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Rojas: An Indeterminate Theory of Canadian Corporate Law

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Claudio R. Rojas (Stalktree Inc.) has posted “An Indeterminate Theory of Canadian Corporate Law”, University of British Columbia Law Review, Vol 47:1, 2014.

The abstract is as follows:

The Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders, a case dealing with the fiduciary duty of directors within the context of an oppression remedy claim, articulated that corporations are to act as “good corporate citizens”. The Court’s extensive reasons raise important questions as to whether directors owe a duty to non-shareholders and the extent to which such a duty undermines the traditional shareholder primacy view of the corporation. In a key passage summarizing the trial judge’s reasons, “fundamental differences” between shareholders and debt security holders were recognized as affecting the “content” of the fiduciary duty. This article, illustrating a significant evolution in the jurisprudence on the fiduciary duty of directors, challenges the applicability of both shareholder primacy and stakeholder theory to Canadian corporate law. In rejecting these theories, the Supreme Court has provided boards with a framework that resembles Warren Buffett’s philosophy of corporate governance.

Regrettably, existing literature on BCE is overwhelmingly comprised of scathing criticism. In response, this article employs a distinct conceptual framework aimed at shedding new light on this vital case, while providing theoretical support to the Court’s decision. The author’s conclusions, particularly that BCE rejects stakeholder theory, have significant and timely implications. For example, securities regulators are currently considering proposals to abandon the shareholder-centric approach to defensive tactics in hostile takeover bids under National Policy 62-202. Such proposals, rooted in stakeholder theory interpretations of BCE and influenced by the law in Delaware, overlook differences in ownership structure between US and Canadian firms. This article suggests these distinctions combined with the Court’s rejection of stakeholder theory render the director-centric approach in Delaware undesirable in Canada.

 

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