Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 2 - Evidence
OTTAWA, Wednesday, March 14, 2001
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-11, to amend the Canada Business Corporations Act and the Canada Cooperatives Act and to amend other Acts in consequence, met this day at 3:45 p.m. to give consideration to the bill.
Senator E. Leo Kolber (Chairman) in the Chair.
[English]
The Chairman: Today we will take testimony on Bill S-11, an act to amend the Canada Business Corporations Act and the Canada Cooperatives Act, and to amend other acts in consequence. We have three groups of witnesses, who have graciously agreed to present together. Father Richard Soo and Mr. Bill Davis represent the Taskforce on Churches and Corporate Responsibility. From the Shareholders Association for Research and Education we have Mr. Peter Chapman, Executive Director. Ms Tessa Hebb, Member of the Board's Directors represents the Social Investment Organization.
Father Richard S. Soo, Member, Taskforce on Churches and Corporate Responsibility: Honourable senators, my colleague Mr. Bill Davis and I represent the Taskforce on Churches and Corporate Responsibility. The office of the Canadian Churches coordinates church shareholders' dealings with corporations. We appreciate the opportunity to appear before this committee.
The churches have been advocating shareholder responsibility for the past 25 years. In Canada, we are the pioneers of the responsible shareholder movement. Since our first presentation on this subject 14 years ago, to Industry Canada, we are happy to see that the responsible shareholder movement has gained broad support all across Canada.
In general terms we have been very supportive of the latest draft of Bill S-11. We particularly want to applaud Industry Canada for its responsiveness in eliminating from the bill those confusing exclusionary clauses which have been barring shareholders from exercising their rights and responsibilities. As well we applaud Industry Canada for taking into account the issue of beneficial ownership of shares. We raised this issue during our previous presentation, and we thank you for your consideration and response in that matter.
Today, we wish only to make submissions on two points: the regulations concerning the thresholds for filing proposals and the question of arbitration. Clause 137 (1.1) (a) and (b) set out the thresholds required for a shareholder to file a proposal. In order to file a shareholder proposal, and for it to be circulated, a shareholder must have either a minimum percentage of shares owned or a minimum amount invested, and the shares must have been held for a minimum length of time. Then, the specific levels and percentages are set out in the regulations, specifically Part 6, number 40.
The churches have no quibble with the quantum of the thresholds -- we find them reasonable. However, the churches find it problematic that the thresholds are set in the form of regulation and not legislation. We submit that the threshold levels should be set in statute, rather than in regulation. We realize that regulations have the advantage of flexibility, and that they can be easily amended and enacted. However, we feel that the trade-off is not justified.
The Chairman: I point out that we run into this problem with most legislation. We have commenced a protocol such that we can either pass or amend. However, the department is responsible for the legislation and must provide us with a copy of the changes that are made to the regulations each year. We may or may not hold hearings on those regulations, but if there is something unexpected included, then we will proceed with the hearings. Does that give you some measure of comfort? We are aware of the problem.
Mr. Soo: Thank you, that is helpful. However, it does not solve our fear. There is an integrity between the regulations and the statutes. In other words, the question and the quantum of the threshold is the key to the ability of shareholders to access their rights and responsibilities. It would be too easy for shareholder rights to be undermined just by raising the level of the threshold. We feel that setting the thresholds within the statute would always ensure parliamentary and public vigilance on this point; that whenever a change occurred, there would be public hearings and parliamentary discussion.
Perhaps the best way to achieve flexibility is to make more frequent updates, rather than wait so long that the existing legislation becomes totally obsolete. The government has done this. For example, in 1995 the government was able to make the necessary small amendments to the act to tidy up various housekeeping matters. Our preference would be to get it right in 2001, and keep the whole act under regular scrutiny.
The other question about regulations is that, as a statute, it is more readily available on the Internet and thus available for public scrutiny; whereas regulations are more difficult to obtain. It also requires that the shareholders merge the text of the legislation and regulations to get an understanding of the full scheme. That makes it even more difficult for people to gain an understanding of the process and to have input.
In summation, we submit that the proposed thresholds are sensible as set out in the bill, and should be included in the statute.
The Chairman: Mr. Davis, please proceed.
