Steps towards enshrining “Stakeholder Capitalism” in law

In late 2018, I met with a number of federal government officials to discuss legislative and policy options to protect workers’ retirement savings in light of recent high-profile insolvencies.

SHARE was proposing measures to extend clawback provisions to allow the recovery of dividends, executive compensation and other extraordinary payments made while a company has underfunded its pension obligations, and we urged the government to establish early-warning signals around pension underfunding that would help investors and lenders identify problems before they became dangerous for retirees and workers.

We asked that the legal duties of corporate directors be clarified in legislation to make clear that directors must consider the interests of a broad range of stakeholders – including the workforce, retirees and the environment – and not just the interests of shareholders. That wasn’t a new idea in Canadian law – a broader duty for corporate directors was already recognized in the famous 2008 BCE Inc. case by the Supreme Court – but it had not yet been enshrined in corporate statutes.

In the 2019 federal budget, some of these measures were adopted through amendments to the Canada Business Corporations Act, along with some other long-standing SHARE proposals such as making “say on pay” votes mandatory for issuers in Canada.

Since that time, some of those new legislative requirements were held back by the lack of implementing regulations, which were delayed as a federal election, and then a global pandemic, made it difficult to carry out appropriate consultations.

Early this year, however, the federal government finally asked for commentary on a set of proposed regulations to give effect to the new legislation, and SHARE has once again offered comments intended to support a proper balance between the rights of workers, retirees, management and shareholders so that no one’s success comes at the expense of others.

We’re asking the government to broaden the terms of clawback policies that allow boards to take back compensation given to CEOs when they engage in misconduct – and not just misconduct that leads to financial restatements. We’re asking them to require disclosure of policies on deferring portions of incentive compensation to make it easier to collect clawbacks when they’re required. We’re asking them to require companies to disclose the ways non-GAAP performance metrics distort executive pay (something we’ll be sure to take up as shareholders when those promised “say on pay” votes arise). And we’re asking for disclosure of key human capital metrics so that investors can know more about whether a company is truly respecting other stakeholders like workers and retirees.

In addition to SHARE’s letter, we’ve supported a submission by the Investors for Opioid and Pharmaceutical Accountability (IOPA) coalition, a global group of institutional investors with more than US$4.4 trillion in assets under management (including SHARE) with particular experience in promoting accountable corporate governance – especially related to clawbacks, incentive deferrals, and non-GAAP metrics.

We hope that these joint submissions will help Canada develop a new framework for corporate governance that gives real meaning to the broader fiduciary duties enshrined in that 2019 law, requiring corporate directors to take workers, retirees and the environment into account in their decision-making.

Kevin Thomas
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Kevin Thomas

Kevin Thomas is the Chief Executive Officer of the Shareholder Association for Research and Education. Kevin joined SHARE in 2013 as a Senior Analyst on social issues and became Executive Director in 2018.

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