Good corporate governance is often highly overrated. I am looking for companies run by smart people. I am looking for companies in good businesses. I am looking for undervalued companies. I am looking for companies in good financial position. I am looking for highly profitable companies.
I desperately want my companies to be run by people who are smart and honest, but if my guys decide to populate the board of directors with their in-laws, cousins, retainers and supplicants, I don't get too agitated. It is results that I seek.
I would like to offer one subjective strongly held observation on the corporate governance issue. I find that there is something inconsistent about the disclosure practices of companies engaged in merger discussions. Much more disclosure is needed.
I have spoken to a handful of Canada's leading takeover lawyers and investment bankers in contemplating my thoughts today. I also recognize that there seems to be much less leakage of insider information than in the past, which I applaud.
The type of disclosure activity that irritates me can be found in the Dofasco directors' circular of Dec. 5, 2005. Dofasco is one of Canada's leading companies and is in the process of being acquired by a foreign company in a highly public tussle.
What I discovered in the directors' circular is that Dofasco had basically been for sale for over a year and that the directors had previously turned down offers from real bona fide buyers on the grounds that the price was not high enough. This was not disclosed at the time.
While I applaud management's shrewdness in turning down the bids which were at much lower prices than today, I still think that public disclosure was appropriate. I am not alone in reading the Dofasco directors' circular and noting all the background details that went into this takeover battle.
Some of Canada's leading reporters and columnists are upset because Dofasco's senior management were granted some lucrative stock options during the past year. In my view the media are missing the bigger picture. I am unhappy about the regulations that surround corporate takeovers. Corporations today tell us much about their activities in the ordinary course of events. Much of it is irrelevant.
How could Dofasco be for sale for months, be engaged in discussions with reputable buyers and this not considered to be worthy of public disclosure? Dofasco had the finest legal and financial counsel and naturally everything that they did was above board. In fact, Dofasco has done a spectacular job for their shareholders in getting the highest price for the shares.
Most observers are very happy, but what about the shareholders who sold a while ago who had no idea that Dofasco was for sale and that there were a variety of interested and qualified buyers? If Dofasco had told the world right up front that they would entertain offers, I submit that we would be at the same spot as we are now.
Naturally there is the point of view which the company and its advisers will put forward, which is that they knew what they were doing all along and all the long-term shareholders were well served. There are all sorts of situations identical to that of Dofasco, where everything was kept confidential to the end. I just disagree with this type of approach.
We do have laws on disclosure activities. We have practices. We have regulators, investment bankers and corporate lawyers who are highly interested. What we don't seem to have is adequate input from shareholders on what should be disclosed and when.
Let me repeat my point of view. Corporations are disclosing all sorts of goodies that they used to keep secret and the world is not falling apart. The world of takeovers also needs further disclosure and by golly I predict that the final endings will be exactly the same.
I have always recognized that the directors' circular (in the face of a takeover) was a document that was worth reading in terms of really meaty background. I was never agitated. There were always many corrupt practices around in our world and I tried to do my best, regardless, by playing it very straight. The reason for today's article is the recognition that this takeover secrecy background is the last bastion of the old boy's network. The world has changed.
Ira Gluskin is president and chief investment officer of Gluskin Sheff + Associates.
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