Canadian Corporate Research Articles

Linkages between Corporate Sustainability Reporting and Public Policy

ABSTRACTThe purpose of this paper is to explore the linkages between corporate sustainability reporting and public policy. Interviews with experts from 35 different Canadian corporations that produce a sustainability report were held to address this issue. The interviews specifically focused on exploring how public policy influences sustainability reporting, investigating how corporate sustainability reporting influences public policy, and identifying the barriers to linking sustainability reporting with public policy. The majority of participants explained that their corporation's sustainability reporting has not been heavily influenced by public policy. Even in the relatively few cases where the participating corporations were required to report on sustainability‐related information (i.e. financial and insurance companies), there was little indication that public policy was strongly considered in reporting. Although several participants felt that their sustainability reports could or should influence public policy, there were also indications that corporations are looking for additional guidance on reporting from government. In fact, the lack of direction from government was cited as a key barrier to improved linkages between corporate sustainability reporting and public policy. Future research should focus on addressing this problem, particularly at the individual sector level. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment

Differential Tax, High Growth Rate and the Demise of Income Trusts in Canada

Income trust (flow-through entity) as a business structure became increasingly popular in Canada since 2003. It gave trust companies advantage of shifting their tax burden on to the investor. The investor, on the other hand, received steady and higher than the market rate of return on invested capital and also received capital gains in the form of ‘return of capital’. When some important Canadian corporations were in the process of changing their structure from public corporations to income trusts, the government of Canada in a sudden shift of policy announced that it would remove the tax advantage of income trusts and put them on equal footing with Canadian corporations. This policy announcement in October 2006 was to be effective from 2011 and gave four years to trusts to convert into public corporations. The paper shows that the decision of the government led to their loss of value, mergers and acquisitions, foreign takeovers and their conversion into corporations. By the end of 2011 all the specified flow-through entities (SIFTS) i.e., energy trusts, business trusts and limited partnership trusts became nonexistent. The paper shows that the government policy might be based on disputed assumptions about the amount of tax collection from public corporations and income trusts.

Hedge Fund Activism Canadian Style

The forthright brand of shareholder activism hedge funds deploy became during the 2000s a significant feature of Canadian corporate governance. This paper examines hedge fund activism “Canadian style.” The paper characterizes the interventions hedge funds specialize in as “offensive” shareholder activism and uses a heuristic device, “the market for corporate influence”, to identify the variables that dictate how frequent such activism is likely to be. This analytical structure is used to explain why hedge fund activism has become part of the Canadian corporate governance landscape and has displaced at least partly a Canadian shareholder “culture of passivity.”

The Changing Latitude: Labour-Sponsored Venture Capital Corporations in Canada

The Changing Latitude: Labour-Sponsored Venture Capital Corporations in Canada

Monitoring role of institutional and family block-holders in Canadian corporations

This study examines whether the monitoring provided by family block–holders is more or less effective than the monitoring provided by institutional block–holders. The data consist of compensation and performance data of Canadian corporations. We measure the elasticity and the sensitivity of bonus and equity–based compensation to return on assets and market–adjusted return as measures of performance. We interpret high and significant elasticity and sensitivity to be indicators of effective monitoring. We find that Chief Executive Officer (CEO) bonus compensation is elastic and sensitive to performance in family–controlled firms but not in institution–controlled or widely–held corporations. Equity–based compensation is neither elastic nor sensitive to performance. Overall, the study implies that the monitoring provided by institutional block–holders is ineffective in linking CEO incentive compensation to performance. Thus, shareholders should continue their efforts to improve the mechanisms by which they monitor managers.