Mr. Bill Davis, Member, Taskforce on Churches and Corporate Responsibility: It is my intention to deal with the arbitration aspect of the church's submission. After speaking with the clerk of the committee, our understanding was that we would make all of our presentations, which would be followed by questions, since there is some overlap in the presentation.
Clause 137(5)(b.1) of Bill S-11 represents, as Mr. Soo mentioned, a solid step forward for the churches. However, the issue that we raised last time we were here is still unanswered. When a shareholder and a corporation cannot agree whether a proposed resolution relates significantly to the business, which is the term in the bill, how is that matter to be resolved? If you work your way through it, when you get to clause 137, subclause 7 and subclause 8, you see that the onus is ultimately shifted to the shareholder to initiate legal action.
Going to court, as we indicated in our previous papers, is expensive. It can discourage all but the well-resourced shareholders from taking part. We are hoping that more thought could be given to creating an independent tribunal, or possibly appointing an ombudsman. There should be some other way in which to service the first line of resolution, thus reducing both the cost and the delay of involving the courts. This is a point that we have made before, and we want to stress it.
I want to say just a few things in conclusion. When we were last here, we tabled a letter addressed to Industry Canada from a large institutional investor in the United States, pointing out the need for international investors to feel that their rights as shareholders will be respected in Canada. I am sure that members of this committee follow these matters with some interest. I hope that you noticed the major policy shift made by the California Public Employees Retirement System in its proxy voting practice. Reports in the New York Times on February 11, 2001 and in Global Proxy Watch on February 8, 2001 describe the change. Essentially, this $165-billion plan, which is the largest public sector plan in the United States, has signaled that its new default voting policy will be to back dissident shareholders' proposals around the world unless the staff deems them to cause long-term harm to a company. That is quite a significant step. Further, CalPERS is discarding the distinction it once made between social and corporate governance as two categories of resolutions.
The following quotation from Global Proxy Watch captures the point that I want to make:
CalPERS' efforts to bump stakeholder issues into the main stream of investor activism parallels recent moves by institutions in the U.K. And it creates some common ground with funds in Europe, Asia and elsewhere that traditionally places high value on a corporation's social profile.
We are, at the moment, shaping legislation that must stand up to scrutiny by international investors who wish to be more active. Leaving a barrier in this country such as the lack of a quick and simple resolution process for differences of opinion about the acceptability of a proposal is an unnecessary irritant to potential investors. Investment capital flows where it feels it is welcome.
Thank you for the opportunity to be here, and in due course we hope we can entertain some questions and comments.
Mr. Peter Chapman, Executive Director, Shareholders Association for Research and Education: I am the Executive Director of the Shareholders Association for Research and Education, or SHARE, based in Vancouver. The British Columbia Federation of Labour and nine British Columbia trade unions sponsor SHARE.
Our activities focus on four areas: the first is the education of pension trustees; the second is policy analysis, including issues of legal and regulatory issues; the other two areas are proxy voting and shareholder activism.
We are a new organization. Our official launch was in November of this past year, at the annual convention of the BC Federation of Labour. The creation of SHARE is a reflection of the labour movement's commitment to support the hundreds of trustees appointed to pension plan boards to represent the interests of worker and plan members.
SHARE considers Bill S-11 to be an important piece of legislation. We want to express our support for the amendments that you are considering, particularly the provisions to open up shareholder communication and to extend the right to file shareholder proposals to beneficial shareholders. Both of those are extremely important, and we want to express our support for them.
We would like to express our support for the most recent amendment relating to a change between the previous Bill S-19 and this Bill S-11, which is the removal of the broad exclusionary clause. As you know, our colleagues at the Task Force on the Churches and Corporate Responsibility have been advocating this for about 15 years. We are very happy to see that change, and wish to acknowledge it.
Honourable senators should have before them copies the brief that we at SHARE submitted in this regard. We have gone through the amendments and attempted to identify some of the major issues, and thereafter try to deal with some of the more detailed ones. I would like to spend most of my time on one particularly important issue.
I would repeat the comments that Father Soo made about wanting to see the quantitative and temporal limits in legislation. I appreciated hearing Senator Kolber say that the committee have put in place this mechanism for feedback from Industry Canada. That is certainly the kind of step that reassures us that there is public scrutiny of the regulations. In forming our brief to you, we were not aware of scrutiny. We took the position that these important limits should be in the legislation so that they are reviewed by Parliament before changes are made.
