Anita I. Anand

The Future of Poison Pills in Canada: Are Takeover Bid Reforms Needed?

Proposed takeover rules will produce winners and losers and need rethinking, according to a new report from the C.D. Howe Institute. In “The Future of Poison Pills in Canada: Are Takeover Bid Reforms Needed?,�? author Anita Anand, a University of Toronto law professor, assesses the rules proposed by the Canadian Securities Administrators (CSA), and recommends a key change: do not implement the proposed 120-day bid period and retain the current 35 day period.

Combating Terrorist Financing: Is Canada's Legal Regime Effective?

When Air India Flight 182 was bombed in 1985, anti–terrorist financing (ATF) law did not exist. In Canada, over the past decade, a broad-based legal regime, consisting of the Criminal Code and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, has developed. This regime covers significant regulatory ground and, generally speaking, accords with private and public international law, including the 1267 regime and the 1999 International Convention on the Suppression of Terrorism Financing. But has this regime been effective in fulfilling its stated objective of preventing the funding of terrorist activity? Unless we know the answer – and we do not – we should not be keen to impose additional legal requirements on private or public actors. Regulation is costly, and ineffective regulation imposes unnecessary costs on the private and public sectors. This issue of effectiveness is increasingly important, given the emphasis on terrorist financing in the international community as exemplified in the intergovernmental Financial Action Task Force and the United Nations Security Council. This article recommends a full-fledged assessment of the efficacy of the current ATF regime. Although the argument for undertaking an evaluation of ATF law was presented to the Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182 by the author, the recommendations in the commission’s final report did not address terrorist financing or the need to assess the efficacy of the current legal regime, except for general recommendations about the role of the National Security Advisor. This is a conspicuous omission, given that ATF law has never been assessed or analysed in terms of its efficacy. The underlying assumption appears to be that the regime works well, but this assumption has not been subject to governmental scrutiny let alone empirical assessment.

Is Systemic Risk Relevant to Securities Regulation

The global financial meltdown has led to a renewed focus on the purposes of securities regulation and on the expansion of these purposes to include considerations of systemic risk; yet the case for such an expansion has been assumed more than argued. This article derives an argument for expansion from developments in the financial markets. Traditionally, mitigating systemic risk has fallen within the realm of financial institution (i.e., prudential) regulation rather than securities law. However, developments in financial markets, including the bundling and sale of securitized products by a variety of complex institutions, are blurring the line between prudential regulation and securities law. This evolution makes systemic risk increasingly relevant to securities regulation. Consequently, the article argues, the securities regulatory regime should expand to encompass mitigating systemic risk.

An Empirical Examination of the Governance Choices of Income Trusts

Publicly traded trusts, known as income trusts, became very popular in recent years in Canada. Income trusts participate in a variety of industries, and do not simply fulfill specialized roles, like that of a special purpose entity in a securitization transaction. Because of the absence of mandatory statutory rules, these trusts have much greater freedom to choose particular governance terms than analogously situated corporations. In this article, we examine the individual declarations of trust (DOTs), which set out the governance regime for the firm, of 187 income trusts that listed on the Toronto Stock Exchange between 1996 and 2005. We compare private choices with respect to 25 mandatory terms found in the Canada Business Corporations Act (CBCA). Examining private choices of income trusts provides insight into the role of corporate law in supplementing/distorting private ordering in the corporate domain. On some dimensions, DOTs mimic the CBCA, but on other important dimensions, particularly remedial ones, they depart significantly from the CBCA. We also examine particular characteristics of the trust (e.g., its jurisdiction, size, industry, whether it listed as an IPO or by way of conversion from a corporation) in order to determine whether certain characteristics are associated with greater resemblance to the governance regime established in the CBCA. We find generally that certain jurisdictions (particularly Quebec) are statistically significantly and negatively correlated with CBCA provisions relative to others (Ontario), while year (2003 and beyond) is statistically significant and positively correlated with CBCA provisions. We find that industry, measured by type and one-digit SIC code, is statistically significant throughout the analysis. Firm size is also significant, though its relationship with CBCA adoption may be positive or negative depending on the particular provision in question.

Governance Complexities in Firms with Dual Class Shares

In a typical public company, shareholders can elect the board, appoint auditors, and approve fundamental changes. Firms with dual class share (DCS) structures alter this balance by inviting the subordinate shareholders to carry the financial risk of investing in the corporation without providing them with the corresponding power to elect the board or exercise other fundamental voting rights. This article fills a conspicuous gap in the scholarly literature by providing empirical data regarding the governance of DCS firms beyond the presence of sunrise and sunset provisions. The summary data suggest that the governance of DCS firms is variable. A large proportion of DCS firms have no majority of the minority voting provisions and no independent chair. By contrast, almost half of the DCS firms have a sunset clause and a majority of independent directors. Finally, just under one-third of DCS firms have change of control provisions over and above existing law. On the basis of this evidence, this article argues against complete private ordering in favor of limited reforms to protect shareholders in DCS firms including mandatory sunset provisions, disclosure relating to shareholder votes, and buy out protections that would address weaknesses inherent in DCS firms.

