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Dual-class share structures are fundamentally unfair: they leave the subordinate shareholders unprotected and cry out for a response from securities regulators. Advocates of such structures recall success stories — like Fairfax or Onex — without focusing on the point that dual-class-share structures undermine corporate governance standards because the subordinate shareholders are burdened with a disproportionate share of the economic risk in the firm relative to their ability to influence the affairs of the corporation. In particular, they cannot elect directors or otherwise ensure change through their vote.

As the Magna buyout showed, and the Corus/Shaw deal suggests, dual-class structures can have severe consequences especially when there are no legally mandated procedural safeguards relating to special committees, valuations, fairness opinions and voting conditions. Because the jurisdiction of securities regulators is founded on investor protection and the public interest, dual-class-share structures should be further regulated, if not prohibited, in capital markets.

From Ottawa’s perspective, if Bombardier were to receive federal funding, there are no accountability mechanisms in place to ensure that the current board would do any better than it has to date. At the very least, the Bombardier board itself needs to be replaced and repopulated not with government representatives — as the Quebec government is proposing — but with independent directors (as is the case in non-dual-class firms). This will require a dismantling of the dual-class structure.

Reforms are needed to ensure that Bombardier’s subordinate shareholders can contribute to the decision about who is on the board of this corporation. This is not the place for taxpayer money.

Anita Anand is the J.R. Kimber Chair in Investor Protection and Corporate Governance at the University of Toronto’s Faculty of Law.anita.anand@utoronto.ca.