May 22, 2008
Canada on Shareholder Primacy: Not
A Canadian Court of Appeals, reversing the trial court, has held that debenture holders in the leveraged buyout of Bell Canada have a right to contest to terms of the deal. Canada has a provision found in Commonwealth corporate codes that prevents "oppression" by a board of directors. We do not have the term in our state codes (with the exception of some provisions on oppression as justifying dissolution--and even these provisions usually protect minority owners). Previously the term has not been used to support suits by debenture holders who are concerned about the value of their securities. The case puts on the front burner a long smoldering questions, to whom does the board of directors owe their allegiance. The easy answer has been -- the firm -- but when firm constituencies are at odds, who wins? The traditional Anglo-American rule, the shareholders. The left has constantly attacked the rule and we now have state constituency statutes that purport to modify it (but in fact do not). In any event, the Canadian Supreme Court will get the case and it will be closely watched. I am one who believes the shareholder primacy principle is an important driver of economic success in our business community and so believe that much is at stake here for Canada.
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