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CPU_LISTED_mag_full_page_09112010.pdf 11/10/10 11:41:22 AM
Listed
24 How to land a monster Special Report: Mergers & Acquisitions, pt. 1: Kinross Gold’s $7.1-billion
purchase of Red Back Mining and its massive African gold deposit
has the power to transform the company—and be the defining deal of
CEO Tye Burt’s career
By Robert Thompson
29 2010: Year of the strategic buyer Special Report: Mergers & Acquisitions, pt. 2: Final returns are still coming
in, but the year’s big M&A trends are clear—as are the leading contenders
for the top deals and dealmakers of 2010
By Paul Brent and Lyndsie Bourgon
34 Putting women in the picture What’s the best way to boost female representation on Canadian boards?
Women on Board aims straight for the top, matching up-and-coming
women with current corporate stars in a unique two-year mentorship
By Susan Mohammad
38 Behind every successful board… The Director’s Chair: According to TransAlta CEO Steve Snyder,
boards work best when they’re supported by a hard-working, bridge-
building CEO
Interview by David W. Anderson
Contents
If this were Northern Ontario, it might have gone differently. But this was Mauritania. It wasn’t just new to Kinross, it was new to everyone.
Egizio Bianchini, BMO Capital Markets Page 26
Listed
Contents
6 Letters
7 Editor’s Note
9 Ticker 9 Full cabinet press
Federal ministers are making all the business headlines
11 Market dashboard New listings, IPOs, sector finance, performance metrics
13 No bull: Understanding market mayhem Our ex-analyst links market “mathemagic” to corporate strategy
15 Views 15 Corporate finance
Is your company prepared for the coming “debt wall?”
By Robert Olsen
17 Law and governance Rules on poison pill takeover defences need updating
By Poonam Puri
19 Executive compensation Why SEC concerns about proxy adviser power matter here
By Ken Hugessen
21 Environmental affairs Hailing the CSA’s new rules on environmental disclosure
By Sandra Odendahl
23 Investor relations Web video offers shareholders face time with the CEO
By Michael Salter
43 Handbook 43 In every medium you’re the message
Experts tell executives to hone their media savvy
45 New rules of engagement Adapting to the new breed of shareholder “activist”
47 Best practices at dawn Lessons abound at the 2010 Corporate Reporting Awards
49 Ahead 49 Economy
The 2011 economic forecast: sluggish to partly sunny
By Ian McGugan
53 Watch list Key dates, data and events in the quarter to come
54 Insider 54 Harmony or bust
Sir David Tweedie, chairman, International Accounting
Standards Board
Listed
Letters
Lots of great feedback but a dearth of correspondence leaves us once again urging readers to become
part of the conversation in Listed. You can contact us today on the Web at listedmag.com, but the more
inspiring news is that we’re in the final stages of building out the site to include live content from the
magazine, plus other feeds, sources and streams, and more ways to connect with us, our contributors
and fellow members of the listed community. Watch for further updates about the new listedmag.com.
In the meantime, you can still e-mail us at [email protected] or message us @ListedMag on
Twitter. You can also e-mail our columnists directly. You’ll find their addresses with their columns.
Redux
You’ve heard of the Sports Illustrated cover jinx? How any team or athlete featured on the cover of SI finds
misfortune thereafter? At the risk of jinxing ourselves, we hasten to point out that Listed covers are having
the opposite effect—we’re two-for-two in higher valuations and happier shareholders after publication,
first at HudBay (TSX:HBM) and now Magna (TSX:MG).
On Nov. 4, while releasing soaring third-quarter results—the first quarterlies since Frank Stronach
gave up control (“Frank’s last payday,” by Andy Holloway, Fall 2010)—Magna delivered its shareholders a
perfect trifecta: dividend hike, stock split, share buyback. Specifically, a 20% dividend boost, a two-for-
one stock split and a plan to repurchase up to 4 million common shares.
Oh, and along with that, Magna said it would undertake a review of the make-up of its board of
directors. In conjunction, it announced that Louis Lataif, dean emeritus of Boston University School
of Management, was filling the role of chairman of the nominating committee of the board of directors,
a position recently vacated by Stronach in conjunction with his buyout deal. This same committee will
now move forward with its review “of the board’s composition.” Its stated objective is to ensure “the board
continues to have the capabilities to oversee our operations globally,” the company said.
You’ll find stories in this issue linked to events or programs for which Listed is a media sponsor;
specifically, the Women on Board mentoring program, which promotes the appointment of women to
Canadian boards, and the Canadian Institute of Chartered Accountants’ 59th annual Corporate Reporting
Awards. Not only do sponsorships like these ensure we get front-of-the-line access to people and
programs that are of interest to Listed readers, but it also raises our visibility within the listed company
community. This, in turn, allows us to introduce the magazine to our intended audience and for us
to have an opportunity to receive some direct one-on-one feedback from those same readers. We’ll be
participating in more events like this in 2011, so keep your eyes open for the Listed logo.
For more information on the program contact Yvette Lokker at [email protected].
IMPROVE SHARE VALUATION WITH GOOD IR
Be informed. Be connected. Be current. Be certified.
Invest in your IR team. Enroll them in the program today.
Good investor relations (IR) is vital to maximizing your company's share value. Ensure your IR team has the knowledge they need to succeed.
CIRI is launching an IR certification program in September 2011 with the Richard Ivey School of Business.
This 10-month program will cover all areas that comprise the challenging role of IR including capital markets, securities regulations, finance, communications and strategy. The cost to complete the program is $8,950 for CIRI members and $9,450 for non-members. Once completed, participants will write the certification examination for a nominal fee to become a certified IR professional.
Listed
Editor’s Note
W elcome to Listed magazine’s third issue and our first Special Report on Mergers &
Acquisitions. Inside, you’ll find a comprehensive, two-part look at the biggest deals
this year to date in Canada, the top investment banks and law firms, and the key
trends that have driven the market to renewed heights after a two-year slowdown.
It’s an excellent package. And I’m especially excited about our cover story, “How to land a monster”
(page 24), by veteran freelance business reporter Robert Thompson. It’s an in-depth look at Kinross
Gold’s $7.1-billion takeover of Red Back Mining and its huge Tasiast deposit in Mauritania, including
feature interviews with all the key players—Tye Burt, Kinross CEO; Richard Clark, CEO of Red Back;
Egizio Bianchini of BMO Capital Markets, the lead banker; and Clay Horner, chair of Osler, Hoskin &
Harcourt, primary legal advisers to Kinross.
If it seems audacious to call any deal the “Deal of the Year” when going to press at the beginning of
December, we’ll take our chances. In dollar terms, the transaction is the largest Canadian-led deal by
a large margin. It could still be surpassed, of course, but size is not the only criteria. Kinross’s purchase
of Red Back was also significant as it was the first acquisition tested under new TSX rules that require
a shareholder vote for any deal involving share dilution of more than 25%. That vote produced still
further intrigue when the highly influential U.S. proxy advisory firm Institutional Shareholder Services
would not endorse the transaction on concerns about the price. It was a controversial call that resulted in
a closer vote than might otherwise have been the case. In this, there is a potential lesson for all issuers.
E lsewhere in the issue, we introduce a new column in the “Views” section on Investor Relations, and a
new columnist—Michael Salter, senior director of investor relations and corporate communications
at MOSAID Technologies (TSX:MSD). Salter has been working in investor relations for Ottawa-area
technology companies for 15 years. Before that, he was a writer and editor with the Financial Post, Maclean’s and Report on Business Magazine. In his debut column, Salter writes about the reach and
connection that CEOs and other senior executives can get with their shareholders by adding video to
their websites. (See “Best face forward,” page 23.)
Perhaps it’s no coincidence that in another story in this issue, a company’s ability to shoot a CEO
video on a Friday and post it to its website the next Monday, also played a critical role. The company
is Potash Corp. The CEO is Bill Doyle. And the messaging was part of the company’s comprehensive
strategy to fend off BHP Billiton’s $39-billion takeover bid. While it was federal industry minister Tony
Clement who ultimately vetoed the deal, the entire team behind Potash’s website—the company’s
primary hub for shareholder communications—were on the frontlines every step of the way. And
you can make a pretty good case for their contribution, when you also consider that Potash was just
recognized for having the best website and electronic disclosure practices in the country. That honour
came in the form of the Award of Excellence for Electronic Disclosure at this year’s Canadian Institute
of Chartered Accountants’ Corporate Reporting Awards. Awards of Excellence in three other categories
went to Suncor, Nexen and Potash again. The Overall Award of Excellence went to Telus. Our recap
of the winners and our 10-tip guide to their winning ways, “Best practices at dawn,” starts on page 47.
That’s just a taste of what’s inside. I invite you to check out the rest and send me an e-mail with any
comments or questions. And don’t miss our Spring 2011 issue, coming in March.
Brian Banks Editorial Director [email protected]
Volume 1, Number 3
Publisher
Martin Tully
Associate Publisher
Bryan Woodruff
Editorial Director Brian Banks
Art Director Levi Nicholson
Columnists Ken Hugessen, Ian McGugan, Sandra Odendahl,
Robert Olsen, Poonam Puri, Michael Salter
Contributing Editors David W. Anderson, Bruce Freedman, Miguel Rakiewicz
Writers Lindsey Bourgon, Paul Brent, Milla Craig, Andy
Holloway, Dana Lacey, Cooper Langford, Celia Milne, Susan Mohammad, Robert Thompson
Advertising Advertising Director
Colin Caldwell, 416.964.3247 ext. 26
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Western CanadaJohn Ross
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By Cooper Langford
I n this space last issue, we wrote about Porter Airlines’ sputtering bid
for an IPO. While at last report that still hasn’t gotten off the ground,
it’s impossible not to think that things should be looking up for Porter,
which has its hub at Toronto’s Island airport, solely on the basis of
all the high-level shuttling that’s been going on lately between Bay Street and
Parliament Hill.
And not just anywhere on Parliament Hill, but the Conservative cabinet
offi ces. Th ere was the literal move made by former minister of the environ-
ment, Jim Prentice, who stepped down in early November for a senior post
at CIBC. Th en there was the near-literal move by defence minister and lawyer
Peter MacKay a couple weeks later; according to the Bay Street rumour mill,
he was as good as gone to Gowlings, though so far he’s stayed put.
What probably matters even more to the markets than the job prospects
of individual cabinet ministers, however, is the infl uence they and their
colleagues have had lately in business planning and investment decision-
making as a result of several uncharacteristically interventionist stands on
key issues—in some cases, overturning decisions made by other governments
or their own agencies.
None were bigger, of course, than industry minister Tony Clement’s decision
to deny BHP Billiton’s $39-billion takeover of Potash Corp. of Saskatchewan—
announced the same day, coincidentally, that Prentice resigned. Clement
and the Harper government have, of course heard plenty on this one. Few
voices denouncing the decision were as vitriolic as that of noted University of
Toronto historian and traditionally conservative thinker Michael Bliss. Writing
in Th e Globe and Mail, Bliss likened the decision to “beggar-thy-neighbour”
protectionist measures adopted during the 1930s, which he argued had
devastating consequences for world trade and investment during the Great
Depression. Denying BHP Billiton the opportunity to conclude its takeover
was “a worrisome sign of dark times.”
Bliss’s comment may have been ominous, but it had one thing going
Ticker
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Clement overruled the CRTC on its decision to block Globalive Communica-
tions Corp.’s launch of its discount cellular phone network, Wind.
According to the CRTC, Globalive’s fi nancing by Egypt’s Orascom
Telecommunications Holdings violated Canada’s foreign ownership rules for
the telecom sector. Th e company was providing Globalive with more than
US$508 million in loans. Globalive sought to structure its relationship with
its backer so that its board composition and management decision-
making power, at least in practice, was eff ectively Canadian. Th e CRTC was
not convinced.
Enter Clement, arguing against the CRTC ruling on two main themes.
First, that Globalive was a vital part of federal government eff orts to open
Canadian cellphone markets to greater competition; and second, that
Globalive’s relationship with Orascom was largely fi nancial, something that
could be tolerated given the post-recession state of the capital markets. In
other words, Globalive was close enough.
Th e industry was not impressed. Several companies had participated in
the same spectrum auction in which Globalive won its operating frequencies.
Th e list included incumbent carriers as well as new entrants, such as Public
Mobile and Dave Wireless, all of whom conformed to foreign ownership
laws. Public Mobile asked the federal court to overturn Clement’s decision.
Meanwhile Telus regulatory and government aff airs vice-president Michael
Hennessy captured industry sentiment on Twitter with the comment, “If
Wind is Canadian, then so was King Tut.”
So what are we seeing in all this Tory meddling? For now, we’ll leave
the last, somewhat reassuring, word to George Fleischmann, a professor
of business government relations at the Rotman School of Management.
What we’ve been witnessing, and being subjected to, Fleischmann says, is
a government that’s dealing with its investment policy on a case-by-case
basis, rather than following a consistent framework, in an eff ort to claim
the political centre. “Th e Conservatives would like a majority in the next
election,” Fleischmann says. “What they are doing is cutting out the legs
from underneath the Liberals.”
Th is is temporary stuff , Fleischmann maintains, and the Conservatives
will return to more explicitly pro-investment policy once they’ve got their
majority, or at least a strong minority, in a new Parliament. Whether that
stops them from dominating the market headlines or hogging all the seats
on the Ottawa-Toronto express will be evident aft er that.
for it: at least it was clear. In the bigger picture, the Potash ruling has done
nothing but sow uncertainty—the bane of business planners—in the
capital, commodity and stock markets. Uncertainty, mixed with new divi-
sions. For while Bliss certainly had supporters, polls of CEOs taken aft er
the decision pointed to a more general, though awkward, sense that the
federal government had done the right thing. A comment from Goldcorp
chairman Ian Telfer summed up the mood for many others: “I fi nd myself
very confl icted by this issue,” Telfer said. “As a long-time proponent of
free markets it pains me to see governments interfere in the movement of
capital. However, as a proud Canadian…I agree with the decision.”
Th e conundrum Telfer describes is easy enough to understand in the con-
text of 2010. Globally, the past year was dominated by eff orts to right national
economies aft er the devastating eff ects of the fi nancial meltdown. An increase
in protectionist policies, though damaging to capital fl ows in the long term,
was to be expected. And on that front, notes Brian Richter, a professor of
economics and public policy at the Richard Ivey School of Business, a deci-
sion to kill a foreign takeover deal here has to be seen as part of a larger
sorting out of competitiveness between countries that includes fi nancial
regulation, tax policy and even the risk of currency wars.
But the Potash decision is not the only recent federal intervention. Consider:
just a day or two before Clement rejected BHP’s bid, former minister Prentice,
in one of his last acts as a cabinet minister, pulled the plug on an $800-million
copper and gold mining project at Prosperity Lake, B.C. Th e project, proposed
by Taseko Mines Ltd., had already been approved by the provincial govern-
ment, which had determined that the benefi ts of the project outweighed
its signifi cant environmental impacts. Prentice saw things diff erently
and stopped it in its tracks. Market reaction was swift . Taseko’s shares shed
close to a third of their value that day, falling to $4.50, a level they were
still trading at in early December.
Share values aside, Prentice may well have made the right call. Th e way
the decision was handled, however, doesn’t refl ect well on the certainty or
transparency of the environmental-review process, said Pierre Gratton, CEO
of the Mining Association of British Columbia. “We want to see investors feel
confi dent in B.C. because we believe [the province] has a lot going for it,”
he told the Vancouver Sun. “Th is decision obviously doesn’t help us.”
