Corporate Practices of Former Premier Mike Harris
Posted: December 13,2011
News Category : External News
Toronto Star
December 8, 2011
How Mike Harris became the chair of Magna; Lawsuit forces firm to reveal ex-premier got in with 37% support
Vanessa Lu Toronto Star
Prompted by a lawsuit filed by Magna International shareholders, the auto-parts giant has finally revealed that three directors including its chair, former premier Mike Harris were re-elected with less than 40 per cent support.
The company issued a statement late Tuesday after the Canada Pension Plan Investment Board, RBC Global Asset Management and Connor, Clark &Lunn Financial Group filed an application in Ontario Superior Court, seeking the 2011 election results.
At issue was strong shareholder opposition to the election of three members of a special committee - Harris, now chair of Aurora-based Magna, Louis Lataif and Donald Resnick - that oversaw a controversial 2010 decision to buy out founder Frank Stronach.
The plan called for a Stronach family trust to sell its controlling share block, and in exchange for eliminating Magna's multiple B voting shares, the trust received about $863 million in cash and stock.
Despite an unprecedented premium of almost 1,800 per cent to the trust, shareholders overwhelmingly accepted the proposal.
But institutional shareholders and proxy firms slammed the committee for not providing investors with enough information. The anger spilled over with some "withholding" their votes at the May meeting.
Under Canadian law, shareholders can only vote for a director or have their vote withheld.
If there were an equal number of candidates for election as vacancies, a director only needed to receive one vote "for" to ensure election, regardless the number of votes withheld.
However, most large companies have implemented their own majority rule policy, so no board member is elected without significant shareholder support.
Despite several requests for the election results, Magna's board steadfastly refused to disclose the information.
The board said the results are of "limited, if any relevance," according to the court application.
But hours after the lawsuit was filed, Magna issued a news release with the full results, emphasizing it was not legally required to do so.
Harris was elected with 37 per cent, Lataif and Resnick with about 38 per cent each. The other seven directors were elected with more than 80 per cent support, including Stronach, at 84 per cent.
"We felt strongly that this was pertinent information for future voting decisions of all shareholders," said Michel Leduc, senior vice-president of communications at the CPP investment board, in explaining why they proceeded with the lawsuit.
Now that Magna has released the information, the parties plan to drop the lawsuit.
In its statement, Magna also promised to adopt a majority voting policy effective 2012, implementation of a board succession process as well as introduction of a mandatory two-thirds board independent requirement.
Richard Powers, a business law professor at the Rotman School of Management, said Magna isn't breaking new ground, considering many Canadian companies have adopted clear governance rules.
"Magna has always been a bit of a laggard in establishing best governance practices," Powers said. "This is what shareholders have come to expect."
In its statement, Magna stressed that market reaction to the Stronach share arrangement was positive and "a significant factor in the 105 per cent increase in the value of Magna's common shares on the New York Stock Exchange in 2010."
Magna shares closed Wednesday in Toronto at $36.37, up 12 cents.
(c) 2011 Torstar Corporation