© Copyright 2002 Rogers Media. The following article first appeared in the April 2002 edition of BENEFITS CANADA magazine.

That debate over the $310-million break fee in the Sun Life-Clarica deal has left at least one money manager questioning the Canadian institutional investment community's commitment to corporate governance.

Len Racioppo, president of Jarislowsky, Fraser Ltd. in Toronto, was among the first to speak out against the generous fee. But he was unable to secure enough opposition to the deal among money managers before last month's shareholder vote.

"There were not an awful lot of investment counsellors in the group [that voted against the deal]," says Racioppo. "The bulk of that group was made up of public [pension] funds."

Racioppo's read is simple. "These two financial institutions touch just about every major investment counsellor in Canada," he says. "Everyone is involved one way or another with Sun Life and Clarica. So it made it very difficult for people to come forward."

The $310 million amounted to roughly 4.5% of the deal--rich by most standards. Sun Life negotiated that, plus the right to match any counter-offer that was tabled. That meant if a second Clarica bidder presented an offer, Sun only had to equal it to win.

A break fee is designed to compensate the would-be acquisitor for its efforts should a counter-offer prove successful. Fair enough. But it would take a stubborn naiveté to suggest that a break fee, particularly one this high, doesn't also keep the competition from making a play.

If another firm wanted Clarica, it had to pay more than $310 million extra than Sun offered, just to get into the game. "It was 4.5% that we could have easily obtained," says Racioppo.

Three cheers for Jarislowsky, Fraser. While the dissenters did not carry this vote, they have served notice to boards of directors across the country that break fees are being watched.

There has been a real sense of momentum on the corporate governance issue since the Ontario Teachers' Pension Plan Board raised its hands over executive compensation practices at Nortel Networks. Since then, we've seen helpful changes to the Canada Business Corporations Act. As we reported in October, proxy solicitation restrictions were pulled from the Act to free up communications between shareholders before a vote. The Sun Life-Clarica debate would not have happened otherwise.

This charge is being led less by money managers than by pension fund executives like Claude Lamoureux at Ontario Teachers' right now. But it is being led just the same. There is momentum. Pension plan members--represented by fund executives and money managers--will win the voice they deserve.

And we'll all benefit from that.

The Romanow Commission has released its final report on the future of healthcare in Canada.

For Commissioner Romanow's recommendations, click here.

Click here for Senator Michael Kirby's report, "The Health of Canadians – The Federal Role: Recommendations for Reform."