If three rulings make a pattern, then one can complete the set by looking
back a little farther, to the end of 2009, when industry minister Tony
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Market Dashboard TickerNo Bull
O ver the years, I’ve met many CEOs who profess to ignore market
movements and instead focus on the “fundamentals.” While they
might believe they are separating the wheat from the chaff , the
reality is, they’re doing themselves a disservice. For one thing,
globalization, ETFs and the tradability of everything from sugar to oil, means
cost inputs and sales prices are no longer determined only by end users but also
by investors. For another, a company’s share price—and its ability to raise capital
at premium valuations—is oft en determined less by its own initiatives than
by its sector. Finally, market movements are not just a window on the world;
they can actually change the world. So knowing what drives them is a decided
advantage in strategic decision-making. Here are four rules to consider:
A popular perception is that stock market performance refl ects economic
performance, but in reality market performance can alter economic
performance. Take an economy that is in a slump and add a stock market
rally. At fi rst, bears scream dead-cat bounce. But if the rally holds, rising
share prices create rising wealth, which ultimately means higher spending,
sales and profi ts. Voila, the market was right aft er all—propelling even
more stock market gains as investors pay higher multiples for accelerating
earnings. So 2 + 2 actually equaled 5. It’s mathemagic!
When I was a young analyst, I left a meeting disappointed that the company
I followed was behind schedule to launch its exciting new product. My
research head, on the other hand, told me this was in fact good news:
“Th e dream is still alive,” he explained. “Th is is a brand new technology.
Until they launch it, they can’t be proven wrong.” Th e point is, market
euphoria doesn’t have to be right to have a massive economic impact—as
well as dislocation. While many Internet companies crashed and burned in
2000, the massive capital raisings pre-bust enabled the expensive infrastructure
for a brand new industry to be created. In the end a new paradigm was
created, except it wasn’t the paradigm that everybody thought it would be.
Never confuse fair value with price. Asset prices can go from cheap to
expensive to tulip-mania extremes and bull markets oft en last longer than
they should. Eventually they do end, however, and a massively overvalued
market becomes massively undervalued. A good executive will understand
the key factors that cause this tipping point because valuation will now be
felt to disastrous results as the mathemagic of the market works in reverse. For
senior executives, assessing investors’ trigger points, such as technical chart
patterns and monetary trends, should be a key part of their planning process.
All companies worry about commodity prices. Given massive capital
requirements, accurate projections are particularly important to resource
companies. For example, oil drillers had been comfortable projecting $35 a
barrel over the long run. But the last few years have put that complacency to
the test. So how should companies incorporate spot price action into their
own plans? Firms that off er services or produce consumer goods will fi nd
a consistent hedging program is usually the best option. Investors don’t
want these companies worrying about spot prices; it’s not their business. For
commodity producers, it’s more complicated. Investors usually don’t want
hedges; they buy these stocks because they’re bullish. Yet markets will oft en
penalize an unhedged fi rst mover on high-cost capacity expansion because
analysts are still using their own, more conservative, price assumptions in
their valuation targets. All management can do is heed market drivers and
ride it out if they think the price action has legs.
Bruce Freedman is a consultant who has worked as both a hedge fund manager and top-ranked equities analyst. E-mail: [email protected].
By Bruce Freedman
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Views
By Robert Olsen
Greed is good. That famous Gordon Gekko paraphrase from
the original Wall Street now sounds as outdated as the movie
itself. Yet some things never change. In the recent sequel, while
the fictional 1980’s leverage buyout master says he’s figured out
that loading up on debt is a no-no, by the end of the movie he has stolen
his daughter’s money and used it to create a hedge fund with leverage, with
an investment strategy of betting against the market.
Gekko’s dependence on debt could be the true reason audiences like him.
We can relate. In the past decade, it seems many of us embraced his original
concepts and borrowed heavily—for mortgages on our homes, over-extended
credit card debt, or super leverage on our companies, especially in the U.S.—
pushing our debt load to an all-time high. As we know all too well, various
governments also got into the act and borrowed heavily to address fiscal short-
falls, to purchase toxic assets and for stimulus spending when the credit crisis
occurred. While in previous generations the impact of one country overleverag-
ing itself would not be strongly felt beyond its borders, today that’s no longer
the case. Mistakes travel and infest the rest of the world as fast as they ride
the Internet.
When it comes to corporate debt, much of the business press has centred on
the drop in new M&A activity since the crash—which is factually correct—
and the resulting fall in demand for new debt. If we net out the demand for
capital due to re-financings, new debt activity has certainly declined. According
to Thomson Reuters, debt for newly created loans (investment grade
and leveraged loans) totaled just US$165 billion in 2009, down from US$839
billion in 2007.
But don’t be deceived. This decline has not alleviated the overall demand
for debt capital. There’s so much debt already out there, so much of it
coming up for renewal, that the problem could soon be a lack of supply.
When that happens, the cost of capital will go up for everyone. And some
will go home without.
Remember how we got here. The U.S. leveraged loan market expanded
dramatically during the mid-2000s, for several reasons: (i) abundant market
liquidity, (ii) lender tolerance for high leverage, (iii) the emergence of hedge-
fund and private-equity participation in the loan market, (iv) covenant-lite
structures (especially in early 2007), and (v) numerous new investors in
collateralized loan obligations (CLOs). According to Leveraged Commentary
& Data, between 1999 and 2004 the total U.S. leveraged loan market grew
to US$193 billion from US$101 billion. By 2008, the leveraged loan market
stood at US$596 billion in total outstanding debt.
This dramatic growth in the market is not, in itself, the issue. It only
becomes problematic when the supply of capital starts to dry up. An estimated
half of leveraged loans were financed by CLOs. In fact, the CLO market grew
almost in tandem with the leveraged loan market (CLO formations went from
US$9.1 billion in 2001 to a startling US$97 billion in 2006). When the credit
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Views
crisis took hold, new CLO activity basically dried up (falling to US$13.5 billion
in 2008 and just US$830 million in 2009). Despite a recent modest turnaround,
CLOs are basically lost as a source of capital to fi nance new lending activity and
are also lost as a source of capital for any maturing debt that was created in the
last fi ve years. Further still, primary lenders such as banks, term lenders and
life insurance companies started facing capital adequacy issues as defaults
started to increase and increased scrutiny from regulators occurred. Th e
expected result has been a scaling back of available capital for re-fi nancings and
new loan activity.
Simple high school economics would tell us that when supply falls and
demand remains high, prices (in this case, the cost of capital) would rise
dramatically. Yet that is the opposite of what borrowers in many countries have
experienced in the past couple of years. Th e reason: at exactly the same time
as the debt supply was drying up, governments around the world joined forces
to create stability in the credit markets and pushed benchmark interest rates to
their lowest on record. Th e same three-month US$ Libor that was 487 bps in
November 2007 was 29 bps in October 2009. So while the spreads for borrow-
ers have risen by about 200-250 bps over the last three years, all-in rates (which
include the Libor fl oors and other factors) are lower than they were pre-credit
crisis and are similar to 2004 levels for loans tracked by S&P LSTA Leveraged
Loan Index.
What has been temporarily supporting the credit markets is another source
of capital—high-yield debt. Specifi cally, high-yield debt issuance has grown
from US$94 billion in 2005 to US$166 billion in 2009 (and US$195 billion in
the fi rst nine months of 2010). Th e majority of high yield has been used to
refi nance maturing debt (68% in 2010), basically replacing the loss of CLO
capital and the reduction in support from primary lenders. As long as this
continues, the colossal amount of debt that is maturing in each of the next three
years will not create another crisis.
But this is where the rubber meets the road. We know that sooner or later,
the U.S. government will bring an end to low interest rates. Furthermore, the
high-yield market will not remain a recurring solution to the dramatic amount
of maturing debt. As a result, “An avalanche is brewing in 2012 and beyond
if companies don’t get out in front of this,” said Kevin Cassidy, a senior credit
offi cer at Moody’s. As such, the debt wall may be delayed but we will face it
in the future, whether in 2012, 2013 or 2014.
C anada has been an example of stability during the fi nancial crisis.
Access to capital, although clearly impacted, has remained reasonable,
especially for large public companies and our healthy private fi rms. So why
should Canadian public companies worry about the debt crunch?
Indeed, if our healthy domestic lenders could meet all of our debt require-
ments, there would be less concern. However, our banking system is built
on transferring risk to others through the syndicated loan market, so we’re tied
to the general health of the global banking system. Specifi cally, as Canadian
companies look to refi nance debt over the next three years or attract new
debt for growth opportunities, the poor health of the U.S. debt market will
signifi cantly impair Canadian lenders’ ability to syndicate their positions. If the
U.S. high-yield market faces any increase in defaults or if benchmark rates start
to rise, this source of capital will dry up. Inevitably, then, the maturing debt
problem will make it harder for companies in all regions to access debt capital,
and borrowing costs are destined to rise.
One of the levers Canadian companies can use is to proactively deal with
their debt and refi nance early and choose a maturity date as far beyond the
estimated peak of the debt wall as possible. By taking advantage of the currently
strong Canadian banking market and proactively dealing with their debt,
Canadian companies can avoid the almost certain future maturity disaster
that their U.S. cousins will surely face.
Robert Olsen leads Deloitte’s Capital Advisory practice for the Americas, sourcing debt and/or equity capital for private and public companies. E-mail: [email protected].
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individual shareholders to exercise their right to tender their shares (or
not), irrespective of the views and recommendations of the target’s board
and management.
Not every decision favours the raider, however. In two recent rulings (Neo
and Pulse Data), the Ontario and Alberta Securities Commissions refused
to cease-trade tactical pills, even in situations where the target did not go out
and solicit other bids. A critical factor was that the target companies held
shareholder referendums in which shareholders overwhelmingly approved
the pills.
And it’s here where the gaps in NP 62-202 become apparent. While it’s
unclear to me why we should allow a majority of shareholders to trump
an individual minority shareholder’s right to tender his/her shares, if the
shareholder referendum in fact becomes standard practice, it would raise a
number of technical questions, including:
What level of majority (50%? 66%?) should trump individual shareholder rights?
How long can the pill stay in place?
Can minor revisions to an off er negate the shareholder vote on the pill?
Rather than waiting for another contested transaction to lead to confl ict over
these issues, clearly the time has come to update NP 62-202.
Poonam Puri is a law professor at Osgoode Hall Law School and Co-Director of the Hennick Centre for Business and Law. E-mail: [email protected].
O ttawa’s decision to reject BHP Billiton’s off er for Potash as not
providing a “net benefi t” to Canada cut short the need for
Potash’s board to use a full arsenal of defensive tactics against
the unsolicited bid. But early on, Potash’s board did issue a
strategic poison pill in an attempt to delay, if not thwart, the hostile off er.
In this, it was no diff erent than many other target companies. Use of poison
pills—aka shareholder rights plans—is on the rise in Canada. Th rough
early November, Canadian public companies had adopted 119 poison pills,
more than double the number adopted in the U.S., according to FactSet Shark-
Repellent. Th is sounds surprising, given the size of our respective markets. How-
ever, poison pills fell out of favour in the U.S. amid reform in the Enron-World-
Com era; this year, they hit a 20-year low. In Canada, on the other hand, their
use has grown, peaking at 169 in 2008 and showing up strong again in 2010.
Despite poison pills’ popularity, the state of the law in Canada is rather
murky. Securities regulators rely on National Policy 62-202 to direct their
actions on defensive corporate tactics, including poison pills. Th ere’s just one
problem: while NP 62-202 clearly states that the main objective of takeover-bid
regulation in Canada is to protect the bona fi de interests of the target company’s
shareholders, it was written in the mid-1980s, before poison pills were even
invented. As such, I think the time has come for securities regulators to update
NP 62-202. As I’ll outline below, recent rulings raise questions about the extent
of pills’ legitimate use. An update would provide greater clarity and guidance
to capital markets participants.
At its essence, a poison pill provides shareholders of a target company,
other than the hostile bidder, the opportunity to purchase shares of the target
at a deeply discounted price, making it impossible for the hostile bidder
to obtain control.
A pill can buy the target’s board additional time to seek other bidders and
fi nd other value maximizing opportunities. Th is is a legitimate purpose and
should be permitted as a matter of good policy. Alternatively, a pill can
be used to entrench self-interested management. Th is is not a result we want
to encourage.
As long as a pill is in place, no one can tender shares. So hostile acquirers
routinely go to regulators asking that tactical poison pills (those issued by
the target as a response to the bid) be cease-traded so that individual share-
holders can decide the fate of their shares.
While our law is murky, one thing is clear: we don’t follow the U.S. approach,
which gives a target’s board wide discretion to keep a pill on indefi nitely.
In Canada, the TSX requires shareholder approval within six months. When
it comes to rulings under NP 62-202, the traditional approach followed here
allows a target board to keep a pill while pursuing other value-maximizing
opportunities. If there’s reasonable prospect of other bidders coming forward,
Canadian securities commissions will let the pill stand. But there comes a
time here when “the pill has to go” and the pill will be cease-traded—allowing
By Poonam Puri
STIKEMAN ELLIOTT LLP TORONTO MONTRÉAL OTTAWA CALGARY VANCOUVER NEW YORK LONDON SYDNEY www.stikeman.com
Legal demands on Canadian public companies have never beengreater. From securities regulation to employment and pension lawto the ever-present dangers of director and officer liability, it can be a challenge to keep up with developments.
Recognized around the world as one of Canada’s premier law firms,Stikeman Elliott provides legal guidance and client services, such asour market-leading securities blog, canadiansecuritieslaw.com, thatenable Canadian public companies to stay focused on buildingsuccessful businesses.
We’re pleased to join the Canadian business community in welcoming Listed, which shares our goal of ensuring thatCanadian public companies have access to accurate and timelyanalyses of significant regulatory developments. We wish everyoneinvolved with this excellent new publication the best of success.
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analysis. As the SEC notes, this concern is aggravated by the perception that proxy advisers appear to be unwilling, as a matter of policy, to communicate with issuers or to revise recommendations following such communications.
The SEC has several suggestions for addressing concerns about accuracy, including that proxy advisers disclose policies and procedures for inter- acting with issuers, such as informing issuers of recommendations and handling appeals of recommendations; and a requirement to file voting recommendations with the SEC, at least on a delayed basis. A combina-tion of these steps is most likely to be effective. Certainly, public disclosure would enable market participants to assess the quality of voting recommen-dations over time.
In addition to these specifics, the SEC asked commentators for their views on proxy firms generally and invited comments on a set of 19 additional questions. Canadian issuers and/or their advisers were free to reply. It would be worthwhile for directors here, and especially governance/compensation committee members, to review the questions to clarify their own position on certain aspects of the issue.
Interestingly, ISS, in its most recent annual policy survey, sought input from institutional investors and issuers on its issuer “engagement process.” The results of the annual survey are used as a basis for formulating ISS’s policies and this appears to be the first time that the survey has addressed ISS’s own engagement process. Given the SEC process now underway, it’s unlikely to be the last.
Ken Hugessen is founder and president of Hugessen Consulting Inc. E-mail: [email protected].
L ast issue, I wrote about say-on-pay’s arrival in Canada, and how voluntary non-binding shareholder votes on executive compensa-tion could fast become a fact of life. Approximately 40 Canadian companies have adopted say-on-pay so far and many more are
expected to adopt in the upcoming year.As I also noted, say-on-pay becomes mandatory in 2011 for all U.S.
companies, following passage of the Dodd-Frank bill. The Securities and Exchange Commission has been given the task of implementing say-on-pay along with other Dodd-Frank provisions and, to that end, it recently published its proposed rules for advisory votes on say-on-pay, say-on-pay frequency and say on golden parachutes in a change of control context. Canadian companies aren’t bound by these proposed rules, but they should still take note, monitor their final form and pay special attention to the way mandatory say-on-pay rolls out stateside in 2011.
