Despite a strong start to the year, activist activity in Canada in 2024 tapered to prepandemic levels. This reversion to more historic annual totals follows a notable resurgence of shareholder demands directed at Canadian public companies in 2023, when shareholder engagement reached its highest levels since record-setting 2018.
The passing of another year invites reflection on the trends currently animating the Canadian activism space. Activists remain focused on demands similar to those made in past years, with an increase in M&A and ESG-related demands appearing on the agenda. Largecap Canadian-listed companies—those with market capitalizations over C$1 billion— continue to be disproportionately targeted by U.S. activists, consistent with recent years. Canadian real estate investment trusts (REITs) remained activist targets for another year as the sector finds itself still on the rebound from the impact of the COVID-19 pandemic. Lastly, the phenomenon of "activist swarms" continued in 2024 to beleaguer Canadian issuers for another year.
In this installment of Governance Insights, we examine these trends and offer insights for both issuers and activists. We also review two high-profile 2024 activist campaigns where the investor achieved a decisive victory, in each case resulting in a wholesale change of the board—a feat rarely achieved even once in a single year. As well, we explore the latest developments related to advance notice bylaws, joint acting and company-side defensive tactics.1
The Past Year
The number of publicly listed Canadian companies subject to shareholder demands in 2024 (36 companies) reflects a 25% decline from the same period in 2023 (49 companies). The 2024 figure, however, is not far below the average for the four years preceding the pandemic (41 companies).
This year's decline in activism might be explained by the fact that the S&P/TSX Composite Index gained nearly 8% in 2023, which left fewer vulnerable targets available last year for forward-looking activists planning their campaigns for the 2024 calendar ahead. In fact, the strong resurgence of activism in 2023 was preceded by a year in which the S&P/TSX Composite Index declined by almost 9%, while the near all-time lows in activism in 2022 followed a year in which the S&P/TSX Composite Index gained almost 20%. The pattern of the last few years might suggest that market returns in one year may be an indicator of activity levels for the following year. With outsized market returns of nearly 20% delivered by the S&P/ TSX Composite Index year-to-date in 2024, we will be on the lookout to see whether stronger markets this year will yield fewer campaigns next year.
Figure 1: Number of Canadian Issuers Subject to Activist Demands (2017 – 2024/11/30)
With outsized market returns of nearly 20% delivered by the S&P/ TSX Composite Index year-to-date in 2024, we will be on the lookout to see whether stronger markets this year will yield fewer campaigns next year.
STEADY AIM: ACTIVISTS CONTINUE TO FOCUS ON LARGE-CAP COMPANIES
According to the TMX Current Market Statistics, roughly 12% of issuers listed on the Toronto Stock Exchange and TSX Venture Exchange (excluding exchange-traded products and close-ended funds) have a market capitalization exceeding C$1 billion. Yet, these companies continue to be disproportionately targeted by activists. In 2024, large-cap companies represented 22% of all companies subject to public demands. Figure 1 illustrates the historical number of large-cap and total issuers subject to shareholder demands.
Activist activity targeting large-cap companies continues to be driven by U.S.-based shareholders. Since the beginning of 2022, U.S.-based activists seeking change at Canadian-listed companies were responsible for almost half of all activist demands directed at these larger issuers. This may be explained in part by the fact that U.S.-based professional activists are more likely to target large issuers because their market capitalizations afford activists room to build a meaningful stake without moving the market. Figure 2 illustrates the continuing presence of U.S. activists in Canada.
Figure 2: Breakdown of Activist Jurisdiction (2017 – 2024/11/30)
ZEROED IN: CAMPAIGN FOCUS REMAINS CONSISTENT
The variety of shareholder demands has remained consistent over the past year and a half. Notably, the proportion of demands focussed on M&A and ESG matters has increased during the same period, as seen in Figure 3.
Figure 3: Public Demands to Canadian Issuers Proportionally by Type of Demand (2017 – 2024/11/30)
TWO RESOUNDING VICTORIES FOR ACTIVISTS: THE GILDAN CAMPAIGN FOR STATUS QUO AND THE DYE & DURHAM CONTEST FOR CHANGE
2024 witnessed two high profile campaigns in which the activist claimed a resounding win. In the case of Montreal-headquartered apparel manufacturer Gildan Activewear Inc., following the unexpected departure of the company's CEO amid tensions with the Gildan board, activist investor Browning West commenced a campaign that culminated in the replacement of the entire incumbent board and the reinstatement of the CEO. This campaign saw a chorus of shareholders rallying around Browning West's cause, amplifying the pressure on the incumbent board.
Similarly, later in 2024, the nine-month battle between the Toronto-based legal technology company Dye & Durham Limited and activist investor Engine Capital LP, which aired differences over the company's strategic direction, came to a close with Engine Capital garnering shareholder approval for its slate of directors, prompting the replacement of the entire incumbent board and resignation of the CEO.
Shareholder support for such drastic and wholesale change is generally noteworthy in the Canadian activist space, and the occurrence of two such events in one year is all the more extraordinary. Time will tell if these contests are harbingers of a shift to more decisive shareholder engagement. At the very least, for now they stand as encouraging examples to investors of the outcomes that are possible when shareholders act decisively when the circumstances warrant.