The second issue is the arbitration mechanism. As you know, the current system requires a shareholder to Joto court if the company refuses to circulate a shareholder proposal. We have consulted extensively with colleagues in the United States who are familiar with a process there under which the SEC, the Securities and Exchange Commission, can consider administratively whether or not a shareholder proposal is consistent with their regulations, which would be similar to what is in the Canada Business Corporations Act. They are strongly supportive of having some kind of mechanism that stands between a shareholder-company dispute and a court case.
We took a look at some of the differences between Canada and the United States, including the lack of a national securities regulatory agency and the fact that this is in corporations law rather than securities law. In our brief you will see that we have made some suggestions about possible formats for a dispute resolution system that we hope would be effective but not onerous. It would not be a standing body but, rather, one that would come into being when a dispute arose. I will not go into detail on that. You have the information before you. It is something that we believe is quite important, and we certainly have been urged by our American colleagues to pursue this.
The next issue is the issue of onus, or burden of proof. In our reading of the legislation, we were concerned that although the company must provide the reasons for refusing to circulate a proposal, if the shareholder decides to go to court to try to enforce their right they then become the applicant at court, and common law generally places the onus on the applicant to prove that right to circulate. Therefore, once they move to court, the onus would then shift from the company to the shareholder. Just before I commenced speaking with you today, I had the opportunity of discussing this point with a representative from Industry Canada. On this point, it appears that the intent of the committee, and the intent in drafting the legislation was that the onus be on the company. This may simply be a matter of our misunderstanding the way in which the bill was drafted.
Our concern was not with the requirement that the company must give reasons to the shareholder but, rather, what happens once the shareholder decides to go to court. The common law situation arises where the applicant is the one who bears the onus. It was our understanding that, in order for that onus to be reversed in court, there needed to be something explicit in the legislation. I am sorry if we misunderstood that, but it is an important point. We will probably continue to clarify that with Industry Canada.
The Chairman: What is the conclusion?
Senator Oliver: You are abandoning that point? Will you not persist on that point?
Mr. Chapman: From reading the transcripts of your earlier meeting and from my discussions with Mr. Wayne Lennon from Industry Canada, my understanding is that the legislation, as it is written, places the onus on the corporation.
The Chairman: My expert tells me that that is not the case.
Mr. Chapman: Perhaps I should return to the point that we believe the onus should be on the corporation.
The Chairman: Do you have written material pertaining to that?
Mr. Geoffrey P. Kieley, Law and Government Division, Parliamentary Research Branch, Library of Parliament: Section 137, subsection 8 of the act, as I understand it, states that on the application of a person submitting a proposal, who claims to be aggrieved by the corporation's refusal, the court may restrain the holding of the meeting. It is my understanding that they are attempting to balance incentives. If the onus is on the corporation, then the individual has only to say that he or she is a shareholder, and submit the proposal. That action forces the corporation to court in every instance. This is designed to make the shareholder, or the proposer, take a hard look at the merits of the case, knowing they will have to go to court to make it.
Mr. Chapman: In some ways, this may highlight the value of having an arbitration mechanism. We would like to avoid the situation where either party has to go to court. That is very rare in the United States -- the SEC function seemed to work well to avoid that. We would support provisions that deter frivolous shareholder proposals.However, at the same time, it is difficult, if the onus rests with the shareholder once they arrive in court. We have outlined some of the reasons for that in our brief.
Senator Carstairs: Is that end of your presentation?
Mr. Chapman: I would point out that, in the remaining part of the brief, we have made some comments on time limits. We raised one point about the deadline for filing shareholder proposals, which has changed in the new legislation from what it was previously under the old legislation. The deadline is now tied to the anniversary of the date of notice of the annual meeting to the shareholders. We felt that the previous situation, where it was tied to the date of the annual meeting of shareholders, was easier for shareholders to track. The date of notice is a more technical date, and it is also a variable date. If the intention was to expand the length of time between the filing deadline and the annual meeting, we agree that that deadline could be extended, but we think it would be easier for shareholders if it were tied to the annual meeting anniversary rather than to the date of notice.
The Chairman: Do you find the prescribed periods for shareholders' proposals particularly clear?
Mr. Chapman: The first time we read it, we did not pick up on the change. Then we found that it was the anniversary of the notice rather than the anniversary of the annual meeting date.
