The Globe’s tacit admission: Wanted: controlling shareholders

Today’s Globe editorial is entitled “Wanted: controlling shareholders”, which proffers the argument that the solution to GM’s woes is to address the absence at GM of a “controlling shareholder”. The not too subtle implicit argument is that without a large controlling shareholder companies like GM will revert to some other form of control, which we all know becomes control by the corporate paid management. The Globe is revealing something that is most prevalent, profound and relevant. However none of it is good, namely the fact that shareholders in a broadly held company exert virtually no control over the companies they own, and management can run amok, and often does.

There are endless examples of this, the most recent of which is the bonuses paid to people like Michael Sabia of BCE and Dominic D’Alessandro fo Manulife. Another example would be the move by both Power Corp and Manulife to deny shareholders the right to vote on the compensation paid to the management of the companies which investors OWN is another. Huh?

Left to their own devices, management of widely held public companies can do whatever the hell they want. It is no coincidence then, that the income trust tax is only applied to PUBLICLY listed income trusts. This is because the PUBLICLY listed income trust was a threat to the whole power structure of the corporate paid manager controlled public corporation.

The trust model imposed discipline on the managers that was more highly valued by the investment market place, This enhanced value for enhanced discipline was a most unwelcom development for the corporate manager, since it directly affected how they were going to be paid and placed restrictions on what they could do. All these restrictions were beneficial to the company in question and the economy at large, however that mattered not one iota to these corporate managers who saw that the writing was on the wall for their free governance ways.

This is why the managers made such a fuss about the conversion of Telus, since Telus represented the first Tier 1 corporate to convert to a trust. This threatened the power structure on Bay Street and it had to be killed. BCE provided a convenient foil to raise the stakes, and yet BCE had no intention of becoming a trust. Had they any real intention of becoming a trust, then BCE wouldn’t have deep-sixed the recap put forward by Catalyst to bring about the same desirable outcome of a trust, but under the corporate model and therefore free of the trust tax rules. The concern about trusts on the part of corporate managers has ZERO to do with taxes and EVERYTHING to do about everything that affects how corporate managers are paid. I could provide you with a fulsome explanation about the role played by BCE in concert with the Harper government to provide the faux justification for the events of Halloween 2006, but I will leave that for a future date. Meanwhile I will simply leave you this tid bit:

It was reported in the September 27, 2008 article entitled: “Debt Ridden: The story of the BCE deal” that:

Inside BCE's boardroom, the blue-ribbon directors weren't enthusiastic about the plan, but gave it their blessing, betting the measure was destined for doom because Ottawa would never allow it.

"Income trusts didn't have much appeal. We weren't particularly interested in doing an income trust but we thought if we announced we were doing one, it would force the government into a decision," said the source close to the company who asked not to be named.

As for the act of shutting down income trusts, despite the erroneous testimony before the Finance Committee by Dominic D’Alessandro about how corporations had nothing to do with it, I simply point to this extremely informative revelation form the Globe on November 2, 2006. Tell me which part of this conduct is consistent with Directors and CEO’s fiduciary duty to their owners to maximize shareholder value. What part of this sound any thing remotely different than the foxes in the hen house. Harper’s hen house of corporate managers assuming the role of controlling shareholder in widely held public companies and having their way with Canadian tax policy and destroying investment choice in the capital marketplace and people’s life savings and essential source of income.

I believe the correct term for this is “sabotage”:

“High-profile directors and CEOs, meanwhile, had approached Mr. Flaherty personally to express their concerns: Many felt they were being pressed into trusts because of their duty to maximize shareholder value, despite their misgivings about the structure. Paul Desmarais Jr., the well-connected chairman of Power Corp. of Canada, even railed against trusts in a conversation with Prime Minister Stephen Harper during a trip to Mexico, and told him he should act quickly to stop the raft of conversions, according to sources.”