Diversity on Boards

Examinations of public company board composition have focused on the absence of women but rarely on the absence of visible minorities. Given an increasingly diverse domestic population and increased participation of second-generation immigrants in the professional cadre, we think that board diversity, and in particular visible minority directors (VMDs), warrants academic attention. Accordingly, in this study, we examine both women and VMDs on boards of firms listed on the Toronto Stock Exchange as well as in graduating classes of director education programs in Canada. Our preliminary analysis indicates that visible minorities represent less than 5 percent of the population in both cohorts while the percentage of women is much higher. By contrast, white women comprise 25 percent of DEP graduates and 14 percent of public company boards. We note the much lower representation of visible minorities relative to both white women and white men on corporate boards. We also examine the types of firms that are more likely to place visible minorities and women on their boards, noting that firms in certain industries such as mining and oil and gas have been historically less likely to have diverse boards.

Monitoring to Reduce Agency Costs: Examining the Behavior of Independent and Non-Independent Boards

Berle and Means’ analysis of the corporation, and in particular their view that those in control are not the owners of the corporation, raises questions about actions that corporations take to counter concerns regarding management’s influence. What mechanisms, if any, do corporations implement to balance the distribution of power in the corporation? To address this question, we analyze the board of directors’ propensity to voluntarily adopt recommended corporate governance practices that are designed to enhance their oversight capabilities. Since board independence has been advocated as a way to enhance shareholders’ ability to monitor management, we ask whether firms with an independent board of directors are more likely than firms without an independent board to adopt these practices. Using hand-collected data from Canadian firms listed on both US and Canadian stock exchanges, we find that firms with both types of boards voluntarily adopt governance practices designed to enhance their monitoring capabilities and that independent boards are no more likely to adopt these practices than their non-independent counterparts. One exception to this statement is the formation of board committees. When boards are independent, the audit and compensation committees are far more likely to be staffed exclusively with independent directors. For other voluntary governance practices, the boards propensity to adopt recommended practices is sensitive to the presence of a controlling shareholder.

Examining the Efficacy of Canada’s Anti-terrorist Financing Laws

The underlying assumption in the Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182 appears to be that the anti-terrorist financing (ATF) laws in Canada work well. This assumption has not been subject to empirical assessment. An agency’s ʻbusynessʼ does not imply its efficacy. Instead of presuming the necessity and efficacy of such regulation, a reasonable and well-informed evidence-based evaluation of the efficacy of Canada’s current ATF regime is required. Administrative bodies that regulate ATF laws and the regulatory bodies designed to implement these laws should be required to undertake cost-benefit analysis (CBA). This would limit the burdens placed on the economic activity of private businesses by identifying whether additional ATF laws are necessary. Even if CBA is not used as a determinative decision-making technique, it nonetheless provides regulators with a baseline against which existing laws and regulatory reforms might both be measured.

The Boundaries of Corporate Law and Trust Law: An Analysis of Locking v. McCowan

There is an increasing trend among real estate investment trusts (REITs) to employ corporate law duties in formulating the duties of trustees. We contend that this approach represents a fundamental misunderstanding of the trust versus corporate law. To illustrate this point, we examine the case of Locking v. McCowan, a decision that we claim underscores the conceptual uncertainty regarding the extent to which corporate law applies in the income trust context. We argue that the case takes into account the difference between trusts and corporations in certain aspects of the decision, while, in others, it blurs the distinction between the two.In support of our argument, we note that income trusts lack a separate legal personality and are thus fundamentally different from corporations. The law governing each form therefore is not, and ought not be, identical. To apply corporate law to the interpretation of trustees’ duties fails to acknowledge the absence of a distinct legal entity in the trust context, and the historically fundamental fiduciary relationship between trustees and beneficiaries (i.e., unitholders, in this context). We favour greater clarity in the drafting of the declarations of trust (DOTs) to reflect an understanding that corporate law fiduciary duties should not ground trustees’ duties. Simply importing corporate law fiduciary duties into the DOT undermines the certainty on which DOTs, and thus the income trust market, should operate.

The Value of Governance

Corporate directors sometimes question the usefulness of “good governance”, asking whether implementing measures to improve corporate governance makes a difference. As this article shows, the preponderance of academic research suggests that the quality of governance does indeed matter. A common theme is a statistically significant and positive relationship between corporate governance measures and firm value. For example, Board composition, ownership structure, and the presence of institutional shareholders have all been found to relate to valuation outcomes. The strong implication is that the increasing emphasis by institutional investors such as pension funds on the quality of corporate governance in their investment practices is not misplaced.