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Top 10 business risks in 2014

The shifting landscape in employment law, crowdsourcing and advances by activist shareholders top the list for 2014.


1.      Employee rights, employer wrongs

The employer-employee legal landscape is always shifting. This year, employers need to rethink termination clauses in employee contracts. Recent case law may make them unenforceable. At the other end of the employment spectrum, the patchwork of provincial regulations across the country that cover unpaid internships has come under intense scrutiny and will likely result in changes.

2.       Entrepreneurs, access to capital and the crowd

The Canadian economy lives on the back of small businesses but the ability for Canadian entrepreneurs to raise money to finance their ventures often seems limited to friends, family, and reality TV shows. Canadian securities laws, even for raising small amounts, are complex. The US has taken some steps to address similar problems and Canadian entrepreneurs are pushing for “crowdfunding,” through which they extend their friends-and-family network to the Internet, seeking small investments from many people. Crowdfunding sidesteps the cost and expense of venture capital and private placements, and it also skips due diligence and other investor protections. Meanwhile, Ottawa has launched the Start-Up Visa program to lure international entrepreneurs to Canada if they can win a piece of Canada’s small venture capital or angel investor pie. Canadian securities regulators will continue to be challenged to properly balance the protection of investors, fostering of confidence and operation of fair and efficient capital markets.  

3.       Activist shareholders: Who’s running this company?

Activist shareholders will continue to stake and advance their claims for enhanced shareholder governance rights in 2014. They want say on pay, board nominations and succession and corporate investment choices. They want management and directors to deliver transparent, objective and informed business judgments, as well as superlative performance.  Demand for shareholder-sponsored directors, and other shareholder propositions will proliferate. Shareholder majority voting will hit the boardroom agenda. But can a company be run by proxy battle? Governance will be trickier than ever in 2014.

4.       The intersection of energy policy and social licensing

The twin issues of energy policy and social license will be centre stage in this year’s changing political and geographic landscape. Washington and Ottawa will work to find a way to get Canadian crude to US refineries, while the provinces seek agreements on the interprovincial flow of oil & natural gas. Meanwhile, the thawing of the Northwest Passage makes investment in the Arctic Bridge between Churchill, Manitoba and Murmansk, Russia an important economic opportunity. But everywhere there are First Nations lands that must be crossed to leverage those opportunities, creating requirements for both legal and social license from Aboriginal communities.

5.      Canada is open for business, unless it’s not

Canada’s abundance of natural resources and its financial and political stability make it an ideal country in which to invest but navigating the complex, multi-jurisdictional landscape of regulations, community consultation processes and politics will continue to make it a challenge for many businesses to realize value from their investments. Canada’s oil and gas sector, for example, cannot command market prices for their products because of challenges getting their products to market. Building pipelines, inside the country or cross-border, will continue to be a regulatory-political morass, and transporting product by rail will face serious scrutiny and new regulatory challenges. For all foreign investors, the Investment Canada Act, “net benefit” test, uncertainty around what could be deemed a  state owned entity as well as no guidance on what might trigger a national security review,  add layers of complexity that suggest “Open For Business” is highly conditional.

6.       Growing value of intellectual property

Canada has enormous natural resources that are much in demand on global markets but increasingly we are also seeing the value of intellectual assets as a major investment draw. Some industries such as high tech and life sciences are highly focused on intellectual assets but in general intellectual property is under-exploited, including in natural resource fields such as oil and gas. Knowing how to identify, license, protect, enforce and monetize intellectual property will grow in importance in 2014.  

7.       Before you hit the “send” button 

Canada’s new anti-spam legislation is coming into force in 2014 giving consumers a legal basis to complain about the emails and other electronic messages they receive. The new law impacts virtually every sector, from automotive, education, finance, health, information technology, investment management, not-for-profit and retail, to name a few.  The new law extends beyond Canada’s borders and applies to persons or organizations located outside of Canada if they send commercial electronic messages to recipients in Canada. And soon consumers will have the added benefit of a spam reporting centre, which will allow consumers to report commercial electronic messages sent without consent or with false or misleading content. While the consumer’s right to legal action will not take effect until 2017, organizations need to act now to make sure they comply by July 2014 or risk hefty fines.  Compliance with existing privacy laws may not be sufficient.

8.       Data security in the electronic era

If you’ve got data in 2014, you’re at risk. Whether it’s locked down in a server room, floating in the cloud, forgotten on a smartphone left in a cab, or on a misplaced thumb drive, organizations large and small have a legal responsibility to protect their employees’ and clients’ data. They also have an obligation to shareholders to protect their confidential information and intellectual property and protect against intentional attacks on their networks and systems.  Reputational risk is a huge concern, but it would pale in comparison to the damage to the organization if client or employee data were actually compromised. The risks change with every new device, employee and client, and organizations will continue to struggle to deal with increasingly complex legal obligations to proactively protect data and report breaches to regulators.

9.       Social media: Can’t live with it, can’t live without it

Is there any action that sounds as innocuous as a “retweet?” Well, that’s often all it takes to attack a company’s brand value, or expose a company to defamation, discrimination, and a wide range of other charges.  A social media post is a document, which means all privacy, communication and document preservation policies are in play. A posting might mean you waive lawyer-client privilege. You might be served legal documents through a social media site. Your customers are using it, your detractors are using it, and you can’t stop employees from using it in 2014 so you’ll need to know how to protect yourself.

10.    Governance and who’s watching the watchers 

Boards have never been under more scrutiny and in 2014 this will only continue. Besides securities commissions and stock exchanges, activist shareholders have never been more powerful, or plaintiff class action law firms quicker to take action. Self-regulating organizations such as the Investment Industry Regulatory Organization of Canada (IIROC), and the Mutual Fund Dealers Association of Canada are increasingly vigilant in their own investor protection and oversight role. Such scrutiny is true not only for publicly-held corporations but also for privately-held ones. Do your Board, compliance personnel, and officers understand their risks and obligations? Is Directors’ and Officers’ insurance enough protection?