Research Paper Number

2/2006

Document Type

Article

Publication Date

2006

Keywords

Canada; oppression remedy; shareholder primacy; team production

Abstract

This article suggests that the response to the most recent Supreme Court of Canada decision concerning corporate governance, Peoples, and the Canadian corporate governance debate, as currently engaged, are operating on the false underlying assumption that the principle-agent, shareholder primacy model accurately describes Canadian corporate law's treatment of public corporations. The article applies the Team Production theory developed by American corporate law scholars, Margaret Blair and Lynn Stout, to argue that the Canadian corporate legal understanding of public corporations that are not controlled by a single shareholder or group of shareholders reflects a director primacy norm rather than a shareholder primacy norm. Canadian corporate law provides that directors of such public corporations with widely-held share ownership and voting rights are free from direct control of any corporate stakeholders. Rent allocation among Canadian corporate stakeholders depends on extra-legal advantages. A potential departing point for Canadian corporate law, the oppression remedy, continues to develop to deal with such extra-legal advantages rooted primarily in unequal power relations among corporate stakeholders. However, in its current application and predicted future application, the oppression remedy does not provide any given stakeholder group with an ability to dominate the boards of public corporations and obviate the director primacy norm. The article suggests that because the director primacy norm accurately describes Canadian corporate law, further consideration needs to be given to corporate law's relative relevance in dictating how Canadian corporations currently operate. For example, do directors of Canadian corporations really think of themselves as mediating hierarchs and corporations as teams? More importantly, can directors of Canadian corporations play a mediating hierarch role given the current composition of corporate boards? The responses to these questions will help inform further inquiry into whether the director primacy norm is the ideal norm for Canadian corporate law.

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