As a longtime member of the Association of Correspondents Tracking the War On Corporations, I have embedded with troops of lawyers, activists and corporate officials through the great battles of the last several decades. From the failure to ward off the stakeholder invasion of the 1990s to the great executive retreat at the Battle of Corporate Social Responsibility, on through the managerial collapse on the fields of the sustainability movement and the ongoing assault from green climatists, it has been one corporate defeat after another.
Today I stand (figuratively) on the front line of a new skirmish in the war against corporations: On the floor of the Senate, where the Battle of Bill C-25 is currently underway. Now before the upper chamber’s banking committee, Bill C-25 aims to amend the Canada Business Corporations Act by making two revolutionary changes to the laws governing federally incorporated businesses.
From my vantage point, looking over the battlefield, there is some chance that Bill C-25 could be sent back to the House of Commons, a move that would mark a rare corporate victory.
Introduced by Navdeep Bains, federal minister of innovation, science and economic development, the bill stages two destructive attacks on the corporate model. The first storms straight up through the shareholder-democracy ranks by forcing companies to hold annual elections of individual directors. The second attack swoops in from the top. The government, through Bill C-25, is fighting to impose “diversity” on boards of directors and top corporate management.
The idea that corporations are democracies and should be reformulated along the lines of condo corporations has been around for some time. In the U.S. in the 1970s, Ralph Nader led an early campaign to turn boards into elected governments in charge of legislating businesses, which would also have to submit all “major transactions” to shareholder plebiscites. In Nader’s model, the shareholders are electors who choose directors who in turn select the executives who then submit major decisions to a shareholder vote.
This bastard version of the corporate model, which is based on Nader’s view that public corporations are creatures of the state, is at the heart of Bill C-25. The claim, among others, is that the boards of corporations under current CBCA rules are populated by large numbers of aging white “zombie” directors who are mindless and incompetent stooges for management, kept in place without popular shareholder support. The proposed solution is to turn shareholders into populist electors who, at times, could cast ballots for competing directors, who would campaign on different ideological agendas. Shareholders, including public pension giants, could also nominate their own directors for election. The Ontario condo act follows the same structure.
Montreal governance consultant Yvan Allaire recently outlined in FP Commentthe risks of turning corporations into electoral circuses. Allaire noted, among many other things, that the rush to extreme democratization of corporations amounts to a partial outside takeover, via state intervention, of responsibilities that are now assumed by boards of directors.
He warns that managers and directors of major corporations are unlikely to take a stand against the expansion of shareholder powers because, he implies, they have already surrendered to Canadian’s big institutional investors.
Elsewhere in FP Comment today, Carol Hansell, a legal specialist in corporate governance and regulation, and members of her legal team write that Bill C-25’s majority voting plan “is not a step forward. It is an unnecessary change that will further fragment regulation of the Canadian capital markets and create a risk of unnecessary governance distraction.” They call on the Senate to amend the bill and send it back to the House of Commons.
A detailed discussion paper from Hansell also raises other fundamental issues, including doubts about the applicability of the “zombie director” label to Canadian boards. In 2017, only three directors out of approximately 5,000 on Canadian public corporate boards failed to received majority support from shareholders. In 2016, only four failed. In all cases, the directors resigned or the issue was otherwise resolved.
Bill C-25’s second major objective, diversity, presents other but related attempts to undermine corporate independence. Bains, the federal minister, has said that one reason for his proposed reforms to electing directors, including a greater frequency of votes, is to speed up diversity. Shareholders, for example, could force companies to put forward female and other diverse candidates for election to help meet targets.
The bill, however, does not define diversity. It would require corporations to “place before the shareholders, at every annual meeting, the prescribed information respecting diversity among the directors and among the members of senior management as defined by regulation.” If regulators follow the guidance of the minister, the centres of corporate control are about to become dens of ideological diversity.
During his appearances before the House and Senate, Bains made it clear that the Liberal idea of diversity is about much more than gender or even race and ethnic considerations. The underlying objective of Bill C-25, he said, is “promoting diversity, different viewpoints and thoughts, and coming together with a progressive agenda that really speaks to our diversity, and the fact that we want to have an inclusive agenda going forward.”
But what is diversity? Bains refused to define it, but he referred to federal employment equity legislation as “a necessary starting point in thinking and reporting on diversity.” That would include, he said, “women, people with disabilities, Indigenous peoples and visible minorities.” But how can inclusive, progressive and ideologically diverse governance create corporate success?