The Chairman: We have a graph here, but it is not clear.
Senator Meighen: I was prepared to raise that question.
The Chairman: We will return to that later.
Mr. Chapman: Our point is that the anniversary of the annual meeting has traditionally been the deadline, and it is a fixed date. However, the notice of meeting is a variable date, because there is a range of dates within which the company must give notice. Thus, the actual notice period varies from one company to another. We would support returning to the old model of the annual meeting anniversary. It is simpler.
Ms Tessa Hebb, Member of the Board of Directors, Social Investment Organization: Thank you, Senator Kolber and members of the committee, for the opportunity to present here.
The Social Investment Organization was established in 1989 as a national non-profit organization dedicated to the advancement of socially responsible investment. The SIO is funded by membership dues and has more than 450 members across Canada. Those members represent socially- and environmentally-screened mutual funds, financial institutions that provide socially responsible investment products, investment advisers who advise on the basis of socially responsible investing, investment managers and institutional investors who invest according to SRI guideline, retail investors and non-governmental organizations, and other groups with an interest in responsible investing.
The Chairman: Will you please define "socially responsible"?
Ms Hebb: Socially responsible investing is a three-legged stool that operates either by choosing positive or negative screens in the investment that is made. Those screens have been around for several hundred years and incorporate a tremendous number of aspects. Examples of negative screens include issues such as tobacco and military production. A positive screen could be one that is around a religious conviction. The second aspect of socially responsible investing is direct community investment, often called "community economic development." The third aspect is on shareholder action. It is that aspect that brings me here today.
As a movement, the SIO is growing in both Canada and the United States. In Canada, the SIO is now able to point to approximately $50 billion that is managed with some type of socially responsible investment criteria. In the United States, that amount is almost US$2 trillion. In the United States, this move toward socially responsible investing is seen to affect about $1 out of every $8 invested in the U.S. It is a growing movement; in other words, there is a growing awareness about the impact of investment. Shareholder action is actually one of the fastest growing aspects of socially responsible investing. That is why SIO and other groups are particularly interested in the amendments being discussed today.
The Chairman: What is the total capitalized value of all the stock exchanges in the United States?
Senator Tkachuk: The answer depends on whether it was last week or today.
Ms Hebb: That is right. Do you mean in terms of direct financial capital invested?
The Chairman: I refer to the stock market capitalization.
Ms Hebb: As the senator said, it varies depending on the valuation.
The Chairman: I understand. What is the ballpark figure? I have difficulty with your numbers because I do not know how you arrived at them. Perhaps you are correct.
Ms Hebb: The figure is not arrived at by stock market capitalization, but rather by the actual book value of the investment. In Canada, the asset value based on GICs, mutual funds, RRSPs, et cetera, would be about 800 billion or so dollars, which puts the $50-billion figure into perspective.
It is the shareholder proposals that bring us to the table today. Because of our background, we have a perspective on taking a strong position on the rules of the game that govern shareholder process. We believe that the rules have been stacked against shareholders wishing to bring to the attention of corporations issues of social and environmental importance, and that the CBCA rules in the past governing shareholder process have discouraged legitimate and healthy exchange between shareholders and management.
Section 137(5)(b) of the existing Canada Business Corporations Act permits corporations the right to exclude proposals "primarily for the purpose of promoting general, economic, political, racial, religious, social or similar causes" from their proxy management circular. This right of refusal has limited shareholder action in Canada. We commend the government for eliminating this language from the current Bill S-11. This section has been used several times as ground for refusing to circulate shareholder proposals, particularly since 1987 when the Ontario Court of Appeal upheld the decision by Varity Corp. not to circulate a shareholder proposal on divestment from South Africa.
By eliminating this section, the government is recognizing the importance of providing shareholders with the right to make proposals on issues of substantial importance to the corporation, including legitimate and prudent matters involving social and environmental issues. This change brings Canadian corporate law more in line with U.S. law in this matter, which does not discriminate against shareholder proposals on economic, political, racial, religious or social grounds. We laud the government for making this change to the CBCA.
If we follow the U.S., under their current legislation there are normally between 200 and 300 proposals filed annually. With our economy at one-tenth the size of the U.S. economy, we would expect to see about 20 to 30 such proposals each year. This amount should not prove onerous in terms of our Canadian corporations.
