However, legal barriers make it difficult for many people to put their money where their morals are."

  Owning Up details the significant and unjustifiable legal restrictions on socially responsible investing and shareholder participation in corporate decision-making in Canada. These restrictions have meant that less than 30 shareholder proposals were circulated by Canadian corporations between 1982 and 1995, compared to the 701 proposals circulated in the U.S. in 1994 alone. The restrictions are as follows:

• requirements on corporations to disclose information about their record on environmental issues, including violations of environmental laws, are not as extensive as in the U.S.;
• the disclosure regimes in both the U.S. and Canada are deficient in other areas (such as violations of criminal, competition, human rights, labour and health and safety laws), and the lack of disclosure is a significant barrier to investors who want to make fully-informed investment decisions;
• Canadian federal corporate laws, including the Bank Act, allow corporate management to refuse to circulate a shareholder's proposal if a similar proposal was circulated and defeated at a shareholder meeting in the previous two years, unlike in the U.S.;
• Canadian federal corporate laws, including the Bank Act, allow corporate management to refuse to circulate a shareholder's proposal if the proposal primarily addresses general economic, political, racial, religious, social or similar causes, unlike in the U.S.;
• Canadian federal corporate laws do not explicitly require corporate management to follow the directions given in a proposal passed by shareholders at a meeting; and
• Canadian federal corporate laws can require shareholders to take costly and onerous steps simply to communicate with other shareholders, such as to garner support for a proposal, unlike in the U.S.

 The report recommends changes to Canadian corporate and securities laws to lower the barriers to shareholders who want to engage in ethical investing or who, like Michaud, want to raise issues for consideration by other shareholders, as follows:

1. Canadian governments should amend the Canada Business Corporations Act (CBCA) and/or securities laws, to require corporations to disclose their records in the areas of compliance with environmental, criminal, competition, human rights, labour, health and safety laws and their records in other civil damage cases, irrespective of the effect of these events on the value of a corporation's securities;
2. Canadian governments should amend the CBCA and other corporate laws such as the Bank Act so that corporate management could refuse to circulate a proposal similar to an earlier proposal only if the second proposal is identical to the first and the first proposal did not receive at least 3% of shareholder votes when voted on at a meeting, as in the U.S.;
3. Canadian governments should repeal the provisions in the CBCA and other corporate laws, such as the Bank Act, so that corporate managers cannot refuse to circulate a shareholder's proposal if the proposal addresses general economic, political, racial, religious, social or similar causes. Managers should only be allowed to refuse to circulate a proposal if the proposal has virtually no connection to the corporation's activities; as in the U.S.;
4. The federal government should amend the CBCA to indicate clearly that shareholder resolutions are binding on management from the date they are passed;
5. The federal government should amend the CBCA so that, as in the U.S., the making a proposal does not require a shareholder to fulfill the costly steps of proxy solicitations; and
6. To guarantee that corporate directors do not meet violate the requirements of their fiduciary duties in responding to socially responsible shareholder proposals, the federal government should amend the CBCA so that it explicitly permits directors to consider non-shareholder stakeholder interests, as in a majority of U.S. states.

 "Surveys show that Canadians are calling for greater corporate social responsibility and accountability to shareholders," said Duff Conacher, Coordinator of Democracy Watch, "It is about time that Canadian governments required corporations to meet these higher standards, and required corporate managers to be more responsive to shareholder values."

  Owning Up is part of Democracy Watch's response to the ongoing review of the Canada Business Corporations Act (CBCA) by the federal government, a review which is considering changes to some of the rules concerning shareholder participation.