Daniels, Ronald J.

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1991 - 1999142000 - 20065
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  • Publication
    Toward a Distinctive Canadian Corporate Law Regime
    (1991) Daniels, Ronald J.; MacIntosh, Jeffrey G.
    In this article, the authors consider the impact of the institutional and market environment in which Canadian business operates on the structure of corporate and securities law. The authors argue that the linkages between markets and law have been neglected by scholars, judges, and regulators concerned with Canadian corporate and securities law, resulting in the adaption of approaches that are ill-suited to the Canadian environment. Canadian capital markets, for instance, are characterized by high levels of share ownership concentration, thin trading problems, intensive inter-corporate linkages, and possibly lower levels of efficiency. In sum, these factors make the problems occasioned by separated ownership and control (the Berle and Means corporation) much less acute in Canada than the problems of majority shareholder opportunism. These factors also suggest that regulatory initiatives should be structured in a way that distinguishes between the problems of large, intensively traded companies and smaller, thinly traded companies populated by retail investors. The authors consider these issues in the context of three case studies: the private agreement exception, poison pills, and a self-interested transaction.
  • Publication
    Bad Policy as a Recipe for Bad Federalism in the Regulation of Canadian Financial Institutions: The Case of Loan and Trust Companies
    (1993) Daniels, Ronald J.
    This article addresses the impact of substantive policy on federal arrangements in the regulation of Canadian loan and trust companies. It is argued that reliance on market-suppressing policies (flat-rate based deposit insurance and selective bail·outs of depositors in the event of institutional failure) has undermined the value of competitive federalism in this area, and has spawned highly contentious policy initiatives such as Ontario's Equals Approach. To redress the federalism problems in the regulation of loan and trusts, a useful starting point would be the enhancement of market forces in substantive policy. Here, it is argued that the commitment to secrecy regulation by financial institution regulators has impeded this enterprise.
  • Publication
    Challenges to the Citadel: A Brief Overview of Recent Trends in Canadian Corporate Governance
    (1994) Daniels, Ronald J.; Waitzer, Edward J.
    Politicians, bureaucrats, owners, managers and employees are becoming increasingly concerned with the capacity of Canadian corporations to survive and prosper in the twenty-first century. By and large, the attention focused on competitiveness has developed from the rapid international integration of goods, capital and service markets. This integration has resulted in the creation of a new borderless world, in which consumer preferences reign supreme and in which those corporations that fail to anticipate, shape and respond to these preferences with cost- and quality-competitive products face certain failure. Concern over the survival of national firms commands widespread societal attention because of the dependency of many core public policies on the economic surplus generated by robust private markets. Given the focus on globalization and competitiveness, it is not at all surprising that academics have expended considerable energy identifying and analyzing the determinants of national economic success in this new international order. Although the composition of the basket of favoured policies varies from scholar to scholar, most accord at least some importance to the quality of the system of corporate governance that obtains in a given country. Tracking the modern use of this term, most scholars look beyond the mere operation of a firm's formal governance apparatus (i. e., the board of directors) and consider how a wide range of market (e.g., capital, product, managerial and takeover markets), legal (e.g., derivative and personal suits) and political (e.g., shareholder voting) devices combine to discipline managerial behaviour.
  • Publication
    Private Provision of Public Infrastructure: An Organizational Analysis of the Next Privatization Frontier
    (1996-07-01) Daniels, Ronald; Trebilcock, Michael
    Constrained by severe, ongoing fiscal pressures and sensitive to concerns over bureaucratic inefficiency, policy-makers in a number of countries are re-evaluating both the goals and instruments of the modern state. In doing so, some have endorsed the need for government 'reinvention,' a term that is admittedly susceptible of a broad range of meanings, but which nonetheless contemplates a significant shift away from reliance on governmental provision of goods and services in favour of provision by the for-profit and third sectors.' Although not uncontroversial, the claim is that, in comparison with governmental supply systems, both for-profit and third sector modes of delivery offer a superior means for organizing productive activity because of the greater incentives that exist within these organizations for lower-cost, innovative production. Although the claim has been made in a number of different policy contexts, we focus on its salience in the context of government's role in supplying traditional physical infrastructure projects such as roads and highways, bridges, dams, water and sewage systems, and airports.
  • Publication
    Stakeholders and Takeovers: Can Contractarianism be Compassionate?
    (1993) Daniels, Ronald J.