Communication of Corporate Social Responsibility Information on Canadian Corporate Webpages

Communication of Corporate Social Responsibility Information on Canadian Corporate Webpages

A Review of Sustainable Supply Chain Management Practices in Canada

There is a growing body of research on the theory and practice of sustainable supply chain management (SSCM). However, relatively little research has been conducted on the extent to which corporations have integrated sustainability principles into the management of their supply chain and the evaluation of supplier performance. The purpose of this article is to explore the extent to which corporate sustainability principles are integrated into supply chain management (SCM) in corporations. Canada is used as a case study in this article. The study included a content analysis of one hundred Canadian corporate sustainable development reports and in-depth interviews with 18 Canadian experts on SSCM. The article highlights the wide array of ways in which Canadian corporations address SSCM issues. Amongst other topics, issues associated with supply chain governance, standards for SSCM, collaboration with suppliers, performance measurement, and accountability within the supply chain are explored. The findings reveal that there are many challenges in integrating sustainability into SCM. These challenges shed light on possible future directions for research in SSCM. This article underlines the need for research that reflects the interconnected nature of the economic, environmental, and social dimensions of sustainability, particularly as it relates to measuring supplier performance on sustainability initiatives.

Pay for Value: Cutting the Gordian Knot of Executive Compensation

Executive compensation has moved through different phases over the last 70 years. From a base salary with a modest bonus added on, compensation skyrocketed after the mid-1980s with the practice of large stock options grants Changes in the nature of ownership and governance of publicly listed corporations coincided with this revolution in compensation.For a period of time, the compensation of Canadian CEOs was but a fraction of their American counterparts. However, the pay of chief executive officers at large Canadian corporations has increased substantially over the years 1998 to 2010, achieving virtual parity with American CEOs by the end of that period.At the same time, the compensation of CEOs moved up and away from that of the other senior executives at the same company. As well, the relationship of Canadian CEOs’ compensation to the average salary of Canadian private-sector employees jumped from 60 times in 1998 to some 150 times in 2010.The reasons for this much increased compensation are multiple and complex and the various interested parties have very different perspectives on the phenomenon. This policy paper describes how investors, board members, corporate executives and society at large have come to view the issue of setting a fair and appropriate compensation for company executives.As recommended and urged by investors, some governance specialists and government agencies, a large portion of these pay packages is deemed to be “at risk”, meaning that their actual pay is subject to stock price variations and some financial measures of performance. Some (mild) form of claw-back in case of reversal of performance is now built into many compensation programs.The form of executive compensation has become largely standardized and its level is established on the basis of selected “comparable” companies, deemed to act as a basis to appreciate the market value of a corporation’s executives.This paper is critical of most of these bits of conventional wisdom and makes some specific recommendations for the setting of executive compensation.

Corporate sustainability ratings: an investigation into how corporations use the Dow Jones Sustainability Index

Abstract The purpose of this paper is to explore the use of the Dow Jones Sustainability Index (DJSI), with an emphasis on Canadian corporations. The paper provides insight into the use of the DJSI in several areas, including the use of its logo, the steps taken by corporations to achieve initial acceptance to the index, and the steps corporations take to maintain their inclusion in the DJSI. A content analysis of publicly available information from 24 Canadian corporations listed in the DJSI North America (DJSINA) showed that less than half of those sampled used the DJSI logo in their sustainability reports or on their websites. The majority of the published references to the DJSI were in highlighting corporate achievements or in providing background information on the index. A survey of 10 experts from the Canadian corporations listed in the DJSINA revealed a wide range of strategies for gaining and maintaining inclusion in the index, particularly involving a large number of internal stakeholders in responding to data requests and working with third parties. Several suggestions for improving the DJSI were also provided, including streamlining the questionnaire, improving coordination among sustainability ratings agencies, and enhancing transparency.

Capital Structure Decisions: Insights from Private Firms

A large body of empirical literature shows that firm size, profitability, tangibility and growth opportunities help explain cross-sectional differences in leverage ratios. Due to data limitations, little attention has been given to determinants of leverage for private firms. Using a new data set of the whole population of 560,256 Canadian corporate firms, we fill this gap by studying leverage choices of both private and public firms. We find that leverage ratios are lower for public firms, which indicates that access to the public equity market provides a substitute for debt in the firms financing choice. The leverage difference is almost entirely driven by higher short-term debt rather than long-term debt for private firms. We find that under poor macroeconomic conditions private firms have lower long- term and higher short-term leverage than public firms. However, when economic conditions are good both short and long-term leverage are higher for private firms than for public firms. Higher economic uncertainty associates with lower short- and long-term leverage for private firms but higher leverage for public firms. These results support the hypothesis that firms with larger information asymmetries rely on short-term debt financing. Economic conditions play a crucial role in the maturity structure of debt financing for private firms which are precisely the ones subject to greater information asymmetries.

