REVERSING THE DECLINE OF CANADIAN PUBLIC MARKETS
Keywords:canadian business law, tsx, tsxv, ipos, public capital markets, corporate governance
It is the best of times for Canada’s public markets, it is the worst of times for Canada’s public markets. It is an age when markets have been rewarding public companies with the highest valuations seen in generations. It is an age of a rapid decline in Canadian companies opting to go public.
Given that Canada’s reliance on public markets is far higher than that of any other country — double that of the next-highest country — we should be alarmed that fewer and fewer companies are choosing to go public. Companies that stay private are, on average, less successful, less productive, less likely to grow into national champions, and more likely to be sold to foreign buyers. The current decline of public markets may go to the heart of what is arguably the biggest long-term policy issue in the country: our innovation gap and declining relative productivity growth.
There is no shortage of advantages for a company to go public. Public companies grow faster, grow larger, become both more productive and efficient, and have cheaper access to capital. An IPO permits early investors to exit while allowing managers to continue to build the company. What is evidently causing more and more Canadian executives to avoid going public, despite all these advantages, is a regulatory and governance ecosystem that has grown increasingly hostile to and distrustful of corporate leadership.
Executives who consider going public face an environment in which their compensation levels will be high; indeed, pay for senior executives at public companies has grown remarkably in recent years. However, because of increasingly onerous regulatory disclosure requirements, earning those rewards comes at the cost of having their pay disclosed to the public, debated by shareholders and scrutinized by the media.
Companies that go public also face a growing loss of control over their own governance due to pressure to adhere to an ever-evolving list of so-called universal best practices that can run dozens of pages long. These practices exact costs but don’t generally improve results. The result is a dominant one-size-fits-all governance model that does not in fact fit many, or even most companies.
The key factor creating this hostile environment is a massive intrusion by outside forces on the powers traditionally exercised by boards and executives. Corporate governance used to arise from the bargaining and experimentation of the private parties that coalesce around corporations. Now governance is frequently imposed ex post on public companies by third parties with their own agendas. Particularly problematic are third-party commercial proxy advisors, ostensibly representing the interests of institutional shareholders. Their short-term, faddish, complex, and value-harming governance practices diverge dangerously from the interests of long-term flesh-and-blood investors.
The innovations over the past three decades in governance rules were designed to reduce agency costs and improve corporate performance. Those that have proven failures at doing so, and there are several, should be scrapped. Rather than helping Canada’s markets become stronger, public markets have grown substantially weaker, and rather than making Canadian companies better, we now face an environment where companies would rather sell to a foreign buyer and leave the country, than go public here. The repercussions can only be adverse for Canada.
The following is the copyright statement of SPPP.
Copyright © <Author name> <year>. This is an open-access paper distributed under the terms of the Creative Commons license CC BY-NC 4.0, which allows non-commercial sharing and redistribution so long as the original author and publisher are credited.
Publication Copyright and Licensing
The following guidelines and information, provided in six sections, are intended for authors (the “Author”) who are invited to write a paper (the “Work”) for The School of Public Policy Publications (the “Publisher”). The rights and responsibilities conveyed in the SPP Author Agreement will only apply once your paper is accepted for publication. At that point in the publication process, you will be asked to download the form and return a signed copy via e-mail to email@example.com. Please review the below information to ensure agreement with SPPP policies.
Section 1: Author’s Grant of Rights
In consideration of the Publisher’s agreeing to publish the Work in The School of Public Policy Publications, the Author hereby grants to the Publisher the following:
1.1 The irrevocable, royalty-free right to publish, reproduce, publicly display, publicly perform and distribute the Work in perpetuity throughout the world in all means of expression by any method or media now known or hereafter developed, including electronic format;
1.2 The irrevocable, royalty-free right to use the Author’s name and likeness in association with the Work in published form and in advertising and promotional materials related to the Work; and
1.3 The irrevocable, royalty-free right to license others to do any or all of the above.
Section 2: Prior Publication & Publication by Others
2.1 The Author agrees not to publish the Work, or authorize any third party to publish the Work, either in print or electronically, prior to publication of the Work by the Publisher.