Although we strongly support this recent change, we would like to bring to the attention of the committee a few other items. We support a requirement that only shareholders holding their shares for a minimum time period be permitted to file a shareholder proposal. We also feel that it is appropriate to make re-submission rights subject to a prescribed percentage of the shareholder vote at the last meeting. We are also not opposed to minimum shareholder provisions, as long as they do not represent an economic barrier to access of the shareholder proposal process.
That having been said, we urge the government to consider amendments setting out these quantitative and temporal limits in the law, rather than in regulation. We recommend that such amendments be made in order to ensure that the process is wide open and transparent in terms of any proposed changes that would come in the future.
The Social Investment Organization agrees with our colleague from SHARE in recommending that Bill S-11 include an explicit provision that spells out the maximum number of years after which a shareholder may submit a substantially similar shareholder proposal without fear of exemption; that is, if it fails to draw the minimum percentage of shareholder votes. We endorse the period of five years, in keeping with the American threshold. You will note that, in the current wording, the 3, 6 and 9 per cent thresholds are laid out but not the period of time before a proposal can be resubmitted after failing to meet the 3 per cent threshold at its first airing.
We are pleased to see the allowable number of words for a shareholder proposal has been increased to 500 from the current 200-word limit. However, we believe this should be set down in law rather than just in regulation. In addition, we believe the law should place the same word limit on the company responses in the management proxy circulars.
We support a number of other items raised by the SHARE proposal. In particular, we recommend that the government institute a low-cost, speedy arbitration mechanism to resolve disputes between shareholders and management regarding circulation of shareholder proposals. Again, we commend to you the SHARE proposal for a more detailed look at that arbitration process.
We commend the government for its amendments in recognizing the principle that beneficial shareholders have the right to file shareholder proposals. It has long been our view that the previous restriction that only registered shareholders may file has been an anachronistic, technical provision subject to abuse.
On that note, we are pleased to see that the government has moved forward on several fronts. We appeared before the Senate committee in May, 2001, and many of the items that we raised at that time have been acted upon. We thank you very much. In addition, we believe that it is important that rules in regard to this process be set out in legislation to ensure that there is no erosion of the process through future regulatory change.
The Chairman: Before we turn to questions from senators, I would ask the witnesses, in future when you come before this committee, to either send us your submissions in both English and French, or send them a week early so that we can translate them.
Senator Tkachuk: All of you have raised many of the same issues. Could you, perhaps, give us a few examples? You have obviously given these matters a lot of thought over the last number of years, and no doubt have had instances where these kinds of situations have occurred. That would be helpful to us to hear about such instances. Could each organization give me two or three examples of the kind of issue you would take, via a submission like this, to be discussed at an annual meeting?
Mr. Davis: I will give you a few examples. The Canadian chartered banks have run through quite a number of shareholder proposals in the last few years. One of them on the agenda or slate this year was an effort to tie options for senior executives more directly to the performance of the stock. It was to deal with executive compensation, but it also was to deal with relating the incentive for the executives more closely to the benefits that the shareholders get. I have not been to all the bank meetings, but that proposal received in the order of 30 per cent support. The Ontario Teachers Pension Plan, which is a fairly large investor, supported that resolution. It is the beginning of a closer examination of stock options as compensation, and the levels of compensation and the relationship of that incentive to actual shareholder benefit. That would be one.
The churches and a number of public sector plans in the United States filed a proposal last year at Talisman asking them to prepare a report for shareholders setting out the human rights implications of their investment in the Sudan. That received 27 per cent support from shareholders. That indicates that many pension plans must have supported it. The churches which filed the proposal held significantly less than 1 per cent of the total. Obviously, some U.S. institutional investors must have voted in support, as did many Canadians.
There is much shareholder concern about whether the profits they are enjoying emanating from the Sudan, which is only part of Talisman's total, are in fact being earned at a particular cost to human life and human rights in the Sudan. Shareholders are concerned about the impact Talisman might have or not have on those rights. That kind of proposal puts that issue in the public forum, and has actually resulted in Talisman putting its own proposal forward and producing a report, albeit one that is geared to making them look very good. At least they are going public with a report to shareholders on the Sudan. Those are two examples off the top of my head. Perhaps other of my panel members will have more.