The effect of the financial crisis on enterprise risk management disclosures

The effect of the financial crisis on enterprise risk management (ERM) disclosures was examined through a content analysis of the 2007 and 2008 annual reports of Canadian corporations listed on the S&P TSX composite index. Fourteen types of risk were tracked and categorised by level of risk exposure, risk consequence and risk management disclosures. The total number of risk disclosures increased by 3.6% from 2007 to 2008. Changes in the disclosed levels of risk increased even less. While the levels of risk exposure increased the most for credit risk, only economic and credit risks showed more than minor increases in the disclosure of risk consequences. Overall, the 2008 financial crisis has not had a major impact on risk disclosures by non-financial Canadian corporations.

Persistence of Canadian Corporate and Government Index Yields and Yield Spreads

Persistence of Canadian Corporate and Government Index Yields and Yield Spreads

Capital Budgeting Use In Canada: Sophistication And Risk Attributes

This study uses a sample of 80 of the 1989 financial Posts Top 500 Canadian Corporations to test for correlation between the selection of capital budgeting techniques and three variables measuring the degree of environmental uncertainty: (1) firms systematic risk (i.e., firms beta), (2) industrys systematic risk (i.e., industry beta), and (3) managements self assessment of its corporate risk.

The Stakeholder Principle, Corporate Governance and Theory - Evidence from the Field and the Path Onward

This article provides an overview of the development of the stakeholder idea in corporate governance, and presents the results from a survey of the American, British and Canadian corporations included in the Fortune 500 Global Corporations (2009) for their adoption of the stakeholder principle. The survey finds near-unanimous acceptance of the stakeholder vision. 97 percent of the US, UK, and Canadian companies included in the survey acknowledge the stakeholder principle in some form. The trend of adoption of the stakeholder model is unmistakable, and this has significant implications for corporate theory. The article also examines how the emerging ideas about stakeholders and the recognition of their interests in law can fit into corporate theory. For doing so, it applies the tools of a nascent school of legal theory - namely, new legal realism. The article argues for a clear articulation of the conceptual underpinning of business corporations and resolving some inconsistencies in the current framework.

Transnational Class Formation? Globalization and the Canadian Corporate Network

The issue of transnational class formation has figured centrally in recent debates on globalization. These debates revolve around the question of whether or not new patterns of cross-border trade and investment have established global circuits of capital out of which a transnational capitalist class has emerged. This paper takes up the notion of transnational class formation at the point of corporate directorship interlocks. Using Canada as a case study, it maps the changing network of directorship interlocks between leading firms in Canada and the world economy. In particular, the paper examines the role of transnational corporations (TNCs) in the Canadian corporate network; the resilience of a national corporate community; and new patterns of cross-border interlocking amongst transnational firms. Through this empirical mapping, the paper finds a definite link between investment and interlocking shaping the social space of the global corporate elite. Corporations with a transnational base of accumulation tend to participate in transnational interlocking. While national corporate communities have not been transcended, transnational firms increasingly predominate within them, articulating national with transnational elite segments. This new network of firms reconstitutes the corporate power bloc and forms a nascent transnational capitalist class.

Being Canada's national citizen: difference and the economics of multicultural nationalism

This paper examines the ambivalent positioning of difference in western multicultural nation-states in the neoliberal moment. It does so by analyzing the multiple and contradictory ways that the figure of Governor General Adrienne Clarkson, a Chinese Canadian woman, was utilized in the service of Canadian nation-building. Much heralded as the first racialized minority (and second woman) to be appointed to the highest public position in the land, Clarkson was chosen to represent and define the Canadian nation to itself and to the international community because of, and not in spite of, her difference. Drawing on media and government texts, this paper highlights the narratives that shaped the meaning of Clarkson's appointment as well as the narratives that were negated. The author emphasizes how gender, in addition to class, race and ethnicity, was central to Clarkson's appointment by analyzing how the disassociation between women and Asian capital was key to her ability to speak for us as one of us. In addition to Canadian government and corporate elite courting of Asian capital, gender was also key to the other narratives that could not be spoken, Clarkson's interracial marriage and discourses of miscegenation.

