NUPGE, SEIU target FirstService over corporate governance

"Corporations don't need to be democracies," says Chairman Peter F. Cohen in rejecting demands to
end dual-class share voting.

Toronto - The National Union of Public and General Employees (NUPGE) and the Service Employees International Union (SEIU) took their fight to clean up corporate governance — by ending dual-class share voting — to this week's annual meeting of shareholders of FirstService Corp. (Nasdaq: FSRV) (TSE: FSV.SV).

Predictably, the company's reaction was hostile. Dual-class shares allow top corporate executives to control a company even though they own only a small percentage of the total number of a company's outstanding shares.

Peter F. Cohen, chairman of the FirstService Corp. board of directors, haughtily dismissed a proposal from the two unions to do away with the company's dual-class share structure. Not mincing his words or paying much attention to corporate public relations niceties, Cohen bluntly told those attending the meeting, "Corporations don't need to be democracies."

A proposal from NUPGE and SEIU urged the FirstService Corp. board of directors to take steps to eliminate the firm's dual-class share structure.

9.1 % of shares equals 50.4% of total voting power

FirstService Corp. has issued Subordinate Voting Shares, which are entitled to one vote per share, and Multiple Voting Shares, which are entitled to 20 votes per share.

As a result of this dual-class structure, FirstService CEO Jay S. Hennick controls approximately 50.4% of the total voting power of the company while owning only 9.1% of outstanding shares, according to FirstService's 2005 Management Information Circular.

In other words, Hennick has more than five times the voting power than he would under a one-share/one-vote arrangement.

During the meeting, Larry Brown, NUPGE's national secretary-treasurer, outlined for shareholders the downside of a dual-class share structure.

"In addition to simply being unfair and undemocratic, dual-class structures entrench the incumbent board of directors and management by preventing shareholders from electing a new board or otherwise affecting the direction of the company," Brown argued.

"This insulation from shareholders and market forces may also allow controlling shareholders or groups to consume more private benefits, in the form of compensation, perks or self-dealing," he added.

Conrad Black's black corporate record

Brown pointed out for shareholders that the poster boy for controversial dual-class companies is Hollinger International Inc., noting that its controlling shareholder, former chief executive Conrad Black, is alleged to have "systematically looted the company through abusive self-dealing transactions."

A report by Hollinger's special committee concluded that the dual-class structure "left the controlling shareholder(s) free to violate ethical norms or fiduciary duty standards without serious risk of challenge."

Brown also noted that there is wide-spread agreement among Canadian institutional investors and shareholder advocates, including the Canadian Coalition for Good Governance, a coalition of 45 Canadian institutional investors with approximately $810 billion in assets under management, that dual-class share structures are not consistent with corporate governance best practice.

The union proposal was accepted by investors owning close to 25% of shares in the company.

"We're encouraged by the results of the vote," says Brown. "To get 25% right out of the box is a very good start."

First but not last challenge

This is the first time NUPGE has filed a shareholder resolution in Canada, but Brown was quick to point out it won't be the last.

He said the union will continue its efforts to clean up corporate governance one company at a time. "We look forward to continuing our work with the SEIU and expect to file up to six resolutions at corporate shareholder meetings next year," he added. NUPGE

About NUPGE

The National Union of Public and General Employees (NUPGE) is a family of 14 component unions. Taken together we are the second largest union in Canada. Most of our 340,000 members work to deliver public services of every kind to the citizens of their home provinces, including health care, post-secondary education and community social services. We also have a large and growing number of members who work in the private sector, including the hospitality and brewing industries. Our members participate in pension funds with over $70 billion in assets, some of which are members of the Canadian Coalition for Good Governance.  NUPGE strongly supports sound corporate governance practices and socially responsible investment policies and strategies. NUPGE

Web site: www.nupge.ca

About SEIU

SEIU represents 1.8 million healthcare, building service, and public sector workers, including nearly 100,000 Canadian workers, who participate in pension funds with over $1 trillion (US) in assets.  SEIU is a longtime advocate of responsible corporate governance practices and an active member of the Council of Institutional Investors, an organization of over 130 pension funds whose assets exceed $3 trillion (US).

Web site: www.seiu.org

More information:
• David Beatty urged to resign from dual-class boards
• Report: The Disadvantages of Dual-Class Structures to Public Shareholders pdf
• NUPGE, SEIU issue report on dual-class stock
• Contact: Larry Brown or Mike Luff, NUPGE, 613-228-9800

Web posted by NUPGE: 29 June 2005

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