Shareholder activism resulting in proxy contests and litigation continues to rise in Canada, particularly in the struggling junior mining sector in Vancouver, where shareholders have in many cases become frustrated by market returns, proxy contests and other forms of activism are more common.
For listed companies, the annual general meeting (AGM) provides the opportunity to update shareholders on the progress that took place during the past year and to understand and address any potential concerns. Under a tide of mounting investor scrutiny, which can lead to costly proxy battles, it is particularly important for mining companies to understand the increasing range of legislative, regulatory and governance-related rules that control these meetings. Below are a few key points to remember in seeking to mitigate shareholder disputes, including some defensive measures and responsive strategies.
Know your investors
With some careful advance planning, AGMs are more likely to run smoothly, and the risk of litigation can be reduced. Knowing your shareholders and making sure that you are communicating with them clearly and in a timely manner is crucial to avoiding, or at least anticipating, an ambush.
Your investor relations team should not only be actively engaging with investors throughout the year, but also listening to shareholders to understand and be able to address any potential concerns or emerging issues, including knowing the source of any potential activism in advance.
Good disclosure that clearly and carefully communicates to shareholders information about a company’s business and corporate governance practices between AGMs will also help to ensure there are fewer surprises and disputes. When stock performance has been poor, management should be particularly well-prepared to answer questions related to executive compensation and how it is weighed against shareholders’ returns. One method to assist with this kind of shareholder engagement is by hiring a proxy solicitation firm, which can help gather valuable intelligence on your investors and encourage voter participation.
Be prepared to respond
While preventing disputes from going to court is ideal, companies should be prepared for the potential of litigation. Part of anticipating a lawsuit includes ensuring you properly consider the manner in which you intend to address challenges at the meeting in advance and then keeping detailed records of how you have addressed any matters that have arisen. This can include the attendance of a court reporter or a videographer at the meeting to record it and to produce a transcript of the proceedings.
In addition to the measures outlined above, litigation can be used both as a means of defending against proxy battles and in responding to these battles. It can be used as a tool to ensure that management or the dissidents follow the correct procedures and regulations.
For example, under the Canadian Business Corporations Act, shareholders can bring claims under the oppression provisions of the act, which is a very broad and comprehensive shareholders’ remedy. Generally, shareholders have a reasonable expectation that the meeting would take place with standard rules and protocols as published within the industry. If the shareholders’ expectations are not met, the question for the court is whether it amounts to oppression of the shareholders. This includes any behaviour that is “oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer.” In particular, this remedy is often used to protect the minority shareholders’ rights.
Above are just some of the measures that mining companies can take in preparation for AGMs in an effort to respond to and mitigate any potential proxy battles. This does not comprise an exhaustive summary and should not be taken as legal advice. •