Not only will the U.S. experience affect what happens with say-on-pay here, but the process also ties into another area of significant concern in both Canada and the U.S. regarding the influence wielded by proxy advisory firms. Their influence is on the rise due to the increasingly large percentage of public shares owned by institutional shareholders, combined with their fiduciary obligation to vote all shares held on behalf of beneficiaries. Their voting recommendations, in particular those of ISS (until recently RiskMetrics), can have a big influence on the final outcome of shareholder votes. With the arrival of say-on-pay, that influence will only spread.
What has issuers and their advisers so concerned are potential conflicts of interest and inaccuracies and a lack of transparency in the formula-tion of these recommendations. An SEC Concept Release published in the summer reflects this concern. And so, at the same time it’s helping establish a say-on-pay regime that may boost proxy advisers’ clout, it’s also looking hard at the need for new rules to rein in their influence. Given that the most influential proxy advisers for Canadian issuers, ISS and Glass Lewis, are U.S.-based, the SEC’s review and any resulting changes to those firms’ business models will affect us as well.
The potential conflict of interest generating the most concern arises when proxy advisers provide both voting recommendations to investors and consult-ing services to issuers (the ISS business model). The SEC’s Concept Release asks for comments on some specific suggestions that could be taken to address these concerns, including revising proxy solicitation rules to require specific disclosure of potential conflicts and creating a specific registration for proxy advisers with appropriate registration requirements that would include conflict of interest provisions. That said, an outright prohibition against providing services to both issuers and investors would undoubtedly be the preference of many issuers.
Market participants are also concerned that proxy advisers’ voting recommendations may be based on inaccurate or incomplete data or
By Ken Hugessen
At the same time the SEC is helping establish a say-on-pay regime that may boost proxy advisers’ clout, it’s also looking hard at the need for new rules to rein in their influence. Any changes affecting U.S. proxy advisers will affect us as well.
Listed
the material contained in voluntary reports is not provided in a timely
manner, as it would be if security filing rules were followed;
the material is incomplete, not comparable, and is boilerplate;
the information is not integrated into financial reporting.
To enhance compliance, the OSC proposed to provide additional guidance
for issuers on existing environmental disclosure requirements, and on October
27, 2010, the Canadian Securities Administrators (the umbrella organization
of provincial and territorial securities regulators) delivered it. CSA Staff Notice
51-33 provides a thorough summary of how to determine materiality, which
environmental matters should be reported and how to report them. The
five key environmental disclosure requirements of NI 51-102 are expanded
upon in detail, with a series of questions that issuers should consider when
assessing which environmental risks and related matters to disclose. The notice
also provides guidance on the appropriate disclosure of environmental risk
governance, oversight and management.
An increasing proportion of mainstream and socially responsible investors
are very interested how environmental matters affect companies that they invest
in. Issuers will want to read CSA Staff Notice 51-33 and consider whether their
disclosure complies and is meaningful. Any company that has been meeting its
continuous disclosure obligations will not find anything surprising or onerous.
However, other companies may find they must place greater resources and effort
toward beefing up environmental reporting going forward.
Sandra Odendahl is director of corporate environmental affairs at RBC. The views expressed are her own, not necessarily those of RBC. E-mail: [email protected].
E nvironmental matters that can impact companies’ financial
performance generally fall into three categories: (i) affecting a
company’s ability to operate; (ii) resulting in unplanned costs or
changes to revenue; or (iii) impinging on a firm’s ability to grow.
Material environmental issues have long been reportable under securities
regulations; however, regulators in the U.S. and now Canada have recently
issued specific guidance on environmental disclosure. The reason: the need
to address the abysmal job that some public companies have been doing at
disclosing important environmental issues, costs and liabilities.
First, some context. Under the Ontario Securities Commission (OSC)
National Instrument 51-102 Continuous Disclosure Obligations, which came
into effect in 2004, reporting issuers must disclose information about material
environmental matters in their continuous disclosure (CD) documents. Infor-
mation relating to environmental matters is likely material if a reasonable
investor’s decision whether or not to buy, sell or hold that issuer’s securities
would likely be influenced or changed if the information was omitted or
misstated. Information that issuers must disclose includes the following five
key requirements: environmental and health risks; trends and uncertainties;
environmental liabilities; asset retirement obligations; and the financial and
operational effects of environmental protection requirements, now and in future
years. NI 51-102 also requires issuers to describe any social or environmental
policies that are fundamental to their operations, such as policies regarding
a company’s relationship with the environment or with the communities in
which it does business, and the steps it has taken to implement them.
In spite of the relatively clear requirement to disclose, not all companies have
been meeting their obligations, causing activist shareholders to complain. In
2007, the OSC conducted a review of the filings of 35 public issuers in several
sectors where one would expect environmental issues to have an impact on
company performance. In that review, the OSC found disclosure of environ-
mental issues and risks varied greatly among issuers, from almost no disclosure
to comprehensive discussion of issues, risks and potential costs. In its findings,
the OSC repeatedly emphasized that boilerplate discussion of environmental
matters, with minimal or no analysis, is inadequate to meet CD requirements.
In April 2009, the Ontario Legislature asked the OSC to consult with a broad
range of parties to establish best-practice corporate social responsibility and
environmental, social and governance (ESG) reporting standards. The OSC
agreed to review existing disclosure requirements, consult with all stakeholders,
and then make recommendations to the Minister of Finance.
Stakeholders told the OSC that the existing disclosure requirements were
adequate, but that securities regulators should focus on improving
compliance with those requirements. Specifically, stakeholders complained
that in some cases:
material information regarding environmental matters is buried in voluntary
reports, like corporate responsibility reports, and is not in regulatory filings;
By Sandra Odendahl
An OSC review of the filings of 35 public issuers in 2007 found disclosure of environmental issues and risks varied greatly among filers, from almost no disclosure to comprehensive discussion of issues, risks and potential costs.
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For example, dialogue that overtly promotes the stock—phrases such as “We
welcome you as a shareholder,” “You may be thinking about investing in our
company,” and listing “investment considerations”—may be enough to have
regulators consider the video itself as a secondary share offering, thus creating
potential corporate and director liability.
To remain onside, talk about your company’s business, never talk about
its stock—and only talk about information already in the public domain.
Likewise, when the company is raising share capital or selling a debt issue,
posting new Web IR videos at the same time is decidedly off-base. It may even
be advisable to take down all IR videos from the company website during the
offer and distribution periods.
For maximum impact, Web video, once implemented, should be a sustained
component of your IR communications strategy. In the same way that blogs
without regular postings go unread, there is little point in producing and
distributing one-off or occasional IR videos. Plan on producing 10 or more
videos per year to create and then satisfy audience expectations.
Corporate culture and communications considerations both factor strongly
in the decision to produce IR videos. The C-suite understands IR’s role in help-
ing create and sustain shareholder value, but it’s up to IR practitioners to explain
to management how video is a logical next step. Talking to the lens may be
the toughest form of communications, but with practice, most executives can
make it work. And when they do, it will add a powerful new element to your
company’s IR program.
Michael Salter is senior director of investor relations and corporate communica-tions at MOSAID Technologies in Ottawa. E-mail: [email protected].
W hen it comes to implementing innovative communica-
tions, most investor relations officers reflect the inherent
conservatism of the C-suite.
Why on Earth, then, would an IRO propose that the CEO
step in front of hot klieg lights, stare into a teleprompter and film a Web video?
(And what about the extra work in script writing, video editing and approval
cycles?) The key reason is that Web video is proving itself to be a cost- and time-
effective way for the C-suite to communicate directly with shareholders.
Web video—a communications tool that meshes with our increasingly
visual, video-sharing culture—is a powerfully democratic way to reach all
shareholders, but particularly retail shareholders. The privilege of “meeting
management” is typically reserved for institutional shareholders, buy- and
sell-side analysts, big-book retail brokers and media. The time available
for IR roadshows will always be limited, and meeting large numbers of
retail shareholders will never be cost-effective. Although not a replace-
ment for one-on-one meetings, Web video can be an effective way to give
shareholders the unique experience of seeing and hearing the senior executives
of public companies talk about their businesses.
There are different levels of potential commitment and cost when it comes
to using Web video for IR, which makes this a tool for all sizes of public
companies. At this point, however, larger firms, with more resources, are the
most active. For example, Stanley Black & Decker in 2010 supplemented its
annual report with an online annual review with nine videos that reviewed
various aspects its business. And the online IR Web Report recently featured
“Five CFOs who are using Web video to communicate with investors,” including
Danske Bank, Cisco Systems and InterContinental Hotels.
Making video the centrepiece of an IR website is another approach. Salience
Dynamics, an innovation design firm run by entrepreneur Curtis Hollister, in
late 2009 started marketing the Investor Channel platform under its Investor
Candy brand. As MOSAID (TSX:MSD), my company, is a Salience client, I can
speak directly to the experience of implementing Web video.
We launched the MOSAID Investor Channel in early 2010; another Ottawa
area company, March Networks (TSX:MN) signed on last fall. MOSAID’s
investor channel features videos on quarterly earnings, new deals, corporate
strategy, executive profiles and other topics.
More than “just” video, the investor channel platform features an array
of IR tools and extensions. Brokers, for example, can create protected
accounts, download the videos, send them to client lists and track who
watched the videos.
In launching MOSAID’s investor channel, we learned many things—among
them, paying attention to disclosure requirements. A good starting point
for IROs and corporate general counsels is to review the TSX’s “Electronic
Communications Disclosure Guidelines.” It’s critical to have external securities
lawyers review the initial videos and advise you on what’s onside and offside.
By Michael Salter
To remain onside with disclosure rules, talk about your company’s business, never its stock—and only information in the public domain. When the company is raising capital or selling debt, new video posts are off-base.
Listed
the year actually is a long time coming.
Such was the case with Kinross Gold Corp.’s $7.1-billion mid-summer
bet on Red Back Mining Inc., which, through the end of November,
was the largest Canadian-led merger or acquisition in 2010.
Egizio Bianchini, the outspoken head of mining investment banking
for BMO Capital Markets, lead banker for Kinross (TSX:K) on the
deal, says he remembers presenting Kinross chief executive Tye Burt
with the notion of taking a run at Red Back as far back as 2007. Burt,
a former Barrick Gold executive, was less than two years into his tenure
at Kinross at the time. And he was still determining the company’s direction.
When he’d arrived in 2005, Kinross was in disarray. Burt spent months
settling accounting issues, and within a year made two decisions. The
first: to move forward with the company’s mines in a remote area of
Russia. The second: to get out of Africa. Now Bianchini was asking him
to consider buying back in—specifically, into the isolated and politically
unstable Western African country of Mauritania.
Burt said no.
“It was too much for him at the time,” says Bianchini. “He had Kinross’s
Russian mines to worry about and that was enough for him. It took
more than two years for us to return to it.”
What they returned to was a project called Tasiast. In 2007, it was
a few modest digs on a large, flat, expansive gravel plain about 160
kilometres from the coast—basically, on the western edge of the Sahara—
and an uncertain volume of gold in the earth below. The mine had recently
changed hands, with Rio Narcea Gold Mines Ltd. selling it to Lundin
Mining for US$267.5 million, which then spun off Tasiast into Red Back.
By the time Burt decided to reconsider Red Back in late 2009, a lot
had happened in the world. Kinross was running much more smoothly,
yet it was seen on the Street as still lacking enough developable mines.
Meanwhile, the global financial meltdown had led to a doubling of
the price of gold—from US$600 per ounce in 2007 to more than
US$1,200 by late 2009. At those prices, upstart mines in remote, largely
unknown parts of Africa start to merit serious consideration for an execu-
tive in Burt’s position.
One other dynamic had changed, too: the size of the Tasiast deposit.
By 2008, surface drilling started to show that the size of the deposit
had been vastly underestimated. By mid-2009, Red Back said reserves
at Tasiast totaled more than 3 million ounces, with each subsequent
estimate rising significantly. It was becoming a major find. Burt knew if he
wanted to buy it then, he’d be in a race. What he didn’t know was that
when Kinross finally pulled the trigger on a deal, he’d also be in for
a fight—thanks to the new TSX rules on takeovers and the influential
U.S. proxy advisory firm Institutional Shareholder Services (ISS), which
refused to give the merger its blessing.
the of the
&
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“I remember Tye coming back to our hotel after meeting with Lukas and
Richard and saying the deal was over,” says Bianchini. “I remember feeling
pretty awful, until he added that Lukas had invited him back for dinner that
night. I thought that had to be a good sign.”
In fact, Kinross’s shareholder circular subsequently showed that the
possibility of a deal remained elusive, with negotiations starting and stopping
numerous times, before an agreement was finally nailed down and announced
on Aug. 2. One of the main issues had been the reluctance of Lundin and
Clark to take a cash deal, preferring a share swap that would give Red Back
stakeholders a strong position in Kinross and strong upside if Tasiast
exceeded expectations.
“We looked at it and felt with the Tasiast mine as part of their operation,
we’d get a much bigger lift from being part of Kinross,” Clark says, speaking
from the UK after a flight from Africa and his latest visit to the Tasiast mine.
“There were various suitors out there, but we weren’t interested in a cash
deal. We thought putting Red Back together with Kinross would be like tak-
ing one and one and making four.”
The deal was a stock swap sweetened with share purchase warrants that
entitled Red Back shareholders to receive 1.778 Kinross common shares, plus
0.11 of a Kinross common share purchase warrant for each common share
of Red Back. Each whole warrant was exercisable for a period of four years at
an exercise price of US$21.30 per Kinross common share. It was the addition
of the warrants—the factor that eventually encouraged Red Back to sell—
that made the deal appear too rich to many analysts and a handful of out-
spoken fund managers.
Hallgarten & Co. analyst Christopher Ecclestone was among the more
outspoken on the subject, issuing a research note prior to the close of the deal
entitled, “Just say no.” He called Kinross an “indiscriminate and undiscern-
ing buyer,” adding that buying Red Back was a “heavy reputational burden to
carry and even more difficult to slough off.”
Some analysts and fund managers, not having access to the information at
the fingertips of Burt’s management team, cried foul on the substantial dilu-
tion for Kinross shareholders. Burt faced a dilemma. Given the information
from drilling at Tasiast, he was confident that Kinross was not overpaying
for Red Back. However, given disclosure regulations, Kinross struggled to
provide that information to the market without driving up Red Back’s share
price further—and making the deal even more expensive.
“The conventional wisdom when we launched was that there are 5 million
ounces of reserves declared at Tasiast and there might be 10- to 15-million
worth of potential there,” Burt says. “To justify our premium, we knew there
was more there—and our view is there is a lot more.”
However, Burt and his advisers recognized providing that information
could do more harm than good, and by offering all of its thoughts on Red Back
to the market, it could pique the interest of its competitors. “Now, you don’t
want to share all of that immediately because that will drive the price up and
bring your competitors off the bench,” he says. “So we said we’d offer a modest
premium and do a friendly deal and go and get that shareholder vote.”
new TSX rules, any transaction that dilutes
more than 25% of a company’s outstanding shares needs shareholder approv-
al. The rule was put into place after the ultimately unsuccessful 2008 merger
bid between HudBay Minerals and, ironically enough, Lundin Mining. It
turned the Kinross-Red Back merger into test case No. 1 for the new rules.
