Although the above data suggests that dual class capital is more prevalent among the larger companies, the TSE S&P 60 group of companies includes only nine (15%) with dual class capital structures. The bulge seems to be among the mid-cap companies.

Our study shows that the pace of reduction in the number of medium to large public Canadian corporations under the influence of a single controlling shareholder has slowed to the point where the trend is not obvious any more. This is primarily due to an increase in the number of dual class capital companies found among the TSE 300 group. If the number of these companies were at 1997 levels, the trend in Canadian corporate ownership to becoming ever more widely-held would still be intact. With more TSE 300 companies controlled through the use of super-voting shares, it could be concluded that in each the last three years control has been maintained over a similar number of TSE 300 companies but the economic interest of these controlling shareholders relative to their voting interest has decreased. This is not a positive trend.

The frustration for those who view negatively the prevalence of these capital structures is that they increasingly appear to be an integral part of our stock indices, and index investors, for the most part, are not actively pushing for increased accountability or corporate governance improvements among the index companies. This continues to be the domain of the active investor and a further rise in index investing could give rise to more companies with unequal voting rights and other poor governance practices in the indices and others being increasingly influenced by remaining active shareholders.

Also of concern is the recent addition and growth in popularity of exchange-traded baskets of stocks that boast extremely low management expenses. Sponsors of recent offerings, for example Barclays Global Investors (iUnits), do not claim to vote proxies for any of the companies beneficially owned by the unit holders.

With the globalization of capital markets and assuming

a continuing increase in foreign investment in Canadian equities, the foreign owner may play an increasing role in governance of Canadian corporations. Although we don’t have supporting evidence in Canada, it may be reasonable to assume, at least for the near term, that many foreign owners of Canadian corporations will not be as active voting Canadian proxies as Canadian managers would. The increase in the foreign property rule will allow large Canadian funds who are generally very active in governance of Canadian corporations to invest more of their money outside Canada, raising the possibility that their current impact on corporate governance in Canada will be diluted over an increasingly global portfolio.
Despite a reduction in the prevalence of companies with a controlling shareholder over the last decade, these factors suggest that over the near future, a shareholder with, for example, a 20% stake could have increased influence over affairs of a Canadian corporation than would currently be the case. The wild card is the retail investor segment who invest with a “home bias” towards Canadian stocks – will these investors become more active in governance?