Corporate Governance and The Internet - Will The Internet Play An Increasing Role In Corporate Governance?
I received an e-mail a few days ago from a Stock Research Portal subscriber who obviously had spent time researching my work history and reading my daily commentaries. His e-mail dealt with the proposed Plan of Arrangement (the 'Plan') announced March 14 pursuant to which Century Mining Corp. ('Century') shareholders would exchange their shares for shares of White Tiger Gold Ltd. ('White Tiger'). About the Plan, he said: "We as minor shareholders need some credible press on this and since I have been reading your writing for a couple years, I trust you to take a real look past the surface, at the truth. Ian, its not right, its not fair and I am trying to do something about it, will you help".
Let me say from the outset:
- I am not, and have never been, a shareholder in either White Tiger or Century, have done no review or analysis with respect to either company, and have no opinion or view on the appropriateness of either the Plan or the actions being taken by some of the Century shareholders as described herein;
- in my business valuation consulting practice I have been retained many times as an expert in public and private company shareholder litigation matters involving what are referred to in Canada and a number of other jurisdictions as 'appraisal' and 'oppression' remedies. In simple terms, in Canada this means that if a shareholder is legally entitled to exercise either remedy he/she/it can petition the Canadian Courts to set the 'fair value' of their shares, and order the company to pay that amount to the shareholder; and,
- I have always been, and continue to be, a strong proponent of good Corporate Governance practice, and fair dealings between and among companies and their shareholders.
Shortly after receiving his e-mail, I spoke directly with our Subscriber. Because he was a Subscriber I was prepared to discuss with him, based on my experience in appraisal and oppression litigation, overview conceptual issues based on my experience. To that end I suggested one thing he could do was attempt to organize like-minded Century shareholders in order to make a combined representation to the Century Board, or to any meeting called to vote on the Plan. Much to my surprise he directed me to a website, CenturyMiningBlog, which after March 14 has been used by Century shareholders unhappy with its terms as a form of 'depositary' for their shares. If you visit that Blog you will see under the tab 'Table of Dissenting Shareholders' that to date, approximately 245 Century shareholders collectively representing 79.8 million (18.8%) of the approximate 423.7 million outstanding Century common shares, purportedly have added their shares to the Dissenting Shareholders Table found on the Blog. What success, or lack thereof, these (and other Century shareholders who subsequently may join them) will have remains to be seen. I find this process interesting, and will follow it closely until the Plan:
- is amended to the satisfaction of the so-called 'Dissenting Shareholders' (which technically I think they aren't until they vote against the transaction, and then complete the proper legal declarations); or,
- is voted down.
What leaps out at me, in complete isolation from the Plan of Arrangement, is the potential power of the Internet as a vehicle that may be able to be used by:
- Company Boards and Managements to improve communications with their shareholder bases. For background, this is not a new idea. On February 25, 2008 the U.S. Securities and Exchange Commission issued a Final Rule that addresses what it terms Electronic Shareholder Forums; and,
- public company shareholders to promote 'best practice' Corporate Governance on the part of the companies they elect to invest in.
From the point of view of company shareholders, it seems to me they could use the Internet to band together through a blog, or otherwise, in order to make representations to their company Boards and Managements to, for example:
- voice objective suggestions to, and communicate constructively with, them;
- question the Board's management remuneration and share options policies and practices if thought by shareholders to be materially unreasonable;
- question what appear to be unusual or untimely trades in a company's shares by insiders; or,
- question a proposed share (be it a purchase, sale, or merger) transaction.
That said, I think that for the time being at least with respect to all but the last one, these suggestions likely are more theoretical than they are practical. As a practical matter in today's environment it strikes me that in most instances where subjectivity is brought to bear by Boards in their decision making (for example with respect to management remuneration and share options) a shareholder who doesn't approve of a company's policies and practice is likely better off to simply 'vote with his/her/its feet' (i.e. sell their shares) and move on.
At the end of the day I can't imagine any company director, if asked 'whether he or she was on the side of good Corporate Governance', would say that they were not. Hence any company Board member or executive ought to be prepared to carefully consider any properly formulated shareholder views, suggestions and complaints. The trick, of course, is to find a way to ensure that shareholders do not bring poorly thought out, foolish, or misguided commentary to their Boards and Managements. Corporate Governance and responsibility cuts both ways. Just as Boards and Managements have an obligation to be responsible to their shareholders, shareholders likewise have an obligation to bring responsible points of view to their Boards and Managements. All that said, in the end the shareholders are the owners of a company, and companies spend a great deal of time and money encouraging shareholders to invest in their respective enterprises. In the end, one ought to expect a Board and Management to listen carefully to, and act responsibility on, informed shareholder suggestions and criticisms.
Notwithstanding the issue of theory versus practice, it seems to me the Internet may, over time, prove to be a meaningful vehicle for sensible, 'within the law', activist shareholders to make their views known to their Boards and Management as a contribution to good Corporate Governance.
In any event, if you are an equity shareholder in any public company, you might out of interest want to take the time to visit the CenturyMiningBlog and see how one shareholder activist group is currently utilizing the Internet.