“This was a novel transaction to try to get done under the new TSX rules,”
says Clay Horner, chair of Osler, Hoskin & Harcourt, and part of the legal
team that advised Kinross on the deal. “They needed to convince their own
shareholders, and get the communications out there. At the end of the day
some people take shortcuts and it doesn’t matter. Here was the perfect case
where the company spent an incredible amount of effort at a business and
financial level, at a legal level and it all paid off because it was all necessary. All
the effort put in made the difference.”
While Kinross had four positive fairness opinions from financial institu-
tions, including an independent evaluation from Morgan Stanley, the share-
holder vote, which was scheduled for Sept. 15, was complicated by skeptical
media reports and the decision by proxy advisory firm ISS to recommend
deposits all over the world all the time,”
Tye Burt says, leaning forward in his chair against a boardroom table in
Kinross’s new downtown office high above the Toronto lakefront. “The
Tasiast deposit was growing explosively and had to be on the top of our list.”
It’s mid-November, a few days after the release of Kinross’s third quarter
2010 financials, the first to include some modest production from the Tasiast
mine. With the deal now done, Burt, in an exclusive interview with Listed,
can look back calmly on the decision to start seriously investigating the
possibility of Kinross acquiring Red Back. But at the time, it was move
fraught with unknowns. Determining the deposit’s value—and the deal’s
ultimate price and structure—would require months of due diligence and a
lot of creative effort.
The work began with the retaining of Bianchini and BMO as lead bankers,
with GMP Securities Ltd. and Rothchild Banking Group subsequently taking on
secondary roles. By the end of January 2010, Burt had signed a confidential-
ity agreement with Red Back that allowed Kinross’s team access to a data room
filled with Red Back’s financial news and projections.
One way or another, Kinross wanted to move quickly. But as it turned out,
Red Back was skeptical, says Richard Clark, Red Back’s CEO at the time and
a current board member with Kinross. “We were drilling like crazy and coming
up with great results,” he says. “Their stock wasn’t that strong and they were
trying to be creative. We weren’t that open to creativity.”
Clark also admits Kinross’s competitors were knocking at his door. But
Burt’s team had a slight head start. “It is really a question of who likes what
deposit most and can you get an information edge,” Burt says of the timing
of their move on Red Back. “Can you get a geologic edge on the competition or
the market? That is what we felt we had. We thought we were a little ahead
of the Street’s interpretation because we had a little more information and we
felt we were ahead of the competition.”
The next critical decision point came in April, according to Burt. Based
on what they knew at the time, buying Red Back was looking like at least a
$5-billion proposition. “We asked ourselves whether we were ready to do
a $5-billion deal,” says Burt. “We decided we had more work to do.”
More work would cost Kinross significantly. In order to gain access to the
information it was seeking, Burt and his advisers decided on a private place-
ment, buying 9.4% of Red Back’s shares for $600 million in a deal that was
announced on May 4.
The arrangement allowed Kinross to be more open about its aspirations for
the project and soon after it was closed, Burt made his first trip to Mauritania.
With Kinross’s interest clear, Burt met with key political figures in the govern-
ment, including the president and the mining minister. Kinross also ramped up
its investigation of the site, bringing in engineering firms and consultants to do
more drilling in an attempt to ascertain the size and potential of the mine.
But the placement also had a downside. It set a price tag of more than $6
billion on Red Back. Before long, investors, worried that Kinross was at risk
of overpaying if it went ahead and bought the entire company, started to drive
down the company’s shares. (The downward momentum would continue
until they hit a 52-week low under $16 in August.) As the target, meanwhile,
Red Back’s stock continued a steady rise. BMO’s Bianchini says the private
placement was a necessary evil.
“Under different circumstances would we have liked to do it differently?
Absolutely,” he explains. “The one thing about the private placement [rather
than a single deal for the entire company] is it makes things cost more. We
recognize that. The issue is how, in a competitive situation, do you get a leg
up when you have to do due diligence. If this were Northern Ontario, it
might have gone differently. But this was Mauritania. It wasn’t just new to
Kinross—it was new to everyone. If Kinross hadn’t done the private place-
ment would they have paid less? Maybe, probably even. But would they have
been taking greater risks? No doubt.”
, Burt liked more and more of what he saw
of the Tasiast mine. But that didn’t make it any easier to strike a deal with Red
Back and the aggressive mining executive who controlled it, Lukas Lundin,
chair of Lundin Mining. Discussions neared a head in a July meeting in, of all
places, Whistler, B.C., where Lundin has a home.
Listed
Burt’s biggest concern going forward. Over the past two years, shares in
Canadian major competitors Barrick and Goldcorp have gone up more
than 50%. Kinross stock, despite decent earnings in one of the biggest gold
bull markets in history, is fl at.
If Burt and Kinross can deliver on Tasiast’s potential, the share price could
take care of itself. Th e company’s current plan is to raise its total annual
production to at least 3.9 million ounces, including Tasiast, up from
its current 2.2 million, by 2015. (World-leader Barrick, by comparison,
produced 7.4 million ounces in 2009, while Goldcorp did 2.4 million.) “Th e
deal moves them up to the mid-tier of the big gold companies,” says one
analyst. “Th e Street is expecting 20 million ounces from this deal. But the
results of the acquisition won’t be fully understood for three to fi ve years.”
For now, Burt will keep doing what he can and push forward. On
Nov. 30, he held a news conference in Mauritania’s capital, Nouakchott,
to announced that Kinross was planning to invest $1.5 billion in Tasiast over
the next three years. His message was much the same as it was a couple of
weeks earlier in his boardroom, when he stressed the upside of Red Back
and Tasiast and his confi dence that shareholders will recognize their value.
It’s the same confi dence he says he felt when it was time to count the votes in
September. “Because of the work we’d done, we were highly confi dent that
as the Street came to understand the scale we had in mind, they’d learn, as
we did, what a tremendous opportunity this is.”
shareholders not vote in favour of the deal. Given that many institutional
shareholders are required by their rules to vote whichever way ISS sides on a
deal, it was clear the vote wouldn’t be a cakewalk (see sidebar above).
In order to try to combat the perception that Kinross was overpaying for
Red Back and to rebut ISS’s disapproval, Kinross disclosed some upwardly
revised estimates of the total deposit. In that period, Burt also undertook
upwards of an epic 150 meetings with shareholders to present Kinross’s
perspective on the deal. “Once we launched the main deal, we did three
rounds of marketing, specifi cally targeted at those who had a vote in the deal,”
he says. “Th e fi rst round was with Red Back and we saw our shareholders and
theirs. And the second two rounds were to answer questions and comment
on the press releases that we issued. Th ose three rounds each involved North
America and Europe.”
In the end, Burt won the vote, when 66% of shareholders gave the deal the
thumbs-up. Horner says Kinross’s success, despite the ISS issue and skepticism
by Bay Street, came because of a concerted eff ort by the gold company and its
advisers. “Th is, of all the transactions I’ve done in my career, is the single best
example of a company that benefi ted from the amount of resources and time
they put into pursuing and considering the opportunity,” Horner says.
charge into Kinross’s shares, but as of the end of
November they were still only trading in the high teens. And that becomes
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CPU_LISTED_mag_full_page_GS_MandA_09112010.pdf 11/16/10 9:50:15 AM
The Director’s Chair
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central for mergers and acquisitions through much of 2010,
fueled by hot commodity prices, strengthening debt markets, pension funds awash in cash and looking
for places to put it, as well as a thirst for growth on the part of acquisition-hungry companies.
After two years of depressed M&A activity in 2008 and 2009 due to the international financial
crisis, deal making has roared back this year. Both the number of transactions and the tally of
billion-dollar-plus blockbuster deals are up from the trough of the prior two years. “It has been
an extremely busy year on both fronts, the M&A and the corporate finance or capital market,”
says Stephen Pincus, a partner and mergers and acquisitions specialist with Toronto law firm
Goodmans LLP.
Work at his firm has gone from “restructuring M&As” of companies suddenly in trouble
during the downturn to a more settled year in which deals are getting done. Yet while deals are
again occurring, they are only taking place after far more time and effort compared with the
seller’s market that characterized the middle part of the decade when credit was easy to access
and bidding wars were commonplace. “It is a more balanced market now and transactions
are less competitive,” says Pincus, “certainly not at the same fevered pitch as it was then by
any stretch.”
Calendar 2010 is winding up as this issue goes to press, but compared to 2009, it’s already a
clear winner according to data compiled by PwC Capital Markets, which tracks M&A activity
in Canada. Through Nov. 25, PwC reports, 2010 had seen 2,813 M&A deals, worth $144 billion.
That compares to just 2,548 transactions in all of 2009, worth $112.4 billion.
“We are seeing more deals in the billion-plus range,” says Kristian Knibutat, national deals
leader for PwC out of its Toronto office. In his practice he typically advises independent
committees of directors on M&A initiatives. The consulting firm counted 14 billion-dollar-
&
M&A 2010
M&A 2009
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mentality which really drives you to continue to do deals in the mining sector.
About 50% of the deals in Canada are really in oil and gas and mining.” (See
‘Deal volume by sector’ on p. 33 for full breakdown.)
For the most part, financial buyers have been squeezed out of the picture
for the time being because of still-tight credit market while strategic buyers
looking for inorganic growth, and large private equity players, have dominated.
That trend is illustrated on our top 10 list.
Kinross’s takeover of Red Back, which gives it a footprint in West Africa and
what Kinross CEO Tye Burt described as the “fastest growing gold deposit in
the world,” namely Red Back’s mine in Mauritania, is clearly a strategic
purchase. While Canada’s third-largest gold company says it’s keen to start
developing Red Back’s properties, it could potentially find itself on the other
side of the M&A ledger in the near future, analysts say. “Of all the senior
producers, Kinross is the most likely to be acquired,” Barry Cooper, a CIBC
World Markets Inc. analyst, wrote recently.
Another classic strategic purchase was Biovail’s purchase of, and subsequent
merger with, Valeant Pharmaceuticals (it’s now operating under the Valeant
name from its Mississauga, Ont., headquarters). The deal combined a company
plus deals in the third quarter, compared to eight and six in the prior quarter.
The biggest Canadian-led deal of the year? Yes, it’s our cover story—Kinross
Gold Corp.’s $6.8-billion buyout of Red Back Mining Inc. (later revised to $7.1
billion). Holding down second spot is the CPP Investment Board and Onex
Corp.’s joint purchase of auto parts maker Tomkins plc for $5.2 billion. Third,
at $3.8 billion, is Biovail’s takeover of Valeant Pharmaceuticals International.
Of course, when it comes to M&A, the score is never the whole story. It’s
also about the players. That’s why, on the following pages, we also rank the top
banks and law firms by their share of the action thus far in 2010. There’s still
time for positions to change for the year-end tally, but the clear leaders (RBC
Capital Markets and TD Securities chief among the banks; Blake, Cassels &
Graydon and Stikeman Elliott heading the law firms) seem unlikely to yield.
big drivers of M&A activity in 2010? Knibutat
attributes much of the renewed activity to an “incredibly strong” commodities
market. “Companies are doing very well because of the high commodity prices
[and] they end up being atypical of the rest of the [Canadian] economy that is
still more concerned and more reserved. They are very much on a boom type of
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expensive foray into specialty television. While debt piled up, it was unable
to pull the trigger and sell its lucrative Australian television holdings when
investors and analysts were clamoring for them to do just that.
While there is a nationalistic tendency to decry a “hollowing out” of
corporate Canada as foreign buyers move in to snap up our corporate icons,
the country’s business sector has continued to fare well this year in the
international M&A balance game, likely a combination of our strong dollar, a
relatively mild recession and a banking sector that was very unscathed in the
financial crisis. According to data compiled by PwC, just 28% of Canadian
M&A acquisitions can be classified as “foreign takeovers of Canadian entities”
while nearly three-quarters (or 72%) of deals are Canadian entities engaged
in foreign takeovers. That is even more positive than the prior year’s spread of
30% to 70%. That data is supported by studies on foreign direct investment
(FDI) by Rotman School of Management professor Walid Hezai, who found
that Canada has had more outward FDI than inward since 1997, with that
positive trend dramatically ramping up in 2002.
Blake, Cassels’ Gibson sees no sign of the deal making slowing down. “The
country is resource rich and the rest of the world needs resources so there is
always going to be a demand on commodities. Chinese and foreign buyers have
been looking to take advantage of some of the slowness from the recession and
so, too, have the strategic buyers. Everybody at the end of the day wants access
to strategic resources.”
Another M&A driver has been the fact that the income trust model is
coming to an end this year, Gibson notes. “They have lost their tax advantage
so that has caused a number of them to examine their strategies and be a little
more growth-oriented and accelerate their game plan through acquisitions.”
market has been stronger than some other
countries’ in 2010, a survey of international corporate executives conducted
by Thomson Reuters forecasts a 36% jump in worldwide M&A next year.
According to the study, that activity will be driven by the financial services
and real estate sectors. Strategic buyers should be leading the way, as well.
PwC’s Knibutat also expects another strong year for M&A activity in 2011.
That’s despite the potentially chilling effect in Canada of Ottawa’s squashing of
the Potash deal, as well as continuing eurozone uncertainty and the economic
consequences of initiatives such as the U.S. “quantitative easing” program
with a number of drugs in its development pipeline (Biovail) and one (Valeant)
which has mostly gotten out of the drug development business in favour of buy-
ing up smaller drug makers.
“There have been a lot of strategic mergers,” says Brock Gibson, the Calgary-
based chairman of law firm Blake, Cassels & Graydon, which was legal counsel
for Red Back, as well as Quadra, UTS (Total), CTVglobemedia Inc. and BHP in
its run at Potash. A busy 2010 for M&A was “kicked off ” by last year’s
massive acquisition of Petro-Canada by Suncor, says Gibson, whose firm
advised Calgary-based Suncor. “That steamrolled all the way through and then
mining and oil and gas have been big drivers of our M&A practice.”
The steady stream of billions in boomer retirement money, and the need
to do something with it, drove two of the country’s biggest deals this year.
The CPPIB-Onex deal for Tomkins is a case in point. Onex has expertise in
auto parts while CPPIB has plenty of funds to invest. CPPIB also paid $3.3
billion for Australian toll road operator Intoll Group, which among other
things, owns part of the Toronto-area 407 highway.
“If you are a pension fund like CPPIB that needs to make a good return you
need to diversify,” says PWC’s Knibutat. “So what you are seeing is acquisi-
tions and investment strategies that are very much outside of Canada and into
places like Australia and the U.K.”
A desire to get out of an ownership position and a willing strategic buyer in
the form of communications giant BCE Inc. set the scene as Ontario Teachers’
Pension Plan sold its 25% minority stake in CTVglobemedia Inc. Also selling
out in the $2.9-billion deal was newspaper publisher Torstar Corp.
Another top 10 deal from the media sector was less of a classic M&A and
more of a salvage operation. A consortium of banks bought the former news-
paper holdings of bankrupt media giant CanWest Global Communications out
of creditor protection in a deal worth $2.1 billion. In a separate but connected
transaction, the television assets of CanWest (CW Investments Inc.), were
snapped up by Calgary cable giant Shaw Communications Inc. for $1.9 billion.
