Osler, Hoskin & Harcourt LLP lecture debates shareholder activism

Photo by Bernard Clark

Professor Lisa Fairfax of George Washington University School of Law presents the Osler, Hoskin & Harcourt LLP Distinguished Lecture in Business Law on "Shareholder Activism at a Crossroad" in Lower Ban Righ Hall on March 1, 2010.

Queen's Law continued its Osler, Hoskin & Harcourt LLP Distinguished Lectures in Business Law series, welcoming Professor Lisa Fairfax of George Washington University School of Law on March 1, 2010. An American expert on corporate governance and chair of the Business Associations Section of the Association of American Law Schools, Fairfax spoke to a large audience in Lower Ban Righ Hall about the current battle in the United States over shareholder activism and corporate proxy access.

The hour-long lecture was based upon Fairfax's upcoming paper "Shareholder Activism at a Crossroad." Focusing on attempts by shareholders to gain access to corporate proxy statements for board of director nominations, she examined the potential benefits of, alternatives to and arguments against such access. Grounded in the context of the current financial crisis the lecture presented a balanced look at both sides of the raging proxy debate.

Proxy statements are federally mandated documents produced by corporations and distributed to shareholders in order to facilitate shareholder voting. Though current U.S. law allows shareholders to contribute to the statements, those contributions do not include board of director nominations. Instead, shareholders are forced to produce nominations on their own proxy statements and supply other shareholders with those statements. The cost of such production, estimated in the hundreds of millions, is often prohibitive for shareholders and corporate proxy candidates are rarely contested.

"You can well imagine that that kind of cost represents a huge barrier for shareholders who want to engage in proxy contests," Fairfax said. "Given this type of cost barrier the lack of access to the corporate proxy statement appears to, in shareholder's minds at least...strip the voting power of much of its supposed influence."

Shareholders have made strong attempts to change U.S. law and the U.S. Securities and Exchange Commission has repeatedly examined mandating proxy access. Current attempts, however, are stalled. Fairfax partially attributes the difficulty in changing U.S. law to new developments in shareholders rights and strong opposition from corporations.

In addition, corporate resistance makes proxy access a difficult reality to achieve. Corporations see proxy access as enabling shareholders to control companies and distract boards. The high stakes and power struggles involved lead to highly contentious debates. Fairfax likened the debate to a battle that leaves the future of proxy access uncertain.

"If you know anything about the proxy access battle, you should know that it's a battle that corporations wage quite fiercely," she concluded.

Stephen Sigurdson, Law '84, chair of Osler's Business Law Department provided a complementary response to Fairfax's lecture. Sigurdson examined differences in Canadian law, where proxy access has existed for many years. Canadian experience shows fears of too much shareholder power put forth by corporations in the US seem unfounded. Canadian business has not been derailed by proxy access.

For Sigurdson the issue is not one-sided. While proxy access has not lead to shareholder takeover, the lack of it in the U.S. has not led to broad shareholder abuse.

"There are good boards and there are not-so-good boards," he said, "but, here's the thing: there are also good activist shareholders and not-so-good activist shareholders."

In Canada proxy access is rarely used, as activist shareholders prefer other methods of asserting their power. This means that for all the controversy the effect of proxy access on U.S. business may be minor.

The lecture ended with a lively question period that saw Fairfax and Sigurdson work together to address student and faculty inquiries. Rob Church, Law '10, a student in the Osler Business Law Symposium course, found the discussion to be very topical.

"The financial crisis has made shareholder rights a target of reform in the United States, and Professor Fairfax's talk couldn't have come at a more relevant time," he said.

Professor Paul Miller of Queen's Law, the lecture series' director, closed by thanking Osler, Hoskin & Harcourt LLP for their continued support of the series, a thanks Rob Church echoed.

"Professor Miller and Osler have done a great job in finding distinguished visitors who can speak on topics relevant to both Canadian and American business law," he said. "In only its second year, the Osler lecture series is already having a big impact on the level of interest in business law at Queen's."

For more information on the upcoming lectures, and to watch a recording and see more pictures of Professor Fairfax's lecture, see http://law.queensu.ca/events/oslerDistinguishedLecturesInBusinessLaw.html .