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Governance in Motion

Interviewed in Listed Magazine -

Who Anita Anand, professor of law at the University of Toronto and J.R. Kimber Chair in Investor Protection and Corporate Governance.

Involvement In 2016, Anand was named the first research chair for investor rights in North America. She has a strong record of research, policy and committee work on investor rights, securities regulation and corporate governance, and a unique vantage point on company-shareholder dynamics. She currently serves as a special adviser to the board of the Foundation for the Advancement of Investor Rights and is a Fellow-in-Residence at the C.D. Howe Institute in the area of corporate governance and economic performance.

Listed - How are investor protection and governance connected?

Anita Anand - A corporation that is well governed will be one in which shareholder interests are considered. Take, for example, the duty of the board to act in the best interest of the corporation. We know that’s a statutory legal duty. In exercising the duty, however, boards will undoubtedly consider shareholders’ interests. So the idea of protection need not only refer to the securities regulator, but also to the duty of boards to see the bigger picture, to map the blueprint for the corporation.

Listed - Elsewhere in this issue we’re writing about the evolving relationship between shareholders and companies and its relationship to governance. What strikes you about this dynamic?

Anita Anand - I think it’s very important to ensure that we’re noting the difference between Canadian capital markets and U.S. capital markets. There are a number of differences, including the dominant position of pension funds and institutional shareholders here. Without taking into account this basic fact I don’t think we can fully understand what it means to say that shareholders care about x over y. Because when a pension fund is active, for example, it’s taking into account the multitude of pensioners on behalf of whom it invests.

A further point is that these pension funds and institutional investors that dominate our markets are generally long-term investors. So to the extent that we have activism from them, that activism is focused on improving governance and ultimately performance. They tend not to be active in terms of replacing management to achieve short-term gains at the expense of the long term. And that is unlike many U.S.-based shareholder activists.

Listed - Institutions have driven engagement hard here and it seems more advanced than in the U.S. Do you agree?

Anita Anand - The Canadian Coalition for Good Governance, an umbrella group for the major institutional investors, has played a useful role in ensuring that the engagement with corporations takes on a positive tone. The CCGG has come out with a number of different policies that serve as a springboard for discussion, such as proxy voting reform, which we’ve seen come to the fore recently in the TD and the Royal Bank context, where there were votes on whether to increase the ability of shareholders to nominate directors to the board. I credit organizations like the CCGG for bringing those issues to the forefront in a constructive way.

Listed - Can you elaborate on proxy access’s significance?

Anita Anand - I’m sure you’re aware of the reforms relating to majority voting that were implemented at the TSX and then in the reforms to the CBCA [Canada Business Corporations Act]? In my mind, majority voting goes hand in hand with proxy voting. If we’re going to ensure that there are yes and no votes for shareholders when they’re electing directors, we should also make sure that we’re ensuring that shareholders have at least some ability to directly nominate individuals for whom they will be voting.

Listed - Are some factions still resisting?

Anita Anand - It’s like any type of reform in the corporate and securities law area. There are differing views on how much weight and how much of a role shareholders should have in governance. This is a governance issue: how to structure your board; what’s the composition of your board? Those are issues that traditionally rest with management and the board. And so if we’re seeing a trend, it is now becoming more commonplace to see shareholders indicating, asking, advocating for a greater role in what had previously been considered to be internal governance issues.

Listed - You mention board composition. Where does diversity fit in?

Anita Anand - Diversity relates to who is going to be around the boardroom table. That is a much different issue than executive compensation or environmental liability. It addresses the composition of the board that would be charged to consider and preside over those and any number of other issues. In my view diversity includes diversity of thought. It provides for a wider variety of options and alternatives discussed and better decision-making at the end of the day.

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