It can be argued that a couple of terrible corporate acquisitions on the part
of CanWest and a stubborn unwillingness to divest other assets when the
market was ripe ultimately resulted in its demise. As the recession hit and
advertising dried up, CanWest was crippled by its massive and unsustainable
debt burden. The defunct Winnipeg company first got into trouble when it
overpaid for Conrad Black’s chain of newspapers and followed it up with an
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which, though designed to spur its economy, could rattle currency markets
and trade. A big driver here is money looking for a productive home. Not
only do pension fund giants such as CPPIB and OMERS have billions to invest,
but many corporations are sitting with excess cash on their books, and banks
are lending again.
Just as foreign fi rms’ thirst for our resources continues, PwC is actively
advising Canadian corporate clients to look beyond the expected slow-
growth markets of Canada and the U.S. “We certainly see Canada as having
a lot to off er as a partner in doing deals in places like India,” says Knibutat,
who contends that Canada is now enjoying a post-G20 honeymoon in many
developing countries.
“We are starting to see more companies step up and do [international]
deals,” he adds. He cites RBC’s recent purchase of UK fi xed-income manager
BlueBay Asset Management, CPPIB’s Tomkins UK buy and Canadian mining
companies’ continued investment in Africa and other places. Deals continue
to fl ow the other way, as well, with European steel giant Arcelor Mittal
winning Baffi nland Iron in November with a $433-million bid aft er the far-
north resource attracted a U.S. hostile bid.
“Th ey are all strategic [buyers] doing deals that have a very good fi t from a
strategic perspective,” says Knibutat. “It is very consistent with what we think
we will continue to see in the marketplace.”
A survey of international corporate executives conducted by Thomson Reuters forecasts a 36% jump in worldwide M&A next year. According to the study, that activity will be driven by the fi nancial services and real estate sectors.
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PUTTING WOMEN IN THE PICTURE
BY SUSAN MOHAMMAD PHOTOGRAPHY BY EVAN DION
with the chair of Bell Canada
Enterprises Inc., Thomas O’Neill, at his posh Toronto country club for their
first mentoring session over breakfast, she wasn’t sure what his inaugural piece
of advice would be. What, wondered Vuicic, would an industry leader with
significant international experience through his involvement on the boards
of such companies as PricewaterhouseCoopers LLP and The Bank of Nova
Scotia choose as his first lesson in preparing her for a board seat someday?
“He suggested I watch Invictus. He surprised me,” says Vuicic, who is
currently executive vice-president of human resources and organizational
development at Shoppers Drug Mart. She was also taken aback by the warm
hug O’Neill extended her on that first meeting last spring. “He said, ‘This
is really about leadership and character. It’s assumed you have a base level of
knowledge.’ He wanted me to watch the movie [in which Morgan Freeman
plays Nelson Mandela] to reinforce the ideas around leadership, courage
and character in the face of adversity.”
The “this” to which Vuicic and O’Neill refer is the Women on Board
mentoring program, an elite mentorship that, each year, creates roughly 10
to 20 new pairings of talented, up-and-coming women and leading board
chairs and CEOs from major Canadian companies. For two years, the mentors
guide their mentees through a lightly structured curriculum of meetings,
assignments, conversations and introductions whose ultimate objective is to
help vault its graduates onto Canadian corporate boards. Vuicic is one of
11 mentees in Women on Board’s 2010 program (for which Listed is media
sponsor). Since that first session, she’s met with O’Neill at least once a
quarter to discuss board-related topics, such as how to dissect financial
reports, self-marketing, risk management and board culture.
Women on Board was launched in 2007, following a conversation between
Vancouver-based governance consultant Patrick O’Callaghan, managing
director of Patrick O’Callaghan and Associates, and Carole Stephenson, dean
of Richard Ivey School of Business. The two were speakers at a conference in
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O’Callaghan says he is amazed more companies aren’t offering women
a director’s chair in recognition of their buying power as consumers and the
number of industries that target them as customers. “It’s very difficult to draw
a causal relationship, but our intuitive belief is that it makes good business
sense,” he says. “When you look at the number of female customers at major
telephone companies, banks, clothing companies, grocery stores, I could go
on. Women make critical decisions with respect to those businesses ongoing.”
While Women on Board as a program is not formally “for quotas,” he
believes gender equality legislation in Canada will come unless more solutions
to the gender imbalance, such as mentorship programs like this, are created
and the number of women on boards starts to rise.
Several countries, in fact, have either already passed or are currently
looking into this type of reform. Most famously, perhaps, Norway passed
a revision to its gender equality act in 2003 demanding publicly held
companies and crown corporations to achieve 40% female board representa-
tion over a five-year period. At the time, women in Norway made up more
than 70% of the workforce, yet 76% of companies had no female board
members. Due to the quota, over 40% of the board members of Norway’s
largest publicly traded companies are now women. Spain and the Netherlands
have also passed similar laws, while Belgium, Britain, Germany and Sweden
are weighing it. At press time, France’s proposed legislation was scheduled to
go to a vote in January. French companies would have three years to achieve a
20% female representation rate on boards and six years to meet a 40% quota.
And here at home, the province of Quebec passed gender parity legislation
for the boards of its Crown corporations four years ago. Similar legislation may
spread to the rest of country, too. In 2009, Liberal Senator Céline Hervieux-
Payette first introduced a private member’s bill asking for gender parity on
the boards of Crown corporations and publicly traded companies. A second
reading for the Board of Directors Gender Parity Bill (S-206) was held last
April. The Senate’s standing committee is currently reviewing it.
have to actually figure out how
to do a better job of bringing in qualified female directors. So says Paul Tellier,
another high-profile mentor in the Women on Board program. As former
CEO of Bombardier and Canadian National Railway—and clerk of the Privy
Council during Brian Mulroney’s term as Prime Minister—Tellier has as
much senior experience in public service and private enterprise as almost any
Canadian. He says a major hurdle preventing more women from serving as
Ottawa and behind the podium got talking about how they could boost the
sparse number of female directors on Canadian corporate boards.
“If you look at the top 300 companies in Canada, and the percentage of
women directors on those boards since 1992 and today, it ranges between
7% and 9% roughly,” says O’Callaghan, citing an annual report his firm
produces in conjunction with Korn/Ferry International. The report, Corporate Board Governance and Director Compensation in Canada, looks at key
governance trends including the representation of women around the board
tables of the 300 largest Canadian companies. “Although those numbers
might have moved modestly since we started measuring them over the last
18 years, there hasn’t been a significant change.”
Enter Vancouver-based Women on Board. O’Callaghan and Stephenson set
out to design a program that would engage major corporations in building a
female talent pool that boards could eventually recruit from. From an equity
standpoint, considering women make up nearly half of the workforce and now
earn more than half of the university degrees, their slim representation at
the highest levels of these companies is indefensible. Yet O’Callaghan is firm
in pointing out the program isn’t about a women’s issue. Instead, he says it’s
about promoting “good business,” and helping ensure Canadian companies
aren’t missing out on this group of talent.
In this, he’s in perfect step with the Canadian Coalition for Good Governance,
the Conference Board of Canada, the Canadian Institute of Chartered
Accountants and a host of other governance advisers, researchers, consultants,
investors and policy makers. All are part of a widespread push for greater diversity
on corporate boards—in terms of gender, as well as ethnicity, professional
experience and so forth—on the grounds that it makes for better boards and,
therefore, better companies.
Some studies have shown a diverse board can boost financial performance.
One, by Catalyst in 2007 entitled, The Bottom Line: Corporate Performance and Women’s Representation on Boards, found that of the top Fortune 500
companies, those with more women directors benefited from a 53% higher
return on equity than companies with fewer women around the boardroom
table. “This study didn’t examine the why factor, but what we know is
diversity, well managed, yields better results,” says Deborah Gillis, the North
American vice-president for Catalyst. “If you have diversity of opinion and
perspective when you are representing shareholders and consumers around
a decision-making table then different questions get asked and different
conversations happen.”
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Besides using search firms in aiming to achieve diversity, she says the “general
perception” that boards should be mostly made up of CEOs needs to change,
and nominating chairs should be open to reviewing other senior executives
with profit and loss experience.
has already seen concrete success.
Of the 29 current mentees and 13 alumni since the program launched in 2007,
15 women have already been appointed to either corporate, Crown corpora-
tion or non-profit boards. The program has also built its credibility and
its profile by drawing a significant roster of Canadian business heavyweights
to volunteer their time as mentors. Along with O’Neill and Tellier, that list
includes: Robert Harding, chair of Brookfield Asset Management Inc.; former
BC Minister of Finance Carole Taylor; Heather Shaw, executive chair of Corus
Entertainment Corp.; Corp.; John Ferguson, chair of Suncor Energy Inc.; Anne
McLellan, former MP and a counsel with Bennett Jones; and John Thompson,
chair of TD Bank Financial Group.
For mentees like Vuicic to participate, their employer must sponsor them,
at a cost of $7,500. The amount is mainly spent over the two-year period
on travel (mentees don’t always live anywhere near their mentors). Thea
Miller, Women on Board’s managing director since 2007, is responsible
for matching each pair. She says geography plays a role in deciding who gets
paired up with whom, however the most important aspect is matching the
mentee with someone outside of her industry in order for her to learn new
skills and make contacts beyond her normal realm.
When the program first began, Miller wrote the companies where mentors
were identified asking them to nominate women for her to then mix and
match. Unfortunately, many companies didn’t have enough qualified female
executives to put forth. Because there have been some challenges in assessing
and identifying mentees, Miller says the program is now working with
Korn/Ferry International to tailor a list of high-potential candidates.
“We realized we need to put these women up against a set of criteria so we
know not only that they are qualified to be a director, but that they are at a
point in their career where it could happen in the next two to four years for
them,” says Miller. She adds that although most potential mentors are busy
juggling oppressive schedules, they are usually more than happy to offer help
when she makes a follow-up call to her request letter.
“I didn’t know who was involved in the program until I got the brochure
in the mail. I knew some of the other mentees as well as some of the other
mentors. There is some great talent involved,” says O’Neill, who has loosely
followed the suggested discussion topics provided by the program when
meeting with Vuicic. “She seems more interested in the practical as opposed
to the theoretical side of things. During our last meeting, we had a long
chat about succession planning of the CEO and senior executive ranks and
about environmental issues and stock valuation.”
Vuicic counts herself lucky in being able to draw upon O’Neill’s experience
and credits the structure of the program in helping shape her corporate
directorship goals and for her growth in her current role at Shoppers Drug
Mart. “I have no issue asking questions, putting myself out there and seeing
what gaps I have to focus on,” says Vuicic, who takes copious amounts of notes
when she and O’Neill meet.
And despite O’Neill’s experience-level, she says the good chemistry between
them is key in making this mentorship a successful one and is something
she felt from the outset. “Otherwise you spend an hour to two hours meet-
ing with this person and you may not get anything out of it. Each time we
meet he shares some research with me or suggests another book to read.” Her
next assignment? “Margaret Thatcher’s autobiography.”
directors is the recruitment process that many companies use.
“In large corporations that I’ve been involved in over the years, you formu-
late a profile of the candidate and everybody is invited to contribute names or
make comments. Very often directors decide they want to recruit a woman,”
says Tellier, now a director at Rio Tinto and several other companies. “Then
there is often a debate on ‘Are we going to recruit a woman, or shall we say
we want to recruit the best possible director, and if that is a woman then
great,’” he adds. “Then, as a result of the old-school boys network and the
people we know, I think that process is to the detriment of women. It’s very
important this changes.”
Although the corporate titan has never applied for a job, Tellier wouldn’t
credit his network for his success. Instead, he credits it to his ability to “learn
from good people,” stemming back to his first job as a lumberjack on a survey-
ing team in the Gaspé area of the St. Lawrence Seaway, to working as former
Cabinet minister Jean-Luc Pépin’s executive assistant and beyond.
While his own preference is for the government to not get involved through
legislation, he says politicians will “have no choice” unless more companies
actively plan for diversity. “If we are going to have more women to appoint on
boards, succession planning has to reflect that need in the lower echelons,” says
Tellier. “Either as a deputy minister running a department, or a CEO running
a business like CN or Bombardier, whenever I was trying to promote a woman
within the ranks I told my colleagues to just be selfish, you are going to get
better results if you have more women. That person is going to bring a differ-
ent perspective on your team, which is an all-male one.”
But what of the common complaint that there aren’t enough qualified
women? The boardroom quota in Norway sparked an uproar after many CEOs
argued there was a shortage, and similar comments were made in Quebec,
though, according to Premier Jean Charest, the argument is now history. In
October, he told The Globe and Mail “…when we brought in the law, all of a
sudden, they were discovered.”
Gillian Lansdowne, a partner at international executive search firm Odgers
Berndtson, has 20 years of experience in the financial services, real estate and
professional services search industry. Although more companies, she says,
are using search firms to cast a wider net in finding director candidates, she
agrees with Tellier that boards in the habit of relying on their own network are
part of the problem.
Lansdowne also happens to be preparing a report for the banking, trade
and commerce Senate committee that is currently reviewing the gender parity
bill. She says legislation would likely have broader implications for companies
beyond just recruiting women, such as revising rules around the number of
terms a director could serve, or a retirement age to make room for diversity.
Listed
The Director’s Chair
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The Director’s Chair
Veteran energy executive and corporate director Steve Snyder has been president and CEO of TransAlta Corp., Canada’s largest investor-owned wholesale electricity generator and power marketer, since 1996. In this instalment of The Director’s Chair, a dialogue feature led by governance expert and Listed contributing editor David W. Anderson, Snyder discusses his experiences as a director, as a CEO working with his board and discusses the CEO’s role more generally in building bridges between the board, the chair and company management. Snyder, a director with TransAlta, Intact Financial and a former director of CIBC, also led TransAlta through market deregulation in 2001.
Steve Snyder
The Director’s Chair
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not done well. I’ve seen 30-year employees promoted to CEO and then
find unexpected friction with the board, asking, “Why did they do that?”
They’re just unprepared for the reality.
The CEO needs to know this and make it work; he or she has to be an effec-
tive interface with the board and board chair. The days of managing the board
as a puppet are over. I take it as my responsibility to get the right information
to the board at the right time. I make the assumption the board doesn’t know
what it needs to know on operation issues—as distinct from strategic matters.
There’s no way for the board to know these things and function well without the
CEO managing this well. For many CEOs, the typical outcome is wasted time in
meetings and lost opportunity to engage the board productively—at the right
level and with the right information at hand.
An added challenge for CEOs is that boards are not inherently disciplined—a
challenge not solvable by the CEO. It takes a strong chair to manage the board.
More often than not, boards are overwhelmed by compliance matters which
constrains their time. So even with a good chair, it’s a constant battle each meet-
ing to get a board up to speed and focused where it really counts.
Is there something basic in how we think of boards
that needs to be updated for the new reality of governance today?
Yes. Consider this: a board gets a package of dense material 80
days after its last meeting and comes together for 1.5 days. Typically, directors
only get up-to-speed halfway through the meeting. I think regular engagement
between meetings may allow directors to be productive within an hour, not 4
or 8 hours. Most directors don’t think about this and for management it’s easier
to do nothing about it. Boards have to stop seeing governance as being “done”
only in board meetings.
Secondly, while companies change, boards don’t necessarily keep pace. The
issues and rhythms of a company shift over time but boards are seldom
as adaptive to the needs of business. Management is adapting all the time to
change, but directors don’t get out of their longstanding templates for a meeting.
The timeframes thus aren’t allocated correctly and as a result key issues are not
covered. I think the board has to listen to management and ask itself and manage-
ment at least annually if we need to change the time allocation of meetings.
From the CEO view, what makes for a value-
adding board?
