At the behest of the shareholders, Glenn Chamandy was reinstated as chief executive last week and the old board has been sent packing.Christinne Muschi/The Canadian Press
Allan C. Hutchinson is a distinguished research professor at Osgoode Hall Law School and the author of The Companies We Keep: Corporate Governance for a Democratic Society.
As the dust begins to settle at Gildan GIL-T, it’s questionable whether shareholder democracy has come out on top.
At the behest of the shareholders, Glenn Chamandy was reinstated as chief executive on May 24 and the old board has been sent packing. To some, the Gildan affair seems destined to become the poster child for shareholder power and its legitimating force. But is it really? The sterner and more challenging test for shareholder democracy is yet to come.
Having benefited from a shareholder revolt, the question is whether Mr. Chamandy and the new board will respect shareholder democracy going forward. Will they continue to put shareholder power first? Or will they revert to executive-and-board business as usual?
Several months ago, founder and CEO Mr. Chamandy was ousted by the board. While it was unclear exactly why, there were hints that he was mailing it in as CEO and the board thought that new blood was needed. A new CEO was hired, and the board began to plot a different course.
Mr. Chamandy did not take this well. Browning West, an activist and sympathetic investor who owned 5 per cent of Gildan’s shares, began a push to restore Mr. Chamandy. With the support of several other institutional investors (with about 35 per cent of the shares in total), Mr. Chamandy was restored to his former position and the board was voted out. A new board has been installed that supports Mr. Chamandy.
All this is a triumph for shareholder democracy to some degree – more than 80 per cent of shareholders ultimately joined the corporate putsch. Mr. Chamandy himself went so far as to say that “justice has prevailed.” But has it?
Shareholder democracy is a more contested idea and practice than often assumed. It suggests a reasonably egalitarian and participatory model that confers legitimacy on corporate action by virtue of its participatory process. However, too often, it is a small band of shareholders who pull the strings.
Although share ownership is now more diffuse and widespread than it once was, it remains a privileged enterprise. Money talks, so the more shares you own, the more talk and the more power you get. While efforts to curb the influence of wealth on political democracy are considered essential, the reliance on plutocratic control remains permissible in the corporate sphere: Economic investment is confused with democratic participation.
There are three characteristics of share ownership in Canada that demand closer attention: a highly concentrated, not widely-held shareholder base; the persistence of dual-voting structures; and an elite network of overlapping directorships. Together, these factors undermine any claim that there is a reasonable degree of democracy at work in Canadian corporations.
Corporate law has tended to put its main efforts into addressing imbalances of power between owners/shareholders and executives/directors. But the real problem with shareholder democracy lies elsewhere.
The problems are less to do with the relationship between shareholders and the companies’ boards, but more to do with the struggle between different groups of investors. With only 5 per cent of Gildan’s shares, Browning West now seems to be in control after it brought back Mr. Chamandy and installed a slate of directors that are to its liking.
With some pressure on Gildan to revisit its labour practices in Central America, the company will need to take seriously the demands of democracy in a substantive spirit as much as formal process. A small minority of shareholders is still committed to exploring and remedying any human-rights failings. This will be a test of Gildan and Mr. Chamandy’s commitment to shareholder democracy.
But the signs are not encouraging. In the last week or so, Mr. Chamandy has said that “I’m going to be CEO until I think the time is right. I would like to be part of the company as long as possible.” I suppose that he feels shareholder democracy is to be considered a good thing if it benefits him, but not so good if it doesn’t.