2.2 The Author agrees not to publish the Work in any publication outlet which is substantially similar to The School of Public Policy Publications for a period of six (6) months after publication of the Work in The School of Public Policy Publications. Substantially similar is defined as a non-subscription, open-access publication outlet with a similar mandate/vision and intended audience.
2.3 Should the Author publish or distribute the Work elsewhere at any time or in any alternate format, the Author agrees to contact The School of Public Policy Publications to inform them of the subsequent publication.
2.4 Should the Author publish or distribute the Work elsewhere at any time or in any alternate format, the Author agrees to make reasonable efforts to ensure that any such additional publication cites the publication in The School of Public Policy Publications by author, title, and publisher, through a tagline, author bibliography, or similar means. A sample acknowledgement would be:
“Reprinted with permission from the author. Originally published in the The School of Public Policy Publications, http://www.policyschool.ca/publications/.”
Section 3: Editing and Formatting
The Author authorizes the Publisher to edit the Work and to make such modifications as are technically necessary or desirable to exercise the rights in Section 1 in differing media and formats. The Publisher will make no material modification to the content of the Work without the Author’s consent.
Section 4: Author’s Ownership of Copyright and Reservation of Rights
4.1 Nothing in this agreement constitutes a transfer of the copyright by the Author, and the copyright in the Work is subject to the rights granted by this agreement.
4.2 The Author retains the following rights, including but not limited to, the right:
4.2.1 To reproduce and distribute the Work, and to authorize others to reproduce and distribute the Work, in any format;
4.2.2 To post a version of the Work in an institutional repository or the Author’s personal or departmental web page so long as The School of Public Policy Publications is cited as the source of first publication of the Work (see sample acknowledgement above).
4.2.3 To include the Work, in whole or in part, in another work, subject to Section 2 above and provided that The School of Public Policy Publications is cited as the source of first publication of the Work (see sample acknowledgement above).
4.3 The Editors and Editorial Board of The School of Public Policy Publications requires authors to publish the Work under a Creative Commons Attribution-NonCommercial 4.0 International licence (CC BY-NC 4.0). This license allows others to distribute, remix, tweak, and build upon the Work for noncommercial purposes, and ensures the Author is credited for the original creation. This onward licensing is subject to section 2.4 of this agreement, which further ensures that the original publisher is credited.
Section 5: Author’s Warranties and Undertakings
The Author warrants that:
5.1 The Author is the sole author of the Work, or if a joint author, the Author has identified within the Work the other authors, and holds the copyright, either solely or jointly, and has the power to convey the rights granted in this agreement.
5.2 The Work has not previously been published, in whole or in part, except as follows:
5.3 Any textual, graphic or multimedia material included in the Work that is the property or work of another is either explicitly identified by source and cited in the Work or is otherwise identified as follows:
5.4 To the best of the Author’s knowledge, the Work does not contain matter that is obscene, libelous, or defamatory; it does not violate another’s civil right, right of privacy, right of publicity, or other legal right; and it is otherwise not unlawful.
5.5 To the best of the Author’s knowledge, the Work does not infringe the copyright or other intellectual property or literary rights of another.
5.6 The Author will indemnify and hold Publisher harmless against loss, damages, expenses, awards, and judgments arising from breach of any such warranties.
Section 6: The Reuse of Third-Party Works
The Publisher requires that the Author determine, prior to publication, whether it is necessary to obtain permissions from any third party who holds rights with respect to any photographs, illustrations, drawings, text, or any other material (“third-party work”) to be published with or in connection with your Work. Copyright permission will not be necessary if the use is determined to be fair dealing, if the work is in the public domain, or if the rights-holder has granted a Creative Commons or other licence. If either the Author or Publisher determines for any reason that permission is required to include any thirdparty work, the Author will obtain written permission from the rightsholder.