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Influential proxy advice firm Institutional Shareholder Services Inc. is recommending that shareholders of Canadian Pacific Railway Ltd. (CP-T) vote in favour of all seven dissident directors backed by activist Bill Ackman.
Maryland-based ISS carries enormous sway with institutional investors and a copy of the report, obtained by The Globe and Mail, hands Ackman and his hedge fund Pershing Square Captial Management a stunning endorsement as it heads to a May 17 proxy contest to overhaul CP's management and lagging operating performance.
"Because the dissidents have demonstrated a compelling case that poor board oversight has allowed the company's performance to drift further and further below both its peers and its potential over at least half a decade, it seems clear that change on the board is needed." The ISS report said.
Citing failures to "provide effective leadership and accountability," the ISS report recommended that shareholders withdraw voting for CP's chairman John Cleghorn, its CEO Fred Green and director Tim Faithful. It also recommended withholding support for director and former Westcoast Energy chief Michael Phelps, "whose long tenure has not helped shareholders avoid the long decline relative to peers;" and director and former Ipsco Roger Phillips who has reached mandatory retirment age and recent recruit Ed Harris .
Concluding that Ackman's nominees "will add value" to CP, the report recommended shareholders vote for all 7 Pershing nominees and 9 CP nominees.
Ackman is seeking to replace seven of CP's 16 directors with a mixed group of dissident directors that includes himself, Pershing partner Paul Hilal, Alberta Enterprise Corp. chairman Paul Haggis, corporate restructuring specialist Gary Colter, former Onex Corp. executive Anthony Melman and Rebecca MacDonald, executive chairwoman of Just Energy Group Inc. The activist is seeking more clout on CP's board to replace chief executive officer Fred Green with former Canadian National Railway chief Hunter Harrison.
CP has said that it is prepared to negotiate a potential settlement with Ackman that would hand him a number of seats on the board. But the two sides remain sharply divided over management changes. The railway vigorously opposes Ackman's proposal that former Canadian National Railway Co. chief Hunter Harrison replace current CEO Fred Green. CP said in a statement Thursday that shareholders should use the railway's white-coloured universal proxy to cast ballots to "exercise their right to specifically choose each one of the 16 best directors to comprise the CP board."
CP is asking shareholders to cast their votes on a rare universal ballot that includes the names of all 22 directors proposed by the railway and Ackman. Proxy contests typically ask investors to vote for either an incumbent or dissident slate of directors.
CP's universal ballot means that all proposed directors will be subjected to an unusual boardroom beauty contest that is expected to lead to the ouster of at least a handful of its long-standing establishment directors. "The 16 individuals with the most votes, out of the total of 22 individuals put forward by CP and Pershing Square, will comprise the board elected at the annual meeting" on May 17 in Calgary, CP said.