Page 25 - CCCA 226419 Magazine Fall 2014

{ Feature } closIng the Ballot BoX on empty VotIng By Jim Middlemiss When telus Corporation decided to collapse its dual-class share structure in 2012, little did chief legal off cer Monique Mercier know that her company would become the poster child for f ghting back against hedge funds and the issue of empty voting. hat’s because New York money manager Mason Capi- gain if it could defeat the proposal, at which point the premium tal Management LLC tried to stymie TELUS, leading to a spread between the two shares classes would return and Mason tchess-like litigation battle, which saw the parties in court 13 would prof t on the short sale. That led to much litigation on a times before TELUS prevailed in its efforts to convert its non- number of different issues. voting shares into common shares on a one-to-one basis. At one point, the B.C. Court of Appeal commented on Ma- “It was an incredible f ght,” said Mercier, who is also execu- son’s strategy, noting: tive vice-president, corporate affairs, and corporate secretary of The limited fi nancial stake that Mason has in TELUS is a the company. “The learning curve was very, very steep.” cause for concern. It has placed itself in a position where the The case has become a lightning rod for what academic lit- well being of the company or the value of the company’s shares erature has dubbed “empty voting.” It's a broad term used to de- is of limited concern to it. Instead, its interests lie in widening scribe scenarios where shareholders “decouple” their economic the gap between the prices of non-voting and common shares. interest in a company from the voting power of shares they own The fact that Mason has hedged its position to the extent that or control using hedging strategies. The result is that their vot- it has is cause for concern. There is, at the very least, a strong ing rights exceed their net economic ownership, so they often concern that its interests are not aligned with the economic well don’t care about the impact of a company vote on the majority being of the company. That said, there is no indication that it of shareholders and may actually stand to gain if a company’s is violating any laws, nor is there any statutory provision that plan is thwarted or it overpays when buying another company. would allow the court to intervene on broad equitable grounds. In Mason’s case, it acquired a major position in TELUS af- To the extent that cases of “empty voting” are subverting the ter the company announced the share collapse, and the spread goals of shareholder democracy, the remedy must lie in legisla- between the two share classes, which was historically 5%, nar- tive and regulatory change. rowed to 1%. Mason acquired almost 20% of the common vot- TELUS’ plan of arrangement was later approved at a fair- ing shares and shorted a comparable amount of non-voting ness hearing, and now Mercier and her legal colleagues have shares. Under its arbitrage trading strategy, Mason stood to taken up the torch from the B.C. Court of Appeal ruling, calling Canadian Corporate Counsel assoCiation | CCCa-aCCje.org 25