Mr. Chapman: A proposal that was put forward last year at Placer Dome would be a good example. It was for the disclosure of environmental risks. It asked for a report from the company. The specific issue that had arisen was a dam accident in the Philippines, which illustrated to shareholders that there were financial risks that they were not able to assess from the information available from the company. That proposal was withdrawn after negotiation with the company. It never came to a vote because, in the period leading up to the annual meeting, the shareholders and the company were able to reach a solution.
That was a typical proposal. It is not so very unusual for proposals to be withdrawn. The outcome of that proposal has been the undertaking of a year-long process by Placer Dome to look at the issue of reporting on liabilities such as that.
Two other good proposals have been put forward this year. One has to do with conflict of interest in the setting of executive compensation. Some companies do not follow the Toronto Stock Exchange guidelines calling for a board compensation committee to be made up entirely of independent directors. A shareholder proposal is currently going forward to a company in Canada where family members sit on the committee considering the compensation of the CEO. Shareholders consider that inappropriate.
Vendor standards in the retail sector would be another example. Shareholder proposals are going forward to companies this year, asking that the companies report on vendor standards to ensure that there is no risk of damage to the company's reputation due to the presence of sweatshops in their supply chain.
Many other examples exist, I am sure. If you have specific areas of interest, I could respond.
Ms Hebb: One of the large institutional members of the SIO, which is the mutual fund wing of the credit union system, are embarking on greater shareholder action in addition to their activities. Previously, they used only negative and positive screens for their investment. They are now intending to engage in shareholder action. One of the shareholder actions is regarding the use of sweatshops on the retail side.
Senator Tkachuk: Following up on that point, I support the idea of more democratic legislation to allow corporations to become more responsible to the shareholders. In your organizations, for example, in the churches, and in the trade unions, do you feel that your organizations are as democratic as you are trying to make the corporations themselves?
For example, how difficult is it for a union member to refuse to pay union dues? He is forced to do so when he goes to work for a company that is a union shop, for example. How does a union member or a parishioner get on to a national agenda of one of your organizations? Do you think that those institutions are as democratic as what is being proposed here today? Are your organizations more so?
Perhaps you could also talk about political contributions from the union side; how that is decided, and by whom.
Mr. Davis: It is difficult to try to speak on behalf of the entire church constituency. I happen to be a member of the United Church. The democratic process there is so extensive that it is hard to get anything done.
Senator Poulin: You are not a catholic, are you?
Mr. Davis: I am not sure that you can wait until you have everything in order in your own house before you tackle these other issues. All of the organizations in this field must struggle with their own circumstance and their own style of operation. It is a fair question, but it will not hold us back from raising the issues until we have nirvana or perfection in our own organizations.
Senator Tkachuk: I did not think that it would. I just wanted to hear it.
Mr. Soo: Speaking as the resident catholic --
Senator Tkachuk: I am one, also.
Senator Poulin: So am I. You are not alone.
Mr. Soo: Perhaps my own order, the Jesuits, has a certain reputation for military discipline. Yet it is not well known that the highest authoritative body within the Jesuits is the general congregation, which is a parliamentary body elected by every Jesuit throughout the world.
Also, I am not a Roman Catholic, but an Eastern Catholic. Senator Tkachuk may understand the difference there. Within the practice of the Eastern Catholic Church, the Ukrainian Catholic Church, the patriarch never acts, theoretically, without the consent of the Senate of Bishops, and neither does the senate ever act without the patriarch.
There are democratic principles present. Even with respect to questions of doctrine, even if the Pope speaks, there is a question of the receptivity of the doctrine taught by the faithful. It must be accepted everywhere, and have been believed for all time.
That brings us back to the whole question of corporations. Corporations, as you know, were medieval constructs of the churches to be able to pass on one property and institution from one generation to another, especially of celibate bishops. Since then, we have had the creation of corporations that have rights, responsibilities and powers, but not necessarily any moral structure. The entire corporate shareholder responsibility movement is an effort to increase the power and ability of shareholders -- owners of the corporation -- to increase the ability of the corporation that has powers and has rights to also have soul and moral obligations. The effort is to have corporations exercise the moral obligations that are good for business as well as good for the members who are involved. It is good for the nation.
