Bombardier exec steps down amid pressure from pension funds

Amid protests from the public and several institutional investors, Pierre Beaudoin is relinquishing his role as executive chairman at Bombardier Inc.

Beaudoin will remain non-executive chairman of the board of directors. The company’s annual general meeting, during which executives stand for election, takes place later today.

Four major Canadian pension funds, along with the Fonds de solidarité FTQ, have expressed their displeasure with Bombardier’s management and executive compensation practices.

“Institutional investors have stewardship responsibilities with respect to the money they’re managing on behalf of their clients or beneficiaries and, as such, they need to understand what is going on at the companies in which they’re invested in and make informed decisions with respect to the directors whom they’ll be electing,” says Stephen Erlichman, executive director of the Canadian Coalition for Good Governance. He declined to comment on the Bombardier case specifically and was speaking in general terms.

The Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan, British Columbia Investment Management Corp. and Caisse de dépôt et placement du Québec all planned to withhold their votes for Beaudoin and two other director nominees recommended by the company’s board. They’re also expressing their displeasure with Bombardier’s executive compensation proposal, which includes increases of nearly 50 per cent to the top five executives’ compensation.

Last year, the CPPIB and Ontario Teachers’ also opposed Bombardier’s executive pay proposal.

Read: CPPIB and Teachers’ oppose Bombardier executive pay proposal

“The program is structured in a way that does not sufficiently align pay with performance, as it lacks disclosure and contains features that are not in line with best practice,” bcIMC said in a statement on its website. It holds nearly seven million shares in Bombardier, and noted it plans to oppose all non-independent directors.

While the Caisse — Bombardier’s largest shareholder — said it supports chief executive officer Alain Bellemare’s turnaround plan for the company, it believes the original compensation proposal reflects a “lapse of governance” at the board level.

“The board’s recent decisions regarding executive compensation fall short of the necessary standard of stewardship,” said the Caisse, which owns more than 53 million Class A and B shares in Bombardier. It also has a 30 per cent stake in Bombardier’s railway division.

Read: Caisse posts higher second-half results

The Caisse said the board should be chaired by a fully independent director, rather than a member of the family that controls shareholder voting.

Ontario Teachers’ is also pushing for non-family leadership and has concerns about the compensation plan. It doesn’t disclose its holdings in Bombardier since it’s below its $150-million threshold. “We found important information missing to support the compensation decisions of the board and, as a result, find that the resulting linkage between pay and performance is not sufficiently justified,” it stated.

The CPPIB didn’t comment about the reasons for its votes, but spokesperson Dan Madge said in an email they were in line with the pension fund’s published policies. According to filings compiled by Thomson Reuters, the CPPIB had nearly 8.3 million Bombardier shares as of March 31, 2017, less than half a per cent of the voting rights at Bombardier.

Read: AIMCo case shows legal pitfalls of long-term incentive plans

Beaudoin is the son of Claire Bombardier Beaudoin and Laurent Beaudoin, the latter of whom serves as chairman emeritus of the board of directors, according to the Bombardier website. By holding corporations that his wife controls, Laurent Beaudoin holds “a sufficient number of the voting rights attached to all issued and outstanding voting shares of Bombardier to affect materially the control of Bombardier,” the site notes.

Together, Pierre and Laurent Beaudoin hold 13,815,803 Class A shares, which have 10 times the voting power of the Class B shares held by many institutional investors. Other members of the Bombardier family also sit on the board of directors and hold significant amounts of Class A shares.

While the pension funds’ positions aren’t likely to sway the election at today’s annual general meeting, they send a strong message to Bombardier board. “It’s sending a message to the board of a company that the shareholders who are taking this position are very unhappy with what is transpiring,” says Erlichman.

Read: Institutional investors oppose Barrick co-chair compensation

The Canadian Coalition for Good Governance has published guidelines for institutional investors working with dual-class share corporations. “If the issue is how to deal with potential conflicts of interest between a [dual-class share] corporation and its controlling shareholders, then that issue can be addressed directly by having independent and unrelated board committees which vet transactions rather than by prohibiting [dual-class share] structures generally,” the guidelines note.

The coalition’s guidelines on building high performance boards suggest that at least two-thirds of every board be independent of management and, as much as possible, be independent of each other.

Currently, nine of the 15 members — or 60 per cent — on the Bombardier board of directors are independent. 

Read: CPPIB joins opposition to Barrick’s executive pay