In a commentary in the Financial Post, Prof. Anita Anand argues that a federal bailout of Bombardier would be unwise as long as that company maintains its dual-class share structure ("Canadian taxpayers shouldn’t have to pay for Bombardier’s bad corporate governance," December 5, 2018).
Read the full commentary on the Financial Post website, or below.
Canadian taxpayers shouldn’t have to pay for Bombardier’s bad corporate governance
By Anita Anand
December 5, 2018
Many alternatives regarding the way forward for troubled Bombardier Inc. have been proposed. The Quebec government has already committed $1.3 billion in aid and now some type of moral argument is being levelled at Ottawa to throw money into Bombardier’s cap also. This is a very bad idea from a governance perspective, as well as a taxpayer perspective.
Let’s be clear about Bombardier’s governance reality: The Bombardier/Beaudoin families hold almost 60 per cent of voting power in the corporation, despite holding an economic interest of just one-quarter of that figure. This is a dual-class-share firm that just isn’t flying.
A federal bailout would place perhaps a billion or more taxpayer dollars in the hands of family that is insulated from governance accountability because of the corporate structure that it has chosen. This insulation and lack of accountability have not been good for the company. Over the past five years, Bombardier’s stock price has declined more than 75 per cent. Why should Canadian taxpayers be on the hook for Bombardier’s poor corporate governance?
Dual-class share structures are fundamentally unfair: they leave the subordinate shareholders unprotected and cry out for a response from securities regulators. Advocates of such structures recall success stories — like Fairfax or Onex — without focusing on the point that dual-class-share structures undermine corporate governance standards because the subordinate shareholders are burdened with a disproportionate share of the economic risk in the firm relative to their ability to influence the affairs of the corporation. In particular, they cannot elect directors or otherwise ensure change through their vote.
As the Magna buyout showed, and the Corus/Shaw deal suggests, dual-class structures can have severe consequences especially when there are no legally mandated procedural safeguards relating to special committees, valuations, fairness opinions and voting conditions. Because the jurisdiction of securities regulators is founded on investor protection and the public interest, dual-class-share structures should be further regulated, if not prohibited, in capital markets.
From Ottawa’s perspective, if Bombardier were to receive federal funding, there are no accountability mechanisms in place to ensure that the current board would do any better than it has to date. At the very least, the Bombardier board itself needs to be replaced and repopulated not with government representatives — as the Quebec government is proposing — but with independent directors (as is the case in non-dual-class firms). This will require a dismantling of the dual-class structure.
Reforms are needed to ensure that Bombardier’s subordinate shareholders can contribute to the decision about who is on the board of this corporation. This is not the place for taxpayer money.
