A recent article from IR Magazine, "Governance crucial factor for nine in ten Canadian investors" (the Article), highlights just how much emphasis Canadian investors place on good corporate governance. Canadian companies would be smart to take heed and ensure their corporate governance is in line with accepted good practices. The Article reports that, of the members of the Canadian buy side interviewed as part of the "IR Magazine Investor Perception Study – Canada 2016", 86% cite corporate governance as being a crucial factor when making investment decisions.
While corporate governance is a broad term, the respondents indicate that a good long-term strategy, succession planning and the separation of chairman and CEO roles are among the most important considerations for investors. The Article also states that where a company does not have appropriate measures in place in respect of these considerations, investors may pass on the company entirely, regardless of how good a potential return on investment is.
In addition to investors' views on corporate governance broadly, the study also surveyed respondents to consider whether shareholder activism is generally good or bad for long-term shareholder value. The majority of those surveyed believe that shareholder activism is good for a company's value, while 30% found that it is difficult to determine or varies based on each case and 15% answered that it was unequivocally bad for shareholders.
For those respondents that are of the view that shareholder activism is positive for company value, they point to the fact that activism sends a helpful reminder to management that it is are accountable to shareholders and generally results in positive change. Respondents also indicated that they typically prefer to work with management, rather than against. Of the group that believe activism is simply bad for shareholder value, the most highly cited reason was the potential for short term investments and the kind of problems which can arise as a result of a quick buy and sell.
With proxy season in full swing in Canada, issuers are preparing and releasing management information circulars chock full of corporate governance disclosure. This Article and study highlight the importance of company policies, strategies and independence. Investors are likely to be engaged in a detailed review of this disclosure as it is released through the spring and summer with a view to investment opportunities.
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