    The issue of what, if any, purchase non-shareholder corporate constituencies (that is, employees, creditors, suppliers, customers, and communities) should have on the discretionary decisions of corporate management has proved to be one of the most durable, if not vexing, issues in modern corporate scholarship. Most recently, the issue has resurfaced in the context of the takeover wave of the 1980s, particularly during the latter part of the decade when control transactions became associated with high levels of leverage. At core, stakeholder advocates were riveted by the asymmetries involved in change-of-control transactions. While target shareholders earned consistent and sizeable returns from these transactions, stakeholders were left in the cold. Indeed, in some cases, control transactions were thought to be capable of inflicting highly focused losses on stakeholders. So severe were these losses that some commentators, were led to conclude it was the gains from opportunistic breaching of stakeholder contracts that motivated the transactions in the first place. As in the past, participants in the stakeholder and takeover debate generally array themselves into two distinct camps: one, which views any judicial or legislative attempt to protect stakeholders from harms not explicitly prohibited by corporate contracts as anathema ('non-protectionists'), and the other, which regards corporate responsibility for stakeholder harms as an innate and natural feature of the system of modern corporate governance ('protectionists'). In a perceptive article, Romano attributes part of the differences among scholars on divisive issues of corporate law to the starkly divergent normative beliefs that underlie each side. For non-protectionists, the underlying normative framework is individualistic liberalism, whereas for protectionists, it is usually communitarianism. Given the gulf that divides these underlying normative views, the hope for a principled and durable resolution to the stakeholder debate is indeed dim.
  • Publication
    The Role of Debt in Interactive Corporate Governance
    (1995) Triantis, George C; Daniels, Ronald
    Most of the corporate governance literature rests on a premise that the interests of various stakeholder groups conflict and that managerial loyalty is more likely to be captured by shareholders than any other constituency. Yet, stakeholder interests do converge in the objective of controlling managerial slack and non-equity constituents have substantial influence over firm decisions. Although the study of governance has taken early steps to abandon its preoccupation with equity-centered solutions and identify interdependencies existing among a broader range of stakeholders, governance scholars have missed an important element of interactivity. A stakeholder reacts to the actions of others and thereby contributes to the collective interest in controlling slack. Each stakeholder has a window on the firm through which it can acquire some type of information at lower cost than other stakeholders. When a stakeholder detects an unsatisfactory state of affairs, it reacts by choosing to exit or exercise voice. The exercise of either the voice or exit option may pressure management to correct the unsatisfactory state of slack. More to the point, however, a stakeholder's exit bears important information for other stakeholders, at least some of whom may be better placed to take action that corrects the slack. This Article describes an interactive system of corporate governance and provides a stylized theory of the role of lenders within this system. The divergence in the interests of these lenders and other stakeholders does not preclude interactive governance, but it does threaten to reduce the net benefits from the process. Therefore, the authors identify a number of legal and institutional mechanisms that help to channel the efforts of the lender toward the common goal of containing and correcting managerial slack. The interactive perspective thus permits new explanations for phenomena such as debt covenants, bankruptcy preference rules and lender liability laws. For example, the definition of debt covenants and events of default in lending agreements raise the likelihood that the lender exit is prompted by slack rather than lender opportunism and thereby enhances the informational value of the exit. Bankruptcy preference rules encourage early exit before the firm becomes insolvent, thereby enabling remaining stakeholders to take action before the firm's condition becomes irreparable. Thus, debt covenants and preference rules provide a window that increases the value of lender exit in prompting the correction of managerial slack.
  • Publication
    Too Close for Comfort: The Role of the Closely Held Public Corporation in the Canadian Economy and the Implications for Public Policy
    (1995) Daniels, Ronald; Halpern, Paul
    For several decades, American corporate scholars assumed the inevitability of the widely held Berle and Means' corporation. The argument was simple. In a rapidly developing industrial economy, economic prosperity dictated the infusion of massive amounts of capital into owner-managed corporations. Without ample capital, entrepreneurs would be unable to realize the scale economies or technological innovations necessary for industrial growth. The rub in the story, however, was that to raise the necessary capital, owner-managers had to sell off equity interests. Inevitably, the pressure for capital meant that ownership ended up being dispersed among numerous small stakes shareholders. With ownership fractured, sundry collective action problems subverted the capacity of shareholders to wield effective control over their managerial agents, which, in tum, meant efficiency losses from sub-optimal resource utilization. Recently, however, recognition of the survival of concentrated share ownership corporations in other countries, namely Germany and Japan and even in the United States, has caused American scholars to reconsider their commitment to the evolutionary inevitability of the Berle and Means' corporation. No longer the byproduct of innate economic forces, the American corporation has of late been viewed by many as merely path dependent, more particularly the result of a confluence of political, historical and cultural factors. Perhaps the most important was the restriction barring financial intermediaries from holding or voting ownership interests in commercial companies. Had these barriers not been created, ownership may have come to reside in sophisticated large stakes shareholders, who were much more likely than retail investors to control managerial agents.