The Chairman: Is it too cynical to think that the biggest hold you have over corporations is simply not to buy their stock?
Mr. Soo: You raised this point last time. We appreciate the idea. However, that is just one way of approaching it. Obviously, if we want squeaky-clean money, perhaps we would not be able to invest anywhere. Social sin pervades all of society.
The question is not which dollar bill is without sin; the question is how can we improve life, improve the business community, improve our investment and improve our economy such that it not only creates more profit but also improves human living and reduces human rights violations. That is part of the increased shareholder responsibility that we are advocating.
The Chairman: I would ask that not everyone answers every question because we are getting into Philosophy 101.
Senator Tkachuk, are you through?
Senator Tkachuk: Yes, although I would have liked to have heard from the unions.
Senator Meighen: I want to add a word to what the chair said earlier about the timeliness of the submissions. It is a great help to get them in advance. SHARE certainly scored well on that account. Thank very much. Your brief was submitted in a very timely fashion. It is a well-prepared brief, as indeed were the others, but I got this one earlier and therefore I had a chance to look at it.
I would like to probe your point about enshrining your proposals in legislation as opposed to regulation. I am not sure that it is as bad as you make out to leave it in regulation. True, regulations could be changed in a way that you would not like. However, that cuts the other way as well. Regulations are easier to change, I submit to you, than legislation. They could be changed in a way that you would like. If a number of proposals, delays and time periods are put into the legislation, it is not as easy to get a piece of legislation changed as it is to get a regulation changed. I am not sure which side of the fence I would come down on if I were in your shoes. I ask that you perhaps reflect on the fact that regulations might serve your purpose better.
I would ask SHARE, showing my ignorance of the terms of those panels under NAFTA, if those provisions that you have in your submission are copied from the NAFTA trade dispute resolution?
Mr. Chapman: That is the model that we used, yes.
Senator Meighen: Two things occur to me as you set out your last two items: In the first place, a decision is binding, but any party can appeal the decision. I do not want to get into a debate about administrative law or access to the courts, but we have a two-stage process here, in effect, notwithstanding that the decision in your submission would be binding. We can always go back to the courts. What is wrong with just leaving it in the hands of the courts?
There may be 30 proposals a year. In a matter of urgency, the courts can hear these things pretty quickly. Any litigator would tell you that filing a matter of urgency is not very expensive and goes through quickly. Are you concerned that the courts are too clogged, or are you thinking that an arbitration panel would be more expert in their assessment of the shareholder proposal that was rejected? In other words, why are you in favour of the arbitration panel?
Mr. Chapman: Our staff lawyer prepared the briefs, and I asked him the same question. I asked that if the decision were binding, how could it also, then, get to go to court? He explained that if the panel were simply advisory, then it would not have the power to force the parties to then go to court if they wished to differ from that resolution. I think that it is clear that the power is binding so that the results of the resolution system would bind the parties, unless they then took it further, to court.
This is modelled also on the U.S. SEC regulations where they do always have the option, if they are not satisfied with the results of the administrative decision, to go to court. We felt that that is a logical right to extend.
Senator Meighen: I hate to say it, but that seems to me to be "binding if necessary, but not necessarily binding."
Mr. Chapman: The experience in the United States is that almost none of them go to court. The experience also is that at the administrative level, over time, they are able to build up a body of interpretation that permits both shareholders and corporations to understand what is meant by the legislation in practice.
Our view would be that this is a simpler, less expensive and less onerous process, and one that increasingly is used to avoid court, or as a prelude to going to court.
Senator Meighen: I am not sure arbitrators sit for what you pay a judge to sit, but that is another question. I take your point.
This question is perhaps somewhat unfair, but on the principle of half a loaf sometimes being better than no loaf, or as desirable in any event, if each of you needed to chose, which, in your view, is the most important proposal that you put forward today that you want to see changed in the legislation?
Mr. Soo: For me, it is the question of arbitration, because our experience is that whenever there is a disagreement, they always raise it to a higher floor.
Mr. Davis: I agree; that, too, would be mine.
Mr. Chapman: Of these proposals, arbitration would be the most significant.
Senator Meighen: I realize that the others are important.
Mr. Chapman: The changes already being made to the act are actually the most significant, and that needs to be acknowledged by all of us.
Senator Meighen: You have been fair in that regard.