Most importantly, a board adds value based on its degree
and diversity of expertise at the table—and its ability to coalesce this expertise
effectively. I’ve gained insight I wouldn’t have thought about from my board.
The value comes from this: we’re aggregating across 10 people; it’s not just the
narrow expertise of 10 people in serial. It’s this integrated advice and counsel
from business leaders that a CEO needs to tap into. In theory, of course, this
is laudable, but in practice, it’s a challenge to make it happen without crossing
lines into management and tripping over all the egos in the room.
For many CEOs, it’s tough to use their board to bounce ideas around, as the
board is their boss. A CEO and board need a good dynamic and trust to bounce
around ideas without the board saying (or the CEO fearing they’ll say), “Does
he know what he’s doing?” The pressure boards are under to judge the CEO and
Has being a director on other boards made you a
better CEO?
In my job as CEO, I find value in seeing how other boards
operate, how they get information and how it flows between the board and
management—which is always a challenging task. If I’ve chosen a board well,
I can learn things that are useful to my company outside of my industry,
such as long term capital planning, gain alternate points of view and be
exposed to other systems and ways of doing things. It’s easy to get into a rut
and being on an external board helps keep my perspective open.
Boards generally seek out active CEOs; do you see any
downside to this?
Current wisdom encourages putting active CEOs on boards,
but it is fraught with risk. An active CEO has an added burden beyond that
of a professional director, in that being a CEO is a very different role than
being a director. A CEO walking into a board meeting as a director of another
company must make a conscious decision to take on this different role. It
takes a strong mental discipline to change one’s mindset and approach before
a meeting. The CEO mindset is that of a problem solver looking to get things
done. A director has to have a board mindset, which is that of a longer-term
overseer—identifying future concerns and having a CEO solve it. If you’re
in CEO mode, you can run into conflict with the sitting CEO trying to solve
their problems.
One has to recognize that companies have different cultures and histories.
There’s a tendency to want to see things done your way; I have to pause and
ask if it will work for them. So the challenge is to be broad in your thinking
and not just fall back on how you yourself do things. I have to use mental
discipline to not impose my way of doing things. In my experience, many
CEOs think they can do this well, but they can’t.
As a CEO, what do you look for on your own board?
My industry is engineering and capital intensive, so we need
directors who understand energy technology, the energy business and the
milieu we operate in—it’s very different from, say, financial services. I look to
certain members on specific issues for their expertise and independent advice—
for example, a CEO who’s grown a business in another country. I also look to
match my company’s needs with theirs so there’s mutual benefit.
How can a CEO best work with his or her board to get
the most value from it?
This is still one of the big challenges. You wouldn’t think
so after all this time, but it is. It’s hard to be prepared for the board-facing
aspect of the CEO role—where does one get prior experience in dealing
with board relationships? And on the other side, boards themselves are
not necessarily that good at determining what they want from a CEO.
So the CEO and board struggle as the CEO tries to communicate with the
board and the board tries to articulate what it really wants from the CEO.
It’s like we stumble in the dark. I’ll give you an example: boards say they don’t
want to create extra work, so they’ll say to the CEO, “just use the report you
use internally and talk about it.” But this is the kiss of death. Internal reports
are for people who use them every day. Directors don’t know the lingo and
by their nature, internal reports take the board too deep into operations.
Now the board has no choice but to be in your job and asking a lot of detailed
clarifying questions. That’s not necessarily productive.
The offset to this is that management has to prepare a separate board
report—but now management doesn’t know what a board actually needs or
how to present the information to be useful for directors. A CEO’s inability to
communicate what’s needed on both sides is a drain on that CEO’s productivity.
So how does a CEO deal with this challenge?
The solution is that the CEO must provide a bridge between
the board and management, but CEOs need experience, communication
skill and a willingness to put in hard work in this area. I’d say in general it’s
I take it as my responsibility to get the right information to the board at the right time. I make the assumption the board doesn’t know what it needs to know on operations issues—as distinct from strategic matters
The Director’s Chair
Listed
directors. The result is that CEOs are not getting the board interface they want
and need. It’s out of balance for shareholders, directors and executives and it
needs to be resolved.
Overall, we’ve developed good governance principles: separating the roles of
CEO and chair, holding regular in camera meetings, engaging in better share-
holder communication... it’s where it goes next that concerns me and I don’t see
a consensus. These processes tend to the extremes, which is where people get
hurt. We need rules of engagement that keep us balanced and looking carefully
before more big changes.
I wonder if we are spending too much time on compliance and not enough
on the business. It feels like we spend too much time so RiskMetrics will like us
and end up neglecting bigger issues, such as succession planning and matters
regarding our labour force. The problem is we’re now spending two hours on the
proxy statement and one hour on the bigger issues. Boards will spend 45 minutes
of a meeting on the quarterly earnings release! How much time must we spend on
these things? This is being over-governed—it’s overly prescriptive and takes
time away from real time benefits a board can provide. Such distractions and
second-guessing divert board attention from fundamental issues.
Our research has documented a shifting power away
from management to boards and more recently to shareholders. What
might the proper balance look like?
Boards need to go back to their fundamental responsibility
to make decisions and accept consequences. Directors need to understand
changes in the external environment with the help of their CEO, make
conscientious decisions and explain those decisions to stakeholders. Then
move on.
How do you regard the effort by shareholders to exert
more direct control over corporate decisions? Say-on-pay is an example.
Say-on-pay is formulistic and de-motivating to management.
Pay was the prime motivator but now it’s hurting. When performance is down,
you have to be paid less, but when performance is up, you’re criticized anyway.
Let’s look for where stakeholders can add value, not find more things to do.
What’s next: say on capital? We need criteria for judging what has worked and
not worked in governance. Independence for the board is clearly good, but I
see less value when it comes to detailed reviews of proxy statements on pay.
The reality is that management has to deliver. Boards need to give advice and
put controls in place and then let management do its job. It’s a mistake to dilute
the decision-making power. I worry about multiple agendas. A de minimus role
for directors and shareholders in management decisions is preferable. We’d be
better served building confidence and trust with the board and shareholders for
management to succeed.
David W. Anderson, MBA, PhD, ICD.D is president of The Anderson Governance Group in Toronto, an independent advisory firm dedicated to assisting boards and management teams enhance leadership performance. He advises directors, executives, investors and regulators based on his international research and practice. E-mail: [email protected]. Web: www.taggra.com.
tie compensation to those judgments makes trust difficult. So it really is up to
the CEO to set up the discussion and the chair to manage the dynamics.
The relationship between the CEO and chair seems
central to unlocking board value. How do you make it work?
Certainly the single biggest change in governance is the role
of the independent chair. It’s a new system boards have imposed, so there’s an
obligation to make it work. Yes, the relationship with the chair is critical.
As CEO, I have to work with the chair to meet the different needs of both
management and the board. The CEO needs to be able to trust the chair.
When that trust is present, I’ve been able to phone up the chair for guidance
with the board and management team.
What do good chairs do well that really makes
a difference?
Good chairs are rare; they have to get so many things right. A
chair has to know what the CEO and board need from each other and what
their priorities are, set the agenda accordingly to address the right issues and
actively focus discussion to keep directors on track. The best chairs orchestrate
the meetings, knowing when to use humour to move things forward and
setting the tone of the meetings and interfaces. When a chair can create the
confidence that directors and management need to get their views on the table
and then guide the board to a conclusion, the CEO is in a good place. By their
nature, boards are not good at getting to a conclusion which can frustrate a
CEO, because management is all in about coming to conclusion. I think chairs
in general need to manage this better.
Given their importance, how should we select chairs?
The challenge is that few boards look holistically to decide what
the board needs in terms of the chair’s approach and skill sets. If you need to
grow by acquisition but put an auditor in as chair, it’s a mismatch in approach,
because auditors are trained to question in much detail versus to move
expeditiously. There are various general approaches to being a chair I’ve
seen. Two common approaches are authoritarian and consensus—at the
extremes, neither works well. It’s a challenging balance that few get right.
The board should articulate what approach it’s looking for.
Even when a chair has the right approach, a definitive set of skills is still
required. The trap some boards fall into is taking the best business director
and making that person chair. But the chair should be the one with the best
chair skills, not the one who makes the best director; the chair should not
necessarily be the one the board looks to as the strongest business contributor!
Instead of selecting a chair by default, the board should set out the skills it
wants to see in the role and see if they exist on the board. If not, the board
needs to recruit those skills.
With such high expectations of the chair—including
the development of productive relationships with the CEO and board—
and apparent short supply, how long should a chair’s tenure be?
I prefer shorter time frames for the chair—three to six years
—not the six to 10 years we often see. Organizations are fluid these days so
we need to be more dynamic in changing leadership to stay well equipped.
I lean more toward adjusting the board to suit the company and the market.
To build up leadership capacity, a board should rotate its committee and
board chairs for development like we do in management.
The governance landscape had changed markedly
this decade. With increased pressure on boards to perform, how have
you as a CEO been affected?
There’s a feeling out there that boards need to do more work—
and this has encouraged them to look for the next thing to do. But are they
asking themselves “Is this the highest priority and does it add value?” With new
demands arising, boards find it hard to balance business versus compliance
issues. At the board level, compliance is secondary for management, but not for
I wonder if we are spending too much time on compliance and not enough on the business. It feels like we spend too much time so RiskMetrics will like us and end up neglecting bigger issues
is proud to sponsor the CICA’s Corporate Reporting Awards, a refl ection of our commitment to best executive practices and better boards.
I found this magazine to be quite use-ful. It covered a number of relevant topics related to Corporate Canada, that are diffi cult to fi nd in one place...Well Done.
Listed
Handbook
I magine this. You’ve just been named CEO at a large-cap company. It’s
a natural step for you; you’ve run several progressively bigger corpora-
tions and you have a great track record. You’re smart, educated,
experienced and terrific on your feet. The new gig will be tough—
the corporation has been struggling a bit, blindsided by competitors who
innovate faster. But you are confident and your message is upbeat as you take
the microphone at your first press conference.
You deliver the company’s message and take questions. All of a sudden the
picture darkens. A reporter asks which product—yours or a competitor’s—
you use at home; you are visibly flummoxed and try to dodge the question.
Your answer is lame: “I’m not sure because my spouse makes those decisions.”
The damage is done. You’ve lost control of the audience and both your
reputation and the company’s reputation have suffered.
A similar scenario occurred when John R. Walter was appointed president
and COO of AT&T in 1996, writes Jeff Ansell in his new book, When the Headline is You: An Insider’s Guide to Handling the Media. AT&T’s plan was
to introduce Walter to the media and convince stakeholders he’d lead the
company decisively into the future. Instead, when a reporter asked Walter
which long-distance provider he used, he became flustered and danced
around the answer.
According to Ansell, a former announcer and broadcast journalist who
now trains executives on dealing with the media, the gaffe had a catastrophic
effect on the company. “Within hours of the exchange, AT&T’s market
capitalization dropped $4 billion,” writes Ansell.
By Celia Milne
Listed
Handbook
Could this happen to you? Ansell believes the answer is yes and, what’s
worse, if it happened today, the gaffe would probably go viral. “People in the
news are under pressure to always have right answers, worded just the right
way, knowing they are a slip-of-the-tongue away from harming their share
price or becoming a punch line,” writes Ansell.
Listed sat down with Ansell and other experts to spotlight common pitfalls
faced by CEOs and other voice-of-the-company leaders as they communicate
with key audiences. Whether talking to investors, media, regulators, employees
or other stakeholders, senior executives and senior board members need to
have a story to tell and be able to deliver it with authenticity. Ideally, they
represent their company with high moral and ethical values and a commit-
ment to transparency. The best spokespeople listen carefully to stakeholders,
and know what’s being said on the street and online. They are empathetic.
They aren’t arrogant. When facing a media ambush, they breathe deeply and
let their value compass lead the way.
What follows is advice from experts on how leaders, and their support
staff, can hone their skills as top-flight media darlings and arm themselves
with tools to avoid common pitfalls.
As a first step, every company should have a very senior person—ideally the
CEO—who is ready to talk about the company. The media is not going to be
happy with an external spokesperson or a PR person, say the experts. “If the
CEO is not the right person, you should be cultivating someone very high up.
It is essential now. They want it from the horse’s mouth, from the key leaders,”
says broadcaster and consultant Jane Hawtin, former host of the TV show
Jane Hawtin Live. She’s now president of Toronto-based Amberlight Productions
Inc., a media training company.
If you are the chosen one, you need to have a story to tell and find outlets to
tell it effectively—not only to the media, but also stakeholders, investors and
the public. “In the past, you could keep your head down and hope for the
best. I can’t think of very many companies where that’s good,” says Hawtin.
“Any company that deals with consumers at some level can’t continue to just
do business,” she adds.
Two CEOs who have emerged as great stars on behalf of their companies,
she says, are Michael McCain from Maple Leaf Foods—for his honesty and
humility in the aftermath of the listeria contamination disaster that killed 23
people—and Galen Weston Jr., executive chairman at Loblaw Cos. Ltd.—
for being seen as a regular good guy in his role as the public face of Canada’s
largest grocery empire.
As a general rule never, ever underestimate the press, say both Hawtin and
Ansell. The media has the power to take out of context snippets of your
finely crafted message and to cajole you to say the wrong things. “The media
is manipulative, scheming and conniving,” says Ansell. “Concerned with
finding the story and finding it first, reporters have little reluctance in asking
antagonistic or intentionally misleading questions. If necessary, they’ll resort
to embarrassing silences, dogged questioning and ambush tactics in order to
secure the quotes they need.” For instance, a reporter might say something
like, “you’re going to drive this company into the ground,” just to see what
your reaction is going to be. “An untrained CEO might hold his or her breath
and get angry,” says Ansell.
A smart executive team should also do some research before scheduled
interviews. Not all journalists or media outlets have the same style or agenda.
It’s easier to be quick on your feet when you already have a good idea of
what’s coming.
In stressful situations, says Ansell, remember to breathe, as this will keep
you calm. He also suggests listening carefully to a question, and asking for
clarification if you need more time to think about your answer.
Long before you get into a difficult situation, he suggests, establish
what he calls your “value compass.” This means figuring out four things:
what your true nature is (empathetic, honest), what standards you live by
(credible, ethical, trustworthy), what your stakeholders’ emotions might be
(anger, confusion) and how to enhance the wellbeing of stakeholders (be
responsive and help educate). “Ask yourself, what am I made of? How do I
want to come across? This brings tremendous clarity in stressful situations.
Filter everything through that value compass. Be mindful of it. Trust is your
currency,” says Ansell.
Over time, you can build muscle memory in dealing with difficult media
questions. Beja Rodeck has seen executives remain poised in the face of an
ambush. She was a senior media relations officer for many years at RBC
and is now a consultant in Toronto. She remembers a TV interview where
RBC senior executive Barbara Stymiest, now group head of strategy, treasury
and corporate services, was suddenly put on the spot. The interviewer tried
to take her off message by asking whether she thought she was going to be
president and CEO Gord Nixon’s successor. Stymiest replied coolly that she
was not thinking that and reiterated her original message and described the
work that she was focused on. “A lesser interviewee would have had problems
with that,” says Rodeck.
Our experts believe it’s important to find a balance between having a
firm grip on the company while not appearing arrogant. Apple CEO Steve
Jobs fell off the high wire in mid-October, when he took cheap pot shots at
his rivals. He bragged in a conference call that in the second fiscal quarter
Apple sold more iPhones than Research In Motion sold BlackBerries (even
though RIM has a later fiscal quarter end date). He teased that RIM’s smaller
tablet computers (RIM’s new PlayBook is 7 inches, while the iPad is almost
10) would be “dead on arrival.” The court of public opinion was very quick to
judge him, saying he lacked class and accusing him of taking the low road.