  • Publication
    Breaking the Logjam: Proposals for Moving Beyond the Equals Approach
    (1993) Daniels, Ronald J.
    Over the last decade, the structure and performance of Canadian financial institutions has undergone a profound transformation. Propelled by both regulatory changes and market innovations, Canadian financial institutions have found their historically protected markets opened to intense competition from a variety of different sources. The most significant regulatory change has been the piecemeal dismantling of the pillars that have traditionally separated the core activities of banks, insurance companies, loan and trust companies, and securities dealers from encroachment by one another. With lower entry barriers, institutions have scrambled to penetrate each other's markets. This entry has spurred a narrowing of differences in the structure and conduct of Canadian financial institutions. Another regulatory change that has spurred increased competition is the reduction, (or, in the case of American owned Schedule II banks, outright elimination) of the constraints that have traditionally limited the operations of foreign financial institutions in Canada. Not surprisingly, the reduction of these restrictions has spawned the growth of a highly dynamic foreign financial industry in Canada.
  • Publication
    Must Boards Go Overboard? An Economic Analysis of the Effects of Burgeoning Statutory Liability on the Role of Directors in Corporate Governance
    (1994) Daniels, Ronald J.
    On July 21, 1992, six outside directors on the board of Westar Mining Ltd. resigned abruptly from the company's board of directors. Westar was a troubled mining company operating in British Columbia. In 1991, the company had lost $62.2 million, mainly as the result of a poorly performing export coal mine. While resigning from the board, the directors assured the public that there had been no wrongdoing by the company. Rather, the reason for their departure was related to concern over personal liability for wages and other benefits that might be owed to more than 1900 of the company's employees under provincial employment standards legislation should the company become insolvent. Despite the fact that their departure might not absolve them from liability for other duties and would greatly complicate the company's bid for survival, the size of the personal liabilities they faced - more than $20 million - left the directors little choice. Predictably, the announcement of the resignations created considerable consternation in the financial community, the magnitude of which was enhanced when, just one week after the Westar resignations, the entire board of PWA Corp. resigned en masse from the boards of each of its subsidiaries, including Canadian Airlines Ltd. As in the case of Westar, the directors attributed their decision to the fear that they "would be forced to pay employee wages, taxes or some other obligation out of their own pockets should the struggling airline run out of money". These highly publicized defections have been invoked by critics as exemplifying the rather myopic and unthinking addiction that Canadian governments have developed to the elixir of directors' liability. By one legal practitioner's account, in Ontario alone more than 100 different federal and provincial statutes prescribe some type of directors' liability. Some critics have gone further and have viewed the board resignations as a powerful passion play that demonstrates in vivid terms the callous and hostile treatment that Canadian shareholders and business managers can expect to receive at the hands of populist legislatures.
  • Publication
    Electricity Restructuring: The Ontario Experience
    (2000-04-01) Daniels, Ronald; Trebilcock, Michael
    Over the last decade or so, a number of jurisdictions throughout the developed and developing world have embarked upon major competitively oriented restructurings of their electricity industries. Ontario has recently joined this list. Historically, Ontario Hydro has been the largest state-owned enterprise in Canada, having been created by the government of Ontario in 1906 initially to construct and operate a provincial transmission grid which would deliver power from privately owned hydro-electric generators to various municipally owned distribution systems. Ontario Hydro quickly broadened its vision to embrace a province-wide transmission grid and the progressive acquisition of most privately owned generating facilities in the province, as well as the construction of massive new generating facilities of its own. Ontario Hydro currently generates about 90% of the electric power sold in the province, about 60% of which is generated by nuclear facilities built in the 1970s and 1980s. Throughout its history, Ontario Hydro has occupied a unique and in many respects dominating political and economic influence in the province. It has rarely been far from the public eye, and major cost over-runs in system expansion precipitated the first of many commissions or like inquiries as early as 1920. By 1923, debts incurred on behalf of Ontario Hydro amounted to one-half of the entire provincial debt. Despite frequent public inquiries over the years into aspects of its operations, the basic vertically integrated, public monopoly structure of the industry that emerged in its first 20 years of operations has remained intact until very recently. The current Ontario government has now committed itself to wholesale and retail competition in electricity by the year 2000 and has restructured Ontario Hydro into two state-owned successor companies constituted under the Ontario Business Corporations Act. One of these will own the high voltage transmission grid and the other will own the generating facilities subject to commitments to transfer effective control of these facilities to private competitors so as to reduce Ontario Hydro's market share to 35% of price setting plant output within 3 1/2 years of market opening and 35% of all generating output sold in the province within 10 years. Significant rationalization of the almost 300 municipally owned local distribution utilities (LDCS or MEUS) in Ontario through amalgamation or privatization is anticipated (and is already occurring, albeit slowly).