Jon Feldman at the Goodmans office in downtown Toronto on June 20.Cole Burston/The Globe and Mail
Days after Gildan Activewear Inc. GIL-T shocked the market by announcing it was parting ways with long-time chief executive Glenn Chamandy, one of the company’s largest shareholders, investment firm Browning West, launched an activist campaign to bring him back. A nearly six-month battle, which concluded in May with Mr. Chamandy’s return at Gildan’s annual meeting, was among the most bitter leadership disputes in Canadian corporate history. Jon Feldman, a partner at Goodmans who heads the law firm’s shareholder activism practice, represented Browning West in that fight. In a recent conversation, which has been condensed for clarity, he reflected on the Gildan saga.
As proxy fights go, have you ever worked on something as dramatic as Gildan?
This one stands alone. There’s always high drama with this type of stuff, but in most cases, the parties are able to find a way to get to the negotiating table and work out a settlement. This one was so different because both sides were very determined that their view was right. The other thing that was a little bit unusual is it’s not very typical to go for control of a board. It’s more common, for example, if the investor just wants some board representation. Full control is much harder to do. You have to convince people – in particular ISS [Institutional Shareholder Services] and the Glass Lewises of the world – that you have a business case. It’s a much higher threshold.
When Gildan announced it was replacing Mr. Chamandy with Vince Tyra last December, Browning West immediately called for Mr. Chamandy’s reinstatement. But given the board had taken this dramatic step, was that actually a possibility?
Realistically, probably not. On the other hand, it wasn’t just Browning West. Other shareholders came out completely independently. The fact that you had so many shareholders publicly announcing their opposition to this – that was what was really unprecedented. The facts were so unique and strange that we thought the board would be crazy to fight this.
So, after you’re first retained, what was the strategy?
You’re always having back-channel discussions, so we reached out to their counsel and right at the outset, they basically said, “We have these red lines.” So it felt, at least in the short term, that there was no way to get to a quick answer.
So you’re both digging in. What happened at that point?
We didn’t know we were going to have to take it all the way to the annual meeting. We wanted a special meeting to be held in March. We said, “This is urgent. Every month that this is happening, shareholders are losing money.” Gildan basically told us they were going to delay, because they wanted to give the world a chance to see what Vince could do. You know, I’ve dealt with these guys [opposing counsel] so many times, we know their playbook. We knew there was likely going to be some litigation, there’s going to be a regulatory thing, a board refreshment, they may even try to do a sale. A lot of times, the other side will try to intimidate you by forcing you to spend money. This time, our guys were like, “It’s not going to work on us.”
Are there lessons for other proxy fights from what happened with Gildan?
Engage with shareholders. The board has to do what they believe is in the best interest of the company, and maybe it’s not always popular, but it is foolish to take actions as dramatic as that one without having any sense of where the shareholder base sits. And if you believe that your decisions are right, then you have to do a much better job communicating your reasons so that people understand your thinking.
To wrap up, can we talk generally about proxy fights? Are we seeing more of them? Why?
Number one, I would say that activism as an asset class is growing. Number two, there’s been a lot of poor performances in public markets these days, and so the activists are constantly running their screens looking at potential opportunities. The third thing is, structurally, Canada is very shareholder-friendly. The one that the Americans love the most is the ability – with 5 per cent of shares – to be able to requisition a meeting. Fourth is that a lot of the defence tactics that have been used are starting to get shut down. I think the most recent example involved Northwest Copper Corp., where it was clear that the board was using tactics to try to thwart shareholder rights. The B.C. Securities Commission just shut it down.
So what does this mean for boards?
It makes boards think more carefully about what they have to do to be less of a target. Those that are smart, that engage and that do the right things financially should be okay. But there’s a lot that don’t, and many people just leave it until it’s too late.