“I’m so sick of Jobs’ arrogance,” said one online comment. “The arrogance is
unbelievable,” added another. “I lost a lot of respect for Steve Jobs,” said a third.
Jobs, as a guru in his field, can get away with far more than other CEOs. But
this kind of behaviour does not play well for most executives and certainly
not here in Canada, says Ansell. It can affect share price. “It is not becoming.
Keep your nose clean. The next time Jobs screws up—and he will—there
won’t be much goodwill in the bank account.”
Ansell advises CEOs to stay humble wherever possible. “Don’t be the
great ‘I Am.’ Stay a little under the radar. Come up if there is good news.”
It is crucial to listen more than you talk, and say thank you more than
you’re welcome, he says. You have to have confidence as the leader, yes,
but also empathy and humility to deal with media, shareholders and other
stakeholders.
If both you and the company act ethically on a consistent basis, the story is
much easier to tell. “Genuineness has to be there, or they’ll smell it on you,”
says Ansell.
This is becoming more important because of the bad behaviour of
banks and other financial institutions, agrees Hawtin. “The public is less
and less tolerant of companies that don’t have their ethical ducks in a row.”
It is also important for senior spokespeople to know what is being said
about the company, and deal with issues that are likely to blow up. “In the last
10 years, what’s changed is the accessibility people have to information about
companies,” says Ansell. “What’s happening in the blogosphere? There are
people writing about your company who are sitting in the basement in their
sweatpants. What they say can go viral.”
Armed and prepared, you won’t bow down to either professional reporters
or citizen journalists, and you won’t let them rattle you either.
Celia Milne is a freelance writer in Toronto.
Listed
Handbook
By Milla Craig
G lobally, shareholders are asking public issuers to engage with
them and provide new levels of disclosure on an array of
environmental, social and governance measures. Is it activism?
Or should we see it as investors taking responsibility for
stewardship on behalf of their beneficiaries?
Of late, there’s been an unmistakable increase in shareholder resolutions,
requests for special meetings, proxy contests and prickly questions at AGMs
from investors. For senior executives and corporate directors, the questions
keep repeating: “Do we pay attention to these stakeholders? Should we give
our limited time and energy to deal with their requests?”
Given the global growth in responsible investing, they have little choice.
The recognition that one may better assess and mitigate future risk by
integrating environmental, social and governance (ESG) factors into one’s
investment analysis and decision-making, is taking hold at the highest levels.
A recent example: according to the November 2010 SIF Report on Socially Responsible Investing Trends in the U.S., nearly one out of every eight dollars
under professional management in the U.S. is now managed according to
socially responsible investing criteria. And North America is low compared
with much of the world. Another November report, from the Responsible
Investment Association Australasia, stated that more than 50% of all funds
under management in Australia are now signed to the United Nations-
backed Principles for Responsible Investment (PRI).
In fact, the PRI are key building blocks in the responsible investing move-
ment. Nothing underlines the increasing level of shareholder engagement
better than the growth in the number of institutional investors that have
become signatories. From its inception in 2005 to June 2010, the PRI amassed
769 signatories, representing more than US$20 trillion of assets under man-
agement, including 32 signatories from Canada.
The PRI are, in fact, a list of six principles that every signatory undertakes.
Three of them deal directly with engagement:
1. Incorporate ESG issues into investment analysis and decision-making
processes;
2. Be active owners and incorporate ESG issues into our ownership
policies and practices;
3. Seek appropriate disclosure on ESG issues by the entities in which we invest.
Another indicator of the increased pressure gathering for institutional investors
is the July 2010 UK Financial Report Council’s (FRC) Stewardship Code for Institutional Investors. This code attempts to regulate how institutional investors
engage with investee companies. Although new, this “comply or explain” code
strongly encourages institutional investors to disclose how they engage with
companies based on seven specific principles.
With such growth in responsible investing, it is important to recognize that
most “shareholder activism” is being driven by a need for greater transparency.
In particular, to meet their obligation of managing risk, investors are seeking
increased disclosure around certain ESG issues. The demand for this data is
such that it could enable a financial analyst to assess the potential impact of
systemic issues on a corporation’s relative valuation. It is estimated that nearly
75% of corporation’s stock valuation is intangible value. Therefore, changes in
such intangible value cause fluctuations in pricing. These requests for disclosure
and transparency are, therefore, being driven by the investors’ need to better
assess whether a holding’s current market value accurately represents its under-
lying value over the long term.
As an example, with water becoming an important global issue, Northwest
& Ethical Funds publicly disclosed its filing of a shareholder proposal with
Potash Corp. asking for increased disclosure on water scarcity, quality and
quantity used for operations. After a meeting with the company, an agree-
ment was made to disclose more water-related data going forward. The fund
company subsequently withdrew its proposal. Many such examples exist.
It is important to note that most activism only comes after efforts of
engagement and dialogue have been tried with public issuers. The main mes-
sage is that proxy voting is often used as a last-ditch effort to engage manage-
ment before divestment of a holding.
With that, here are 10 things a public issuer can do to prepare for this shift:
.
Milla Craig is principal of Montreal-based Millani, which offers sustainable investing industry analysis and consulting services to asset owners, asset managers and publicly listed corporations.
Nearly one out of every eight dollars under professional management in the U.S. is now managed according to socially responsible investing criteria. And North America is low compared with much of the world.
Knowledge Empowers
Congratulations to recipients of the 2010 CICA Corporate Reporting Awards.
Full disclosure. Unquestionable clarity. Open lines of communications. Toronto Stock Exchange stands atthe forefront of encouraging excellence in investor relations; we recognize and applaud today’s winners.
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Listed
Handbook
A cceptance speeches at awards events are rarely quotable, rarer
still when the awards are recognizing excellence in corporate
reporting. But there was a moment at this year’s gathering for
the Canadian Institute of Chartered Accountants 59th annual
Corporate Reporting Awards in late November where you could sense the
350-strong audience had been galvanized.
It occurred as Tim Herrod, director, treasury at Potash Corp., spoke aft er
accepting the award for Excellence for Electronic Disclosure. A repeat winner
in the category, Potash’s Herrod never explicitly mentioned BHP Billiton’s
recently thwarted takeover bid. Yet he made absolutely clear his view that
Potash’s culture—which values reporting and online stakeholder relations as
critical areas in which it wants to lead—played a critical role in helping fend
off BHP’s hostile bid.
“Last year, I sat up here and I said, ‘Th anks for the award, we’re retiring
that site,’ ” said Herrod. Th e new website took its place in February and,
according to Herrod, it was only because Potash had the foresight to invest
in new online features, tools and training to meet the emerging needs of its
stakeholders, that their team was ready for the scrutiny and demands and
pressures that came with fi ghting a $39-billion hostile takeover bid. “It meant
we were able to do things like decide to have our CEO speak to everybody,”
said Herrod. “And that we could record that on Friday and have it up on our
website and on YouTube on Monday for the world to see.
“If you don’t make this investment ahead of time, it’s too late [when you
fi nd you need it]. You can have the best story and you can have the best
industry and the best company and the best everything, but if you don’t have
a medium in which to deliver your content and deliver your message and
protect yourself, you don’t really have anything.”
In terms of peak impact, Herrod and Potash won the day. However, when
it came time to tally up the hardware, Potash’s perennial corporate reporting
rival Telus Corp. had beaten it out for the top prize, Overall Award of
Excellence. It’s only fi tting. For most of the past decade, Telus and Potash
have been the best-practice standard bearers in corporate reporting in
Canada. Th e payback this year, in Potash’s case, was immeasurable. But the
two companies’ continual investment in technology and time, coupled
with a recognition that investors and stakeholders demand and deserve
as much information and dialogue with the company as possible, has
another benefi cial eff ect—setting the bar for other Canadian fi rms to match.
Th eir dominance is not absolute. While Potash won best-in-show in two
of four judging categories—Electronic Disclosure and also Excellence in
Financial Reporting—the top prizes in Excellence for Governance Disclosure
and Excellence for Sustainable Development Reporting went to Nexen and
Suncor, respectively (see gallery). And among the total fi eld of 60 entrants, at
least two more—Bank of Montreal and Agnico-Eagle—made strong enough
impressions to garner honourable mentions. Th ere were also 10 industry-
sector and four Crown corporation winners (see p. 49).
Judges in the reporting awards still assess printed annual reports in their
evaluations (primarily in the area of fi nancial reporting), but it’s recognized
that almost everything new in the world of reporting and disclosure is
happening online. And certainly that’s the area in which reporting leaders
like Potash and Telus are breaking new ground. Can we thank them alone for
other company sites that now feature CEOs and CFOs explaining the latest
quarterly report, downloadable podcasts of conference calls and all sorts of
other customizable online data tools and information? No. But they are the
benchmarks against which other companies’ online reporting will be judged.
And they provide an excellent jumping off point for an assessment of some of
the newest trends and best approaches.
Th e fi rst point to make is that online reporting is still in its early stages.
Even now, less than 10% of Canadian companies produce HTML versions of
their annual reports, for instance. To be fair, most U.S. companies don’t either.
Instead, they simply slap PDFs online, missing out on the unique capabilities
of the Web—embedded videos, fl ash animation and customization—and
the bells and whistles that draw readers into the conversation.
Even the companies that take full advantage of the technology recognize
that information still rules; as such, they reliably provide a high level of
disclosure on a consistent basis, they release their objectives in advance and
report on their performance against them. “Companies are expected to start
a dialogue with investors, to answer questions and provide feedback,” says
judge Gerald Trites, FCA, consultant and president of Zorba Research Inc.
Th e winners also stand above their industry peers in making information
accessible to the widest possible audience. “Analysts always say, we just want
the numbers, we don’t need the pretty pictures,” says judge Chuck Midgette,
president of investor relations fi rm Blunn and Co. “But let’s face it: this stuff
can be dull as dishwater. I believe it’s human nature to be attracted to some-
thing that’s well designed and well written, that uses clear, simple language
and draws well-supported conclusions for readers.”
Why the seeming reluctance for most companies to embrace the digital
world? Th e perception of cost is a barrier. “Designing reports, saving them as
PDFs and popping them onto the Internet is relatively inexpensive,” Trites
says, “but more importantly, there seems to be an unwillingness or inability to
embrace the power and capacity of the Internet to present information.
It takes time for people to change.”
As younger investors start demanding more from their investments, Trites
says more change will follow. With that in mind, Listed, as media sponsor of
the 2010 CRAs, teamed up with Trites and Midgette to look at 10 key ways
that leading companies are making the most of their online reporting (with a
few nods to offl ine reports, too) and what others might do to join them.
By Dana Lacey
Listed
Handbook
A key reason why Suncor won for Excellence in Sustainable Development
Reporting is that it’s candid about successes and challenges. A Q&A with
Suncor’s executive vice-president, oil sands (Kirk Bailey) details the technologies
the company has pioneered to reduce the environmental impact of mine tail-
ings while generating revenue. But then Suncor also reports on its challenges:
one graph shows 10 years of historical performance and fi ve years of projected
data and compares the diff erent scenarios between reducing its environmental
footprint and business as usual.
In 2009, Agnico-Eagle, which earned honourable mention in Excellence
for Electronic Disclosure, invested in a complete overhaul of its site—and
the judges noticed. Th e new site is clean, easy to navigate and packed with
multimedia, profi les of operating mines and large, attention-grabbing photos.
“Th is is a company that doesn’t forget basic design principles just because it’s
the MD&A,” Midgette says.
Where’s the demand for your product? Bring forward the information
traditionally buried in the bowels of the MD&A, Midgette says. Potash puts
its investor proposition simply: the population is growing, people need food,
food needs fertilizer, China has a nutritional soil defi cit and Potash boasts the
world’s highest-quality fertilizer. “Th eir market share is big enough to actually
infl uence supply and demand and, therefore, price in the market. It adds up
to a really good long-term outlook for a company, it sells the story.”
To do the best reports, companies should move away from thinking in
terms of reports: instead, the focus should be information. “Th ey should
be asking ‘What info do people need in order to understand the company?
How can I present it in the most accessible way?’” Trites says. Potash
understands the power of the Internet: Th eir data tool lets readers create
their own data comparisons, manipulate numbers in spreadsheets and
analyze long-term trends.
PDFs are cheap, but diffi cult to search. “Th at’s also true of print documents,
but doesn’t need to be true of the Internet,” Trites says. Nexen, top pick for
Excellence for Governance Disclosure, has an HTML balance sheet on its site
that allows users to drill down to information through links to explanatory
notes and charts. Hover over footnotes and the print size increases. Th ey snared
the corporate governance award in part thanks to 11 pages devoted to manage-
ment and compensation: board member and director bios go beyond the
typical resume-and-head-shot: a spreadsheet shows which directors have
certain experience and skills. Other pages off er explanations of pay mix,
share growth, benefi ts and pension plans. Unlike many companies, Nexen isn’t
afraid to link outside their site, allowing investors a more comprehensive, in-depth
analysis of the company and industry.
“Th e best reports provide extensive analysis of the market or industry. It
doesn’t matter if you’ve got the best management team in the world, investors
want to know what the fundamentals are,” says Midgette. In a courtroom,
you have to tell a jury what they ought to think, and provide evidence to
support it. Most readers are scanners, so companies have to be more pro-
active, Midgette says. “Do the work for the reader.” Most of the winners use
dynamic headlines and subheads to create a narrative that tells the reader
what you want them to think, and support those claims with evidence: text,
charts and numbers. None do it better than Telus. It projects a youthful,
energetic personality, its site packed with simple, brightly coloured Flash
graphics. Th eir trademark animal mascots—currently grinning prairie
dogs—pop up in the artwork and scurry across the screen while otherwise-
staid earnings and industry charts jump out at readers. Telus’s annual
report has a graphic scorecard that illustrates whether the company met its
2009 goals; another report measures executive compensation against
corporate performance. Their site has easy-to-download webcasts
and transcripts of conference calls, shareholder meetings, interviews with
executives and AGMs.
“Th e general rule is people should be able to get to their information with no
more than three clicks,” Trites says. On Potash’s site, the latest fi nancial report
is reproduced in full—no downloads necessary—with clear, well-labeled
sections. Securities documents are well organized; links bring readers to a
copy of the most recent fi ling. Webcast conference calls are broken down into
chunks, so investors can choose to read the transcript, download the whole
speech, or just the opening or question period.
While it’s not the only company experimenting with social media, Potash
stands out: employees are profi led on LinkedIn, webcasts explaining fi nancial
results are posted on YouTube and frequent posts on Facebook and Twitter
off er opinion, analysis, expert and executive quotes and links to news articles
and fi nancial reports—not just about Potash, but of its competitors and
suppliers as well. Th e company ditches traditional corporate speak in favour
of human-interest stories and Saskatchewan-style straight-talk, off ering an
air of authenticity.
Most companies tend to focus on numbers that tell a good story, and ignore
the less impressive ones. Not the top companies. Consider Bank of Montreal,
which won honourable mention in Excellence in Financial Reporting. Th e
second page of its Management’s Discussion & Analysis provides immediate
context: what’s important to them, how they fared for the last fi ve years, how
they performed against their objectives; and they do this consistently year
aft er year. “It’s amazing how many companies don’t include their dividend
record or share price. Investors are your best customers—if you don’t provide
them with basic customer services, like how well their investment is perform-
ing, that’s a major deterrent.” BMO’s simply designed, two-colour reports are
attractive, easy to read and cost eff ective. “Th ese guys are getting good bang
for their buck,” Midgette says.
