By Danica Bennewies
Welcome back to another installment of Top Five Friday Finds – the weekly series in which we share five of the corporate and securities law stories that dominated the papers (and our conversations) this week.
Let’s start off with one of the biggest topics of conversation from the past week – Elon Musk. Last Saturday, the Securities and Exchange Commission (SEC) announced that Musk agreed to settle the securities fraud charge brought against him last Thursday. The terms of the settlement included, among other things, that Musk step down as Tesla’s Chairman, that Tesla create a new committee of independent directors to oversee Musk’s communications, and that both Musk and Tesla each pay a $20 million penalty. However, this doesn’t mean the drama is over for Musk – the settlement still requires court approval. The federal judge charged with approving the settlement, U.S. District Judge Alison Nathan, has asked Musk and Tesla to prepare a joint letter outlining why the settlement should be approved.
In other major news, Canada, Mexico, and the United States agreed to replace the North American Free Trade Agreement (NAFTA) with a new treaty, the United States-Mexico-Canada Agreement (USMCA). Most headlines have been focused on the trade impacts (for example, the fact that the U.S. tariffs on steel and aluminum will remain in effect), however the new treaty also contains significant changes for Canadian investors in the U.S. and vice versa. Previously under NAFTA, investors could bring arbitration claims against a host state when that state was in violation of investment protection obligations. Under the USMCA, this investor-state arbitration will be limited to the U.S. and Mexico. While Canada is still party to the state-to-state arbitration provision, which allows a home state to bring a claim against one of the other parties on behalf of an investor, it is uncertain how frequently this mechanism will be used. In fact, the investor-state arbitration provision in NAFTA was introduced to replace the use of state-to-state arbitration and provide investors with more meaningful protection, particularly in cases where the home state may be reluctant to take on an advocacy role. This change could have a far-reaching impact on how Canadian companies choose to invest in the U.S. and how U.S. companies choose to invest in Canada.
Recently, we’ve had a number of posts on the blog regarding the Ontario Government’s response to the Canadian Securities Administration’s (CSA) embedded commissions proposal. For those who need a quick refresher, on September 13 the CSA published proposed regulations eliminating the use of embedded commissions on mutual funds. On the same day, Finance Minister Vic Fedeli released a statement opposing the recommendations. No reasons were given, leaving many people confused and questioning the government’s motives. This confusion was addressed during Tuesday’s Question Period, when Minister Fedeli was asked by an NDP finance critic to explain the government’s opposition to the CSA proposal. The Minister’s response was brief, commenting on “…what happened in the United Kingdom with embedded commissions and how this did not work.” In 2012, Britain banned all embedded commissions for money managers, which improved transparency but led to a decline in the number of advisers, making it more difficult for clients to get advice. While not a comprehensive explanation, Fedeli’s comment does give some insight into the government’s reasoning.
In other securities regulation news, the CSA published amendments on Thursday that finalize a framework for alternative mutual funds (currently referred to as commodity pools). These amendments form the final installation of the CSA’s ongoing project to modernize and streamline the regulations applying to publicly offered investment funds. Among these amendments is the renaming of “commodity pools” to “alternative mutual funds” and the updating of restrictions on alternative mutual funds to allow greater flexibility with investing strategies. The amendments will come into effect on January 3, 2019, subject to Ministerial approval.
Finally, last Friday we discussed the CSA’s review regarding women on boards and in executive positions in Canada, and noted that female representation is improving. But what about in the United States? The Conference Board, a business research group, conducted a survey on female chief executives at the top S&P 500 companies. In research findings released this week, the survey found that 95% of the top CEOs in 2017 were male. Women occupied only 27 of these chief executive positions, an increase of one from the 2016 research results. These results come at a time when there has been an increasing call for equality in company leadership, both in Canada and the United States. On Monday, California became the first state to pass a law requiring publicly traded companies to include women on their boards. The law necessitates that every California-based public corporation appoint at least one female director on its board by the end of next year. Similar mandates already exist in some European countries, such as Norway and France.
Those are your top stories for this week. Have a happy Thanksgiving, and be sure to check back next week for more Friday Finds!