Developments in Advance Notice By-Laws
South of the border, the adoption of universal proxy rules by the U.S. Securities and Exchange Commission (SEC) in September 2022 led many issuers to amend their advance notice by-laws, with some amendments sparking high-profile legal battles. These developments offer lessons for Canadian companies considering adopting or amending an existing advance notice by-law. This section explores the key differences between U.S. and Canadian practices and provides practical guidance for Canadian boards.
THE CANADIAN CONTEXT
In the U.S., advance notice by-laws are often issuerfriendly, imposing onerous disclosure requirements on nominating shareholders, including the completion of lengthy questionnaires. These sometimes byzantine requirements can empower a willing board to reject director nominations on technical grounds, effectively affording the issuer the opportunity to thwart a proxy contest or extract time or leverage for negotiations with the dissident.
In contrast, the corporate and governance regimes regulating the use of advance notice by-laws in Canada generally seek to balance the interests of issuers and nominating shareholders. Canadian case law emphasizes that advance notice by-laws should be used
Time will tell if the resounding activist victories in Gildan and Dye & Durham are harbingers of a shift to more decisive shareholder engagement in Canada.
as a "shield" to protect against ambushes at shareholder meetings, not a "sword" to exclude legitimate director nominations or to buy time for management to counter dissident shareholders. Additionally, because Canadian corporate statutes generally require shareholder ratification for the adoption or amendment of by-laws, the governance community, including Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. (Glass Lewis), as well as the Toronto Stock Exchange (TSX), has established standards for the adoption of advance notice by-laws that temper their use by issuers. As discussed below, the general approach in Canada is that the disclosure requirements imposed on a nominating shareholder should be limited to information that is required in a dissident proxy circular under applicable laws.
REGULATORY INTERVENTION IN CANADA
Recent developments raise questions about whether Canadian securities regulators (as opposed to Canadian courts) will intervene in disputes over advance notice provisions. In Jacob Cohen and YourWay Cannabis Brands Inc. (June 22, 2023), the British Columbia Securities Commission (BCSC) declined to assume jurisdiction in an application challenging an issuer's use of an advance notice provision to reject a dissident's director nominations. The BCSC regarded the matter squarely as one of corporate law and therefore a matter to be decided by a court. Noting that it did "not see any issue of law or policy engaged [...] involving securities or trading securities which would engage the public interest," the BCSC declined to find that its public interest powers afforded the shareholder any remedy under securities law.
Securities regulators in Canada have shown little interest in hearing advance notice disputes, making reliance on the courts all the more critical for enforcing the appropriate use of these provisions. But court proceedings can move slowly, and delays are likely to impede the real-time protection of shareholder rights often required in the context of pending proxy contests, leaving shareholders on the back foot. Securities regulators may be better positioned to respond swiftly, offering expedited processes that align with the urgency of director nominations ahead of shareholder meetings.
GUIDANCE FOR BOARDS ON ADOPTING ADVANCE NOTICE BY-LAWS
Advance notice by-laws are essential tools for public companies, helping to prevent surprise nominations at shareholder meetings and ensuring that all shareholders have sufficient information to make informed decisions. When adopting or amending these by-laws, Canadian boards should consider the following best practices:
- Timing and Process of Adoption: The timing of
adopting or amending by-laws can impact the deference afforded to
the board. It is generally recommended that any adoption or
amendment of an advance notice provision be undertaken proactively
on a "clear day," free of any existing or threatened
proxy contest. Whenever a board is considering adopting or amending
its by-law, it should:
- seek advice from internal and external advisors;
- establish processes to manage conflicts of interest; and
- deliberate thoroughly, documenting its decisionmaking
process.
Securities regulators in Canada have shown little interest in hearing advance notice disputes, making reliance on the courts all the more critical for enforcing the appropriate use of these provisions.
Taking these steps can strengthen the board's position under the business judgment rule, which affords deference to informed and reasonable decisions made in the company's interests.
- Reasonable Notice Periods: Advance notice by-laws should provide shareholders with a reasonable period of time in which nominations may be submitted. ISS and Glass Lewis suggest that a "reasonable" notice period is generally a minimum of 30 days prior to the date of the annual meeting, and recommend a broad time period (e.g., a 35-day window) during which shareholders may submit nominations. Proxy advisors will typically recommend that shareholders vote against advance notice provisions if the minimum notice period is either too close to (e.g., 10 days) or too far in advance of (e.g., 60 days) the annual meeting.
- Reasonable Disclosure Requirements: Disclosure obligations for nominating shareholders should not be more onerous than those for management and board nominees or require disclosure that exceeds what is required in a dissident proxy circular. Imposing additional requirements, such as completing extensive questionnaires that could deter or thwart legitimate nominations may not stand up to judicial scrutiny.
- Strict Requirements and Board Discretion: ISS recommends that advance notice provisions should not require the nominating shareholder to be present at the shareholders' meeting, whether in person or by proxy, and the nominees should not be required to agree, in advance of election, to comply with the director policies and guidelines of the corporation. In addition, ISS requires that boards retain ultimate discretion to waive any or all sections of the advance notice provision.
- Clarity and Simplicity: By-laws should be drafted clearly and concisely.
Footnote
1. Unless otherwise noted, 2024 data referred to in this article is presented as of November 30, 2024.
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