Today, about one in 12 TSX-listed companies release their annual reports in
two volumes, but Potash was the pioneer, Midgette says. “Th ey thought, why
have these huge production runs of full-colour reports and send them to
everybody? Th e corporate review tells the company story in highlight form,
talks about investment merit, is full of charts and photos. It’s shorter, but has
a higher production value. Th en there’s a much longer report that’s sent out to
people who request it. Each volume is, of course, viewable—and download-
able—on the Potash site.
Listed
Handbook
Overall Award of Excellence This company has hit all the bases. It’s worked very hard to take a
complex story and make it as useful and as understandable as possible and it
continues to push the bar.
Excellence for Corporate Governance Disclosure Honourable mention
We continue to see more detailed disclosure on company websites
as a way to differentiate and demonstrate more transparency regarding the
company’s governance activities. Nexen epitomizes this trend.
Excellence in Financial ReportingHonourable mention
Potash’s financial reporting, in print and on its website, is second
to none: great disclosure, all the information thoroughly explained, thoroughly
researched and extremely well presented.
Excellence for Electronic Disclosure Honourable mention
Top sites drive discussion between the company and the investor.
They make it easy to navigate, there’s a clear picture of what the company’s
about, and constant innovation to maximize what the medium can provide.
Excellence for Sustainable Development Reporting Honourable mention
Honourable mention Suncor wins for comprehensiveness and candor. The information
disclosed meets stakeholders’ needs, it’s candid about challenges and accomplish-
ments and it features a commitment to setting absolute targets.
Telus: Communications & Media
Domtar: Forest Products
CGI: Life Sciences & Technology
Nexen: Oil & Gas
Viterra: Diversified Industries
Bombardier: Industrials & Energy
TD Bank Financial Group: Financial Services
Potash: Mining
TransAlta: Utilities & Pipelines/Real Estate
Tim Hortons: Consumer Products
Export Development Canada: Large Federal
Defence Construction Canada: Small Federal
SaskTel: Large Provincial
Saskatchewan Transportation: Small Provincial
Canadian Investor Relations Institute
Toronto CFA Society
International Institute for Sustainable Development
Deloitte Sustainability and Climate Change
Ernst & Young
PwC
Congratulations to the winners at the 2010 Corporate Reporting Awards. And congratulations to all 82
TSX-issuers and Crown corporations who share a common goal — to report with integrity and
transparency, and ensure stakeholders have what they need to make the right decisions.
Agnico-Eagle Mines Limited
BMO Financial Group
Bombardier Inc.
CGI Group Inc.
Defence Construction Canada
Domtar Corporation
Export Development Canada
Nexen Inc.
PotashCorp
Saskatchewan Telecommunications
Holding Corporation (SaskTel)
Saskatchewan Transportation
Company
Suncor Energy Inc.
TD Bank Financial Group
TELUS Corporation
Tim Hortons Inc.
TransAlta Corporation
Viterra Inc.
chartered accountants of canada’s
corporate report ing awards
concours des mei l leurs rapports d’entreprise
des comptables agréés du canada
Just entering the CRAs makes your company a better investment.
sponsored by:
Congratulations to the winning companies:
Economy Ahead
Listed
W hen does the fun begin? Aft er two years of defi cit spend-
ing, unconventional stimulus and government programs
geared to encouraging growth, Canada and the United
States are still stuck in a slow-growth rut, with unemploy-
ment at painful levels and GDP growth struggling to break above a lacklustre
2% a year. Both business and consumers are wondering when the North
American economy will stop muddling through and break out into a vigorous
expansion.
Th e short answer? Maybe in the second half of 2011. Or maybe not
until 2012.
Optimists say that things must get better because they can’t get much
worse. Th ey have a point: many key drivers of the continental economy have
fallen to levels that appear unsustainably low by any normal standard. U.S.
light vehicle sales, for instance, have plunged from 16 million a year back
in boom times to under 12 million a year now. Home building starts in the
United States are trudging along at only 500,000 units a year, a mere fraction
of the 1.7 million that was reached in 2005. If you assume that some reversion
to the mean is inevitable, the world’s biggest economy should begin to pick
up in 2011, bringing good news for Canada as well.
But these are not ordinary times. At this point in the economic cycle, GDP
growth is usually soaring as the recovery gains traction. It’s not doing so
right now for the simple reason that demand from consumers in the United
States has fallen into a coma. Th e meager economic expansion to date in
that country has been driven by companies restocking inventories, not by
real fi nal demand.
Th is recovery isn’t following the usual script because this recession was
fundamentally diff erent than its predecessors during the past half-century.
Th ose earlier downturns were deliberately engineered by central banks,
which raised interest rates to cool off overheated economies and bring
down infl ation. Once central bankers accomplished their goal, they lowered
interest rates and the economy sprang back into gear.
Th e crisis that began in 2008 was a diff erent story. It was the result of a
fi nancial sector run amok, aided and abetted by a global housing bubble.
It was not something the authorities saw coming and it is not something
that can be easily cured with the standard prescription of low interest
rates. No matter how low interest rates go, they can’t fi x the balance sheets
of U.S. homeowners who owe more on their mortgage than their houses
are worth, or fi nd jobs for blue-collar workers that have been displaced by
By Ian McGugan
Listed
Ahead Economy
technology and foreign competition.So that leaves North America in a bind. Th e simplest description of
the problem is this: those who have money see no reason to spend, while those who don’t have money can’t fi nd work or customers.
Who has money? By and large, it’s companies. In both the U.S. and Canada, corporate coff ers are bulging. Th e profi t share of the economy is running far above historic levels, a long string of companies have blown past earn-ings expectations and money is ridiculously cheap to borrow. Th e best-rated fi rms—Johnson & Johnson and Microsoft , to name two—can issue bonds at lower rates than the dividends they pay on their common stock.
Th e problem is that companies see no reason to use their stores of cash to expand their operations. Consumers, especially in the U.S., are deleveraging—reducing debt, in other words—and are less inclined to spend. Mean-while, unused industrial capacity and empty stores abound. So companies have no motivation to build new factories or open new stores. Result: a stalemate in which companies won’t invest until consumer demand picks up, but consumer demand can’t pick up until companies start to invest and create jobs.
Th is impasse has no elegant solution. Th ere are, however, three likely paths that policy makers could take from here.
Path No. 1 is to simply wait and hope the economy organically heals itself. Of course, that ignores the human tragedy that is compounding by the day as unemployment remains high and many of the long-term unemployed lose hope.
Path No. 2—the standard Keynesian prescription—is for governments tobreak the logjam by running yet more defi cits and spending that money to directly employ people, thereby giving companies a reason to expand to meet the increased demand from consumers. Th is is an attractive notion in theory—but with government debt soaring in both Canada and the United States, such a spending spree would run into heavy resistance from many voters.
Path. No. 3 is to spark a North American recovery by arranging a dramatic drop in the value of the greenback and the loonie. In one swoop, cheaper currencies would make Canadian and U.S. products more attractive in global markets and initiate resurgence in North American manufacturing.
But, of course, other countries are equally conscious of the need to goose their economies with cheaper currencies. As we saw at the most recent meeting of the G20 countries in South Korea, the eurozone and Japan, not to mention China, have no wish to see their currencies appreciate against their North American counterparts.
So how does this game play out? None of the likely paths for North America results in an immediate surge in growth. Th e best scenario is that the recovery continues to gain traction over the next couple of quarters, resulting in a strong second half for 2011. It is, however, easy to imagine a situation in which we don’t see the economy growing strongly again until 2012.
As 2011 begins, there are a couple of interesting indicators to keep your eye on. One is the Ceridian UCLA Pulse of Commerce index, released monthly, which attempts to measure the state of the U.S. economy by gaug-ing the amount of diesel fuel sold to truckers.
Th e central notion here is that trucking is a direct indicator of economic vigor—the more trucks on the road, the more goods are being shipped, the stronger the economy. Unlike most economic indexes, which can take months to compile, the Ceridian index provides a nearly instant take on the state of business. Unfortunately, it’s fl ashing a caution signal right now, having registered its third straight monthly decline in November.
Another real-time barometer of the state of the economy is gold. Th e yellow metal has become a stress indicator, moving in response to investors’ concerns over the fate of paper currencies and government budgets. Its recent rise is a worrisome sign. Th e surest sign that the future is turning golden will come when gold prices begin to tarnish.
Ian McGugan is a business writer and editor in Toronto and the former editor of MoneySense magazine. E-Mail: [email protected]
Listed
Watch List Ahead
Ottawa
Th e good news: by late 2010, we’d made back all the jobs lost in the recession.
Th e bad: new labour demand can’t be met and unemployment is stuck around
8%. How will last year offi cially end?
www.statcan.gc.ca
Ottawa
Bank of Canada governor Mark Carney’s fi rst pronouncement on interest
rates and the outlook for the year ahead. Dour? Upbeat? Anxious?
Carney’s words and demeanour could set the tone for all of 2011. Carney’s
second scheduled interest rate statement comes March 1.
www.bankofcanada.ca
San Diego, Calif.
It’s governance’s version of the West Coast Swing. Come for the conference,
featuring keynote speakers like Anne Mulcahy, former chairman and
CEO of Xerox Corp., then stay on for the PGA Tour’s third tournament stop
of the 2011 season at Torrey Pines Golf Club.
www.directorsforum.com/conference
New York, NY
Offi cial launch of a year-long awareness and educational campaign promot-
ing forest sustainability worldwide
www.un.org/en/events/iyof2011
Ottawa
Defl ation alarms have been set to mute, but the December CPI will still
be closely watched as an important year-end economic indicator.
www.statcan.gc.ca
Washington, DC
Th e FOMC—the U.S. Federal Reserve’s principal monetary policymaking body,
headed by Reserve chairman Ben Bernanke—has eight scheduled meetings
a year. In the fi rst for 2011, Bernanke and his 11 committee colleagues will take
stock of the economy, update the Fed’s position on interest rates and assess its
US$900-billion quantitative easing strategy.
www.federalreserve.gov
Davos, Switzerland
Critics say this annual, invitation-only runway bash for the world’s busi-
ness, political, academic and cultural elite has lost a step, but it’s still an
unparalleled gathering. So keep an eye on the proceedings. And if you’re
going, well, you know you’ve already arrived.
www.weforum.org/en/events/AnnualMeeting2011/index.htm
Ottawa
Th e monthly GDP is always important, but this one brings in a fi nal
tally on 2010—a year that started with great promise but ended in slow-
down and uncertainty.
www.statcan.gc.ca
Toronto
Th e massive Prospectors and Developers Association of Canada International
Convention, Trade Show and Investors Exchange is to mining what Cannes is
to the movie world. A must-see, everyone-attends event—22,000 delegates,
more than 1,000 exhibitors in 2010—that has the convention centre and area
hotels overfl owing with meetings, parties, deals, investment opportunities,
potential investors, networking, speakers, workshops, new technologies and
hot companies. For four days, PDAC turns Toronto into a hard rock town.
www.pdac.ca/pdac/conv/index.aspx
Philadelphia, Pa.
More best practices training, this time from the acclaimed Wharton school
of business, in tandem with board counsel and recruitment specialists
Spencer Stuart. Key topics span executive succession planning, the board’s
role in strategy and M&A, governance policies and practices, ethics and
board leadership.
www.executiveeducation.wharton.upenn.edu
Montebello, Que.
A fi rst-ever, invitation-only gathering of business and political leaders from the
United States and Canada, hosted jointly by the Conference Board Inc.
and the Conference Board of Canada. Th e forum aims to create an opportunity
for leaders on both sides of the border to focus on mutually strategic issues
and perspectives.
www.conferenceboard.ca/conf/10-0130/default.aspx
Insider
Listed
What inspires such hatred against you and the IASB? I think it was a gentleman colleague who said the problem
in Continental Europe, say France, where a lot of the criticism comes from, is
that when the barons didn’t like what the king did, they used to go to the king
and say we need an exemption. When you go to President Nicolas Sarkozy and
you complain about accounting, he pulls a lever and nothing happens. I’m
putting this bluntly, but the message is, ‘Hey they’re [the IASB] not under control.
Why should this private-sector body work in the public interest and issue
laws to Europe and France? We’re the politicians and we were elected so why
don’t we control this?’
Why can we implement global accounting standards, but not fi nancial ones?
Our chairman of trustees, Tommaso Padoa-Schiopp, he’s
the former Italian minister [of economy and fi nance], was chairman of the
Basel Committee and he said they couldn’t adopt global standards. Th e reason
he reckons is that each member comes with his little instructions from his
government and he’s got to barter this around, whereas we haven’t got that.
We’re trying to get the right answer. We don’t have this ‘I’ll create this if you
do that’ attitude. He said in 10 years we’ve done more than Basel did in 30.
When did you know IFRS was going to take hold? Europe signed in 2005 and then we made the agreement
with the SEC. People saw this agreement being made and that started to
encourage others. From 2006 to 2008, countries like China came in, Israel
came in, Chile came in, but then Canada came in. It shocked the Americans
that Canada started moving to IFRS. It surprised people in Latin America,
who think Canada and America are linked pretty much at the hip.
What eff ect did the fi nancial meltdown have on IFRS? I think the Americans would have agreed to accept
the standard by now had it not been for that. In the middle of the crisis,
it was a case of companies hanging on by their fi ngertips and the last thing
they wanted was new accounting systems.
Was there ever a point where you thought the process was going to fall apart?
Yes there was, in the middle of the crisis, just aft er Lehmans
fell. Th e Americans allow you in rare situations to stop having fair value
[accounting] and switch to cost. And then we heard the European Commission
was changing the law to allow that transfer. Our fi rst reaction was just let them
do it. And then the panic started setting in from the markets in Europe and the
U.S. who were concerned that if Europe does that, there will be no discipline,
we’ll have no idea what the numbers will be. [But] our reaction was that people
are really panicking about what will happen to the world economy, so we
have to let them do it. We took a lot of hits in America, “Oh, they’re subject to
political control.” But on the other hand, if we had done nothing, it would have
been even more damaging.
How close is the U.S. now to signing on? Th e U.S. will make a decision about this time next year
and I think it will be positive. Th ey’ll have to manage the internal politics.
I think they’ll push it back so people don’t think it’s happening tomorrow. It
might be 2015, 2016, something like that.
If the economy worsens, how likely is it that the U.S. would further delay a decision?
Th e U.S. will fi nd it diffi cult to delay. We’ve been working
with them for nine years, and the rest of the world is saying they’re having a
major infl uence over the standards, which we’re using and they’re not, why
not? [Also,] the U.S. Treasury is very keen on global regulation of the fi nancial
markets, and accounting is an absolutely critical component. If you have
diff erent accounting everywhere, it’s almost impossible to put all this together
and regulate it. Th e SEC makes its own decisions, but there’s pressure. If they
said no and went their own way, will Japan say, ‘Well, we’ll just keep going and
make a few amendments,’ and China says, ‘Well, we’re not adopting in that
case,’ and then Europe says, ‘If everybody is fi ddling with it, we’ll fi ddle, too,’
and then the whole thing disintegrates. Th ere’s a risk and the next 12 to 15
months will be critical.
Interview by Andy Holloway
Knowledge to Power Solutions
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25138_CST_Ad_8.375x10.875.indd 1 11/22/10 4:47 PM
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