An Indeterminate Theory of Canadian Corporate Law
Claudio R. Rojas
Stalktree Inc.; European Corporate Governance Institute (ECGI)
University of British Columbia Law Review, Vol 47:1, 2014
The Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders, a case dealing with the fiduciary duty of directors within the context of an oppression remedy claim, articulated that corporations are to act as “good corporate citizens”. The Court’s extensive reasons raise important questions as to whether directors owe a duty to non-shareholders and the extent to which such a duty undermines the traditional shareholder primacy view of the corporation. In a key passage summarizing the trial judge’s reasons, “fundamental differences” between shareholders and debt security holders were recognized as affecting the “content” of the fiduciary duty. This article, illustrating a significant evolution in the jurisprudence on the fiduciary duty of directors, challenges the applicability of both shareholder primacy and stakeholder theory to Canadian corporate law. In rejecting these theories, the Supreme Court has provided boards with a framework that resembles Warren Buffett’s philosophy of corporate governance.
Regrettably, existing literature on BCE is overwhelmingly comprised of scathing criticism. In response, this article employs a distinct conceptual 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 BCE rejects stakeholder theory, have significant and timely implications. For example, securities regulators are considering proposals to abandon the shareholder-centric approach to defensive tactics in hostile takeover bids under National Policy 62-202. Such proposals, rooted in stakeholder theory interpretations of BCE and influenced by the law in Delaware, overlook differences in ownership structure between US and Canadian firms. This article suggests these distinctions combined with the Court's rejection of stakeholder theory render the director-centric approach in Delaware undesirable in Canada.
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, M14Accepted Paper Series
Date posted: February 21, 2014 ; Last revised: March 29, 2014
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