Ms Hebb: I would echo that the arbitration process is probably most key of the new proposals, recognizing that there have already been substantial improvements.
Senator Wiebe: My question is for Mr. Davis, and is in regard to arbitration. You are suggesting that more thought be given to setting up an independent tribunal, possibly an ombudsman. How do you envision that that would be paid for? Who would pay for that tribunal: the shareholder, the company, or the government?
Mr. Davis: I am not sure that I have given that a lot of thought, but I would think that such a tribunal or arbitrator would be something that would exist for the common good and for making the process workable; hence it should be at public expense. However, that is not something that those on behalf of whom I am speaking have struggled through. I am offering a personal opinion. It becomes cumbersome if you make some sort of assessment of the corporation and the shareholder. It is not impossible.
It seems to me that this is something that has been before this committee and before Industry Canada for many years. People have been looking at this question and thinking about it. I have a sense that there is enough ability in those who are looking at it to come forward with something that is "do-able."
The Chairman: Why should the public pay for such a process? That is an open licence to hunt.
Senator Meighen: The public already pays for the courts.
Senator Wiebe: I have one other question relating to the same subject. In consideration of the fact that all four of you put down arbitration as the key issue, what is your view on who should pay for it?
Mr. Chapman: The system that we suggested was not one of a standing ombudsman or a standing commission. It was, rather, a list of people who would be called upon when there was a requirement for arbitration. We assume that the costs of that would be minimal. We had not taken up the issue of apportioning costs.
Ms Hebb: Again, the Social Investment Organization has not fully thought through what the mechanism would look like. However, there is a period of time that is known as the "season" for these proposals to come forward -- ahead of the annual meeting period. A list that can be drawn upon is not a permanent, standing arbitration panel for the year.
Mr. Soo: My first thought was that court costs should be apportioned to the loser.
Senator Poulin: Or should they be apportioned to the winner?
Mr. Soo: My big concern is that there would be a level playing field. It has been the churches' experience that when the big corporation is the professional litigator, the very fact of bringing a matter to court is a sufficient threshold bar to sincere, interested shareholders.
Senator Wilson: All of you have asked, or recommended, that the changes should be made in legislation, not regulations. I wonder why you said that, particularly in view of the chairman's statement that changes in regulation would come to this committee each year? Do you feel that you would not have access? The devil is in the detail. Quite frequently, it is the regulations that cause the problem. Why have you come down on that side? Do you feel excluded?
Mr. Soo: We take the point that change can be for the good, as the senator has already raised. It is something that we agree with as well as something that we did not agree with. The agreement is not in question, but rather the question is one of the custodian. Who guards the guardians? The threshold for reaching a resolution is the key to this whole process. If you raise that threshold so high that no one can bring a resolution, the question then is whether all the other exclusions become moot points. If there is a change, we feel that it should come before public scrutiny, rather than depend on discretion as to whether it comes before public scrutiny or not.
Senator Wilson: Thus if the changes came to this committee, do you feel that there would not be public hearings and that you would have no access to the regulations?
Mr. Soo: We would be concerned that special interest groups, who would have more power and resources for advocacy, would have greater advantage.
The Chairman: I also point out that there is a parliamentary committee which reviews every regulation that arises from any bill, at any time. Perhaps you might take a look at that.
Mr. Soo: We are aware of that.
Senator Wilson: My question related to the groups' concerns about their own access to changes in regulations. Do you feel that you would not have access?
Mr. Davis: Given that this is new to us, and perhaps that is partly our own fault, there is a general feeling that legislation receives the scrutiny of elected people, and more due process in which constituencies like ours can be involved. If you are telling us that regulation will be equally as open, then our problem diminishes. We did not read this with the sense that regulation, under normal circumstances, would be as open a process as legislation is.
The Chairman: I understand that all regulations are not only published but that you have 90 days during which to comment on them. That is not a hidden fact. A regulation is not pushed through the back door of Parliament.
Mr. Davis: The organizations that we represent do not have staff who regularly survey the Canada Gazette and other publications to watch for this sort of thing.
The Chairman: Perhaps some members of your organizations could get together and have a look at the Canada Gazette.
Mr. Davis: Who would pay for that?
The Chairman: It seems that that information is crucial, and that you would pay for it. Thank you, this has been a very interesting discussion.
The committee adjourned.