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Shareholder activism: Is it going too far?

By Yves Faguy February 26, 2013 26 February 2013

National recently had an item on shareholder activism and the substantial increase in proxy fights in Canada. Walied Soliman, a partner with Norton Rose is quoted in the article as saying he has been involved in some 40 proxy battles over the past three or four years. What’s more, he believes we’ll see the number of proxy fights increase in Canada “mainly because there’s evidence of success.”

Well the big success story in New York, and perhaps a harbinger of things to come in Canada, is last week’s ruling by a federal court judge in favour of hedge fund manager David Einhorn in his legal battle against Apple. Einhorn is trying to pressure the company into distributing some of its massive cash reserves to shareholders through the issuance of (cutely-named and) dividend-paying iPrefs. Apple responded by trying to limit its ability to issue preferred shares by submitting a bundled proposal that was supposed to be put to a vote at this week's annual shareholder meeting. But the judge rejected the actual bundling of the proposal with other poposals.

Admittedly, the win is no more than a procedural – some might say “trivial” – one for Einhorn. Nevertheless, Andrew Ross Sorkin looks at the big picture (Einhorn’s attempt to force Apple to distribute its cash) with an interesting column today on abuses of shareholder power (more after the jump).

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A new blogger at National

By Yves Faguy February 25, 2013 25 February 2013

National is proud to welcome a new blogger joining its ranks. Cyndee Todgham Cherniak is an international trade and sales tax lawyer at LexSage Professional Corporation and has 20 years of experience working at national law firms. She also happens to chair the CBA’s National Commodity Tax, Customs & Trade Section. She loves writing, knows her stuff and we’re delighted to have her on board. You can also read her here, here, here and here.

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SOGIC on Trinity Western University's law school bid

By Yves Faguy February 25, 2013 25 February 2013

As you might have heard, there’s a battle brewing in the world of legal education, as Trinity Western University, a Christian faith-based institution, is seeking approval to open a new law school.
It’s up to the Federation of Canadian Law Societies to decide whether it will accept the university's law degree as an acceptable qualification for applying for a  license to practice law in a Canadian province. But by the Council of Canadian Law Deans has argued that the school should not receive formal accreditation, on the grounds that it would discriminate against gays and lesbians. As such, critics say, opening a law school at TWU is antithetical to fundamental legal values, and they question the school’s ability to uphold academic freedom in an environment in which students are required to sign a faith statement.

Last week at the CBA’s Midwinter Council meeting in Mont-Tremblant, the CBA’S Sexual Orientation and Gender Identity Conference (SOGIC) raised some of these issues and spoke out for the need to engage in constructive with dialog with the Federation.  Here's a clip from co-chair Amy Sakalauskas:

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Splitting the roles of the GC and the chief compliance officer?

By Yves Faguy February 19, 2013 19 February 2013

The separation of powers versus the combining of roles between general counsel and the chief compliance officer has become, over the years, the subject of heated debate. Michael W. Peregrine, a partner at the U.S. law firm McDermott Will & Emery, discusses lessons learned from JP Morgan’s $6-billion trading loss last year. The bank’s internal analysis revealed that its risk policy committee hadn’t been made aware (in a timely manner that is) of the full extent of the risks related to bets made by the bank on credit derivatives. Peregrine takes note of one particular recommendation from the report that should be of interest to those responsible for risk oversight practices:

 
One of the most direct recommendations in the report relates to the independence of compliance and risk managers. An emerging view is that these managers should now report directly to the chief executive and not to a company’s general counsel. (Last month, JPMorgan said it had changed the chain of command so that its head of global compliance and regulatory management will report directly to the bank’s chief operating officers).
 
Moreover, the title and compensation of compliance and risk officers should command the same heft and responsibility of the post. Also proposed is a greater link between executive compensation and satisfaction of the board’s risk reporting standards.


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Why are securities class action filings dropping?

By Yves Faguy February 17, 2013 17 February 2013

NERA Economic Consulting reported last week that the number of securities class action cases filed in Canada dropped from 15 in 2011 to nine in 2012. It’s hard to draw comparisons with trends in the U.S., given the much smaller sample size. Nevertheless:

In previous years, trends in US securities class action filings have tended to be reflected in Canadian filings. For example, last year we noted that the three Canadian filings against Chinese companies with securities listed on North American exchanges—Sino-Forest, Cathay Forest Products, and Zungui Haixi Corporation—reflected one of the trends driving filings in the US. Trends in US filings from 2008 to 2010 relating to options manipulation, Ponzi schemes, and the credit crisis were also reflected to some extent in Canadian filings.

In 2012, the abatement of these recent trends was evident on both sides of the border. In the US, only four cases filed in 2012 related to the credit crisis (down from a high of 103 in 2008), none of the filed cases involved allegations of a Ponzi scheme, and only 16 cases were filed against Chinese-domiciled companies (down from 37 in 2011).5 In Canada none of the cases filed in 2012 related to any of these trends.

Dimitri Lascaris and Daniel Bach run through the possible explanations behind the drop, from limited resources on the side of the plaintiffs’ bar to recent court decisions that have “caused some plaintiffs’ firms to become more reluctant to pursue securities class actions.” Ultimately the two authors propose another explanation:

The reforms to the Securities Act are working. Fresh research in the United States by professors Stephen Choi, of the New York University School of Law, and Adam Pritchard, of the University of Michigan Law School, shows that securities class actions provide at least as much deterrent – if not more – than enforcement actions by the U.S. Securities and Exchange Commission. We believe that the spectre of multimillion-dollar lawsuits, years of litigation and reputational damage to culpable defendants have helped deter stock fraud. We believe that there are fewer filings because there are fewer good cases, and there are fewer good cases because more of Ontario’s public companies are complying with their disclosure obligations. This is precisely what Ontario intended when it modernized the Securities Act in 2005.

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