Perspective
The New Reality
FROM:
MAY-JUN 2004 ISSUE | BY JOHN NAGY, FCGA — CHAIR, CGA-CANADA
There is a new reality at work in the financial marketplace today. It's called investor activism, and it's a trend that's likely here to stay. In this
post-Enron world, nothing seems quite the same any more, and the relationship that both individual investors and institutional investors have with the companies they invest in has probably changed forever.
This new trend is something of a double-edged sword. Unhappy investors can wield tremendous clout if they choose to do so. They can be a catalyst for positive change or they can be a "weapon of mass destruction." Today investor activists are able to change a company's business model or change the players in the corporate boardroom, or both. Their power can be wielded at annual general meetings, through new proxy voting strategies and through the media.
These new investor activists come in large and small packages. There are the large institutional investors such as the Ontario Teachers Pension Plan and other similar players who carry a heavy responsibility for the pension investments of their members. There are also smaller investors and individuals who hold large stakes in a particular company and who want to see their shareholder interests put ahead of more narrow internal corporate interests. But big or small, all these groups have one thing in common. They want to see companies well run and operated in an open and transparent manner. They want shareholder value and they want good business practices. And they won't be silenced.
Take the recent high profile events at the Hollinger empire for instance, or the investor-motivated changes which came about at the
Disney Corporation. There, board chair
Michael Eisner was unceremoniously dumped from office through a humiliating
non-confidence vote at the company's annual general meeting. These stunning upsets point to the tremendous power now resting in the hands of this new class of activist investors.
And if we look to the source of all this corporate unrest, it all comes back to those now famous watershed
events — the Enron and WorldCom debacles, where huge companies collapsed overnight, investors lost mega dollars and confidence in the marketplace was shattered as never before.
This new era represents something of a sea change in the corporate world. And the questions we need to be asking are: "Is this a good thing? Can there be too much of a good thing?" Whatever the final answer, one thing is certain. The veil has been lifted from the corporate boardroom and going forward, nothing less than the highest standards of ethical behaviour will do. On this score, it's interesting to note that
The Globe and Mail Report on Business Magazine recently published its first ever company ranking on corporate social responsibility.
This fundamental change in attitude is mirrored in the discussions going forward in the accounting profession, locally, nationally, and internationally. The critical importance of professional codes of conduct, the promotion of good corporate governance, and other contributions to this discussion by our profession should not be underestimated.
In the final analysis, this new trend is a positive development.
A healthy dose of corporate accountability and greater investor involvement will ultimately serve us well, and serve the broader social good at the same time. Today, as never before, we all depend on a healthy, stable, and prosperous
marketplace — one which ultimately depends on trust and confidence.
CGA-Canada is participating in a special project on investor activism, being undertaken by the Public Policy Forum, an
Ottawa-based policy think tank.
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