An Indeterminate Theory of Canadian Corporate Law
Claudio R. Rojas
Hurt Capital Inc.
University of British Columbia Law Review, Vol 47:1, 2014
The Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders (“BCE”) raises important questions as to whether directors owe a duty to non-shareholders. In revisiting apparent contradictions within the BCE decision, this article illustrates a significant evolution in the jurisprudence – challenging the applicability of both shareholder primacy and stakeholder theory. In rejecting these established theories in favour of an organizing ‘principle of fair treatment’, Canadian corporate law reflects elements of Warren Buffett’s novel approach to corporate governance.
Regrettably, existing literature on BCE is overwhelmingly comprised of scathing criticism. In response, this article employs a distinct framework aimed at shedding new light on this vital case, while providing theoretical support to the Court’s decision. The author’s conclusions, particularly that the Supreme Court rejects both shareholder primacy and stakeholder theory, have significant and timely implications.
This article is structured in three parts. Part II analyzes the oppression remedy and its interlink with the fiduciary duty. Part III challenges the team production and principal-agent models. Part IV presents an alternative, the concentrated shareholder model, emphasizing the power differential between concentrated and diffused shareholders. The term discriminatory opportunism is introduced to describe concentrated shareholder rent-seeking, resulting in discriminatory costs, as distinguished from agency costs. Acting as a proxy for long-term shareholder interests, the corporation-as-entity (corporate primacy) view is discussed as an alternative to shareholder primacy, militating against a distinct “discriminatory problem” in controlled jurisdictions. This approach overcomes the challenge of determining the long-term interests of the shareholder collective in liquid capital markets, without necessarily resorting to majoritarianism.
Number of Pages in PDF File: 71
Keywords: Corporate law and governance, securities law, comparative corporate law, economic theory, controlling (concentrated) shareholders, agency (discriminatory) costs, oppression remedy, fiduciary duty, hostile takeovers, corporate primacy, shareholder primacy, stakeholder theory, team production
JEL Classification: G34, G38, K22, N22, D21, D23, G32, M14
Date posted: February 21, 2014 ; Last revised: October 22, 2015
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