Stakeholders in the Canada Business Corporations Act: An Appraisal and Some Proposals

The stakeholder vision has emerged as an influential stream in corporate governance. In the English-speaking world, Canada was the pioneer in introducing a regulatory stakeholder regime. This article examines the Canada Business Corporations Act (CBCA) for its concern for non-shareholder groups, in particular, their inclusion in the remedies provided in the statute and the experience with it. After making a critical review of the CBCA stakeholder regime, the article proposes specialized agencies to deal with intra-corporate or stakeholder disputes in business corporations. The stakeholder remedy in the CBCA is egalitarian. It posits a doctrinal equality between shareholders and other constituencies. An issue with the stakeholder remedy the CBCA promotes and the stakeholder empowerment it attempts in this process is their ex post principle. It is about intervention after conflicts have arisen between corporate actors. The framework is derived, essentially, from private law ideas about disputes and resolving them through litigation. As a result, the stakeholder regime in the CBCA does not sufficiently adopt the institutional approach to lawmaking. Yet the CBCA regime is a positive beginning, which can graduate towards a more wholesome model, one with the stakeholder vision as an informing principle of governance.The oppression remedy in the CBCA is also available to non-shareholder groups. Yet, the article argues, it has not been applied in an effective manner to resolve disputes raised by corporate stakeholders. The business judgment rule that courts apply to refrain from inquiring into corporate disputes is an important factor in undermining the statutory remedy available to non-shareholder groups. To overcome some of the difficulties posed by the business judgment rule and courts' lack of business expertise, the article proposes the creation of specialized, interdisciplinary panels to inquire into stakeholder disputes. This can help in making the stakeholder vision in Canadian corporate law more real and robust.

Changes and Trends in Canadian Corporate Ethics Programs

This article reports and analyzes the findings of comprehensive surveys on ethics programs in Canada's largest corporations in 2002 and 2006. A usable response rate of 25 percent was obtained in the 2002 and 21.8 percent in the 2006 survey of the country's 500 largest corporations as identified by the National Post Business Magazine, which annually ranks Canadian corporations according to revenue. It was found that ethics programs have taken root in Canada's largest organizations and are now of strategic importance to these organizations. In 2006, a statistically significant increase was observed in the proportion of boards of directors involved in the establishment of codes of ethics. In a reflection of technological developments, a significant increase in the use of electronic communication of these codes was also observed in 2006. Almost all (96 percent in 2002 and 98 percent in 2006) of the respondents indicated that there were consequences for breaching their codes. In other aspects of ethics programs, it was found that the proportion of corporations having standing ethics committees rose significantly as did the prevalence of ethics audits and support for whistleblowers and whistleblowing. These measures are having a positive effect as 83.5 percent of respondents in 2006, up from 68 percent in 2002 (P≤ 0.01), saw their firms’ ethics codes improving profit. Overall, 89.7 percent of respondents in 2002 and 91.9 percent in 2006 saw their codes as having a positive impact on organizational policies.

On the Pricing of Performance Sensitive Debt

Performance sensitive debt (PSD) contracts link the paid interest rate to a measure of firm performance. PSD features are included in approximately 20% of all US and Canadian corporate loans, cf. Thompson Reuter’s Dealscan database. Based on a standard no-arbitrage theory and observed contractual specifications we compare the theoretical market value of PSD contracts with the loan amounts at the time of issue. We find that 84 % of the contracts are within 15% of the face value of the debt contracts. High volatility contracts (> 40%) cause the larger underpricing.

Restructuring of Insolvent Corporations in Canada

Restructuring of Insolvent Corporations in Canada