Continued Governance Problems at Bombardier

At today’s shareholder meeting, the CEO of Bombardier, Alain Bellmare, stated that Bombardier is now “tighter on governance.” Perhaps he was referring to the move of Pierre Beaudoin to step down as executive chair  after major Canadian pension funds refused to support Beaudoin  in this position. But this governance change, while positive, is minor. There are serious issues with Bombardier’s governance.

They begin and end with the dual class share structure that insulates management and the board from having to be accountable for their decisions. In particular, the Bombardier and Beaudoin families own 53 percent of the voting control of the company but only 13 percent of the shares. On any decision, from executive compensation to the election of board members themselves, the decisions that the families wish to make will be the decisions that carry the day.

There are over 80 dual class firms listed on the Toronto Stock Exchange but Bombardier is particularly troubling because it is the recipient of federal and provincial aid totalling about $2 billion. As a Canadian taxpayer, I think that the federal government should have imposed certain conditions when giving its bailout to Bombardier.

First, the federal government should have required that Bombardier have  independent board members who represent the subordinate shareholders as well as an independent board chair. Yet even with his resignation as executive chairman, Mr. Beaudoin remains the chair of the board at the current time. In Canada, it is considered to be best practice for the CEO and the Chair to be separate and most senior issuers adhere to this standard.

Second,  the federal government should have sought a commitment by Bombardier to limit executive compensation. Instead, the Bombardier board was able to award a nearly 50 per cent pay hike to six top executives in 2016 compared to the previous year.

Third, the federal government should have ensured taxpayer board representation in the form of a government appointee with requisite board experience and competence.

Finally and most importantly, the federal government should have required the dismantling the dual class share structure itself.  Why? This share structure has deleterious effects on subordinate shareholders: many of them are Canadian citizens who are financially exposed as Bombardier addresses the troubles that it has experienced with the C-Series aircraft among other things.

One can legitimately ask: why should Bombardier receive assistance from the federal government with a structure in place that shields one class of shareholders from the economic risk of the corporation but exposes others?

The federal government is staying silent on Bombardier’s governance failings for the ostensible reason that it is not a shareholder of the company.  Now the Canadian taxpayer has no recourse in regards to a company that has received up to two billion dollars in federal and provincial aid and has turned around and paid its management with what seems like public money.

All in all, governance at Bombardier is not “tight.” More must be done to improve it so that it is in line with the governance in place in other public companies in Canada. The pension funds were right to speak out against the executive chairmanship and the executive compensation at Bombardier. Now, let’s hope that their outcry does not continue to fall on deaf ears.