The More Things Change ...' A 'Back to Basics' Governance Model

• Author: Stephen H. Halperin and Robert Vaux
• Pages: 325-341

'The More Things Change ..."

A

"Back

to

Basics" Governance

Model

Stephen

H.

Halperin

and

Robert

Vaux

Since

the

beginning

of the new

millennium,

there

has

been

a

veritable

explosion

of

legislative,

regulatory,

and

self-regulatory initiatives

throughout North America that

may be

grouped under

the

broad rubric

of

"enhanced corporate governance." Numerous organizations have

been

created with

the

sole

raison

d'etre

of

improving

and

enhancing cor-

porate governance.

The

expansion

of

corporate governance activities

is,

ostensibly,

a

response

to

inadequacies

in

regimes that controlled

the

relationships among corporate directors,

officers,

shareholders,

and

other stakeholders. These shortcomings were responsible,

in

significant

part,

for

some

of the

sensational

corporate scandals that preceded

or

accompanied

the

political

and

institutional reaction

in

favour

of

enhanced corporate governance.

It

is

beyond

the

scope

of

this

brief

paper

to

summarize

or

analyze

corporate

governance initiatives, which have been dealt with

by

others,

and

which

are the

subject matter

of

other

papers

presented

at

these

Spe-

cial

Lectures. Instead, this paper

focuses

on and

updates

an

approach

to

"new

fangled"

corporate governance issues.

It is

grounded

in, and

derived

from,

a

traditional, "back

to

basics" corporate

law

analysis.

We

examine

opposite ends

of the

governance spectrum:

the

perspective

of

corporate directors

and

officers,

on the one

hand,

and

that

of the

puta-

Of

Goodmans LLP.

325

326

STEPHEN

H.

HALPERIN

AND

ROBERT VAUX

tive

primary beneficiaries

of

enhanced

governance,

corporate share-

holders,

on the

other.

In

late 1999,

we

co-authored

a

paper that

addressed,

among other

things,

the

duties

and

obligations

of

Canadian

and

American public

companies'

directors

in the

narrow context

of a

hostile takeover

bid.1

At

the

time

— and in the

context

of

corporate developments that were

then

dominating

the

headlines

—

the

paper

was

quite topical. First,

two

land-

mark

decisions,2

which provided welcome

judicial

guidance,

had

recently

been released

by the

Ontario courts. Second, Canadian judges

and

practitioners were starting

to

embrace notions such

as the

business

judgment rule

and the

duty

to

maximize short-term shareholder value.

Third, corporate lawyers

in

Canada were increasingly looking south

of

the

border

to

find

guidance

on

unsettled

matters

of

corporate

law and

to

anticipate legal

and

market developments.

Although

the

focus

of

that

paper

was

hostile mergers

and

acquisi-

tions (M&A)

activity,

which

was

much more prevalent

at the

time than

it

is

now,

we

concluded that

the

corporate

law

analysis

was

essentially

applicable, with minor variation,

to

directors' duties generally.

We

con-

tinue

to

hold this

belief.

Furthermore,

we

contend that

the

traditional

corporate

law

analysis,

and the

risk

of

officer

and

director liability

embedded therein,

still

contains

the

basis

of an

effective

governance

model.

A

great deal

has

transpired

in the

relatively short

five

years since

we

wrote

that

paper,

including

the

precipitous collapse

of the

long bull market

in

equity securities

that

was

still raging

in

1999;

several spectacular flameouts

of

major

American

and

Canadian cor-

porations;

numerous

scandals

involving corporate

officers

and

directors, invest-

ment banks, mutual

fund

managers,

accounting

firms,

and

other cap-

ital markets participants;

a

rising tide

of

disgruntled shareholders striking back

at

corporations,

with some

significant

success,

in

several high-profile situations;

and

S.H.

Halperin

&

R.A.

Vaux,

"The Role

of the

Target's Directors

in

Unsolicited

Control Transactions"

in

Critical

Issues

in

Mergers

and

Acquisitions:

Domestic

and

International

Views

(Kingston:

Queen's

Annual Business

Law

Symposium,

1999).

CW

Shareholdings

Inc.

v.

WIC

Western

International

Communications

Ltd.

(1998),

160

D.L.R.

(4th)

131

(Ont. Gen. Div.)

[WIC]

and

Maple

Leaf

Foods

Inc.

v.

Schnei-

der

Corp.

(1998),

42

O.R. (3d)

177

(C.A.),

aff'g

40

B.L.R.

(2d)

244

(Ont. Gen.

Div.)

[Schneider].

I

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