S4 EP4 | Undisputed: Exploring the high-stakes world of special situations

What lies ahead for governance disputes in Canada? According to our 2024 Annual Litigation Trends Survey, the anticipated key contributors over the next 12 months are:

• Board composition
• Executive compensation
• Conflicts of interest
• Issues with proxy statements

In the fourth and final episode of our miniseries, hosts Ted Brook and Erin Brown discuss the unique practice of special situations along with Evelyn Li and Fahad Siddiqui. Both Evelyn and Fahad are Partners of Norton Rose Fulbright’s Special Situations team, which has played a leading role in Canada's most high profile shareholder activist and defense mandates across the country.

During the episode, they explore the dynamic, rapidly evolving world of complex M&A, shareholder activism and corporate governance litigation, including current key focus areas for the practice in Canada, from internal investigations, to engagement with securities and regulators, and much more.

Download the full 2024 Annual Litigation Trends Survey at: 2024 Annual Litigation Trends Survey

This episode is accredited 0.75 substantive hours in Ontario and 0.75 substantive hours in British Columbia.

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[00:00:02] Ted Brook Welcome to Undisputed, a Norton Rose Fulbright podcast. I'm Ted Brook.

[00:00:08] Erin Brown And I'm Erin Brown.

[00:00:09] Ted Brook We're excited to be hosting this special mini series to unpack the findings of our firm's annual Litigation Trends report. For 19 years, our firm's research has tracked changes and trends defining the litigation landscape from dispute types and exposure to litigation preparedness and in-house legal staffing by surveying legal professionals at organizations of all sizes across key commercial sectors in Canada and the US.

[00:00:37] Erin Brown In Undisputed, we'll explore the emerging trends and insights concerning the litigation challenges industry leaders are facing in 2024. Hope you enjoy.

[00:00:54] Ted Brook Welcome to Undisputed. This is our fourth and final episode in a special mini series where we are talking about the Norton Rose Fulbright Litigation Trends Survey. And today, Erin and I are talking about special situations. We are joined by Evelyn Li and Fahad Siddiqui.

[00:01:15] Erin Brown Evelyn is a corporate and securities law partner at Norton Rose Fulbright. She has a broad business law practice including mergers and acquisitions, financings, corporate governance, and general, corporate and commercial matters. Fahad is a partner in our Litigation and Disputes team who advises clients on high stakes litigation, regulatory changes and reputational concerns. Both Fahad and Evelyn are based in Toronto and are on Norton Rose Fulbright Special Situations team, which has played a leading role in Canada's most high profile shareholder activist and defense mandates. Evelyn, Fahad, welcome.

[00:01:50] Fahad Siddiqui Thank you.

[00:01:51] Evelyn Li Thank you.

[00:01:53] Erin Brown So great to have you here. Maybe we could just ask you to tell us a little bit about your practices to kick us off today.

[00:01:59] Fahad Siddiqui Thanks for having us both on. The special situations practice on the litigation side is probably the most varied thing you can do. It involves everything from internal investigations to engagement with securities, regulators and other regulators to actually getting into court. And very often you're also asked to perform an advisory role to boards of directors, senior management, shareholders and to negotiate deals. So if you've ever had an interest in doing something high stakes and cutting edge and on the cover of the business section, this is the practice for you.

[00:02:36] Erin Brown Fahad, should we be calling you Jack of all trades instead of Fahad? Because that's it what it sounds like?

[00:02:40] Fahad Siddiqui I wouldn't mind that.

[00:02:41] Ted Brook That would be pretty cool. Fahad though, how did you end up doing this type of work? Tell us about your path. It's not a typical litigation practice.

[00:02:50] Fahad Siddiqui It's not typical. And the path was not typical either. I actually used to do international human rights work in the Middle East and Africa, and I was in Egypt in 2010 when the Egyptian revolution started. And I called my dad and my dad said, you know what? I think it's time for you to come home. I've accepted an application for you to Osgoode Hall Law School. You'll come and live in the basement. And that was how I started my career in law. A typical South Asian story. Your parents sort of make your decisions for you. And after working at a big firm in New York, I met the chairs of our Special Situations group, Walied Soliman and Orestes Pasparakis and they said, "Hey, what are you doing with your life?" And I said, "I have no idea." And I met them and within a day made a move to this firm. And it just started like that. So through absolutely no design or intent of my own, I ended up here working with people like Evelyn.

[00:03:43] Evelyn Li And before he knows it, he's now an integral part of our special situations practice. So maybe to to add on to what Fahad said earlier, I've been one of the initial members of our special situations practice since it was co-founded by Walied and Orestes back in the day, the early days. And we really were just trying to figure out what that really meant in Canada, because while shareholder activism is one part of it, it's really bigger than that. It's shareholder activism, which was much more developed in the US when we first started, I think back in 2005, 2006. It's also, hostile transactions. It could be a takeover bid. It could be highly contested or controversial transaction. And also there's, transactional activism too, where instead of just looking for board changes, activist shareholder or other investor stakeholder is either supporting or opposing a change of control transaction of the issuer. It's more than just a proxy fight. It's anything a little bit messy, anything that could potentially be what we call Bet the Farm type transaction.

[00:04:57] Erin Brown So Evelyn, that is an amazing answer and thank you for that. But when you and I were chatting about this episode beforehand, you gave me this sort of really good way of thinking about the difference between shareholder activism and hostile takeovers for those who aren't regularly in this sphere. Where's that line between shareholder activism and hostile takeovers?

[00:05:15] Evelyn Li Sure. So I think there's a good way to think about it as both has to do with control. So a takeover bid means you're buying out a control position, or more often than not, the entirety of all the public shares of a company to take it private through the really highly regulated takeover bid regime we have in Canada. But that means you're paying for the company. You're paying for that control premium by typically at a premium to the trading price that the shares at the time. Now, when you think about shareholder activism, it's a different way of gaining control. Is it of paying real dollars or real consideration for each share to buy out the company or buy a control position of the company you are taking control of a lot of times the board where you have representation on the board that can then influence you know who is in the CEO seat, who is occupying those critical roles and making strategic decisions about the issuer. So it's a different way to gain control without paying for that control.

[00:06:24] Ted Brook Now lots to unpack there, but I actually want to back up a little bit because Evelyn, I want to you to share a bit more about your practice in your path to where how you got here today. So you're on the I'd say, corporate side. You're on the solicitor side of the barrister solicitor divide within our firm. Tell us how you got into doing this type of work.

[00:06:45] Evelyn Li So I have a business school background, a little bit like Fahad. I knew I wanted to go into law. It's another immigrant story. You know, law was one of the approved. You know, I was lucky that I pursued it, and I was also lucky that I joined Norton Rose at the time when we really were still building ourselves up in the Toronto market, while we were already established nationally. We really were young in the Toronto market. And I started really at the same time that Walied joined the firm and he had these crazy ideas, along with Orestes, to come up with this new practice area that combined really corporate law, securities law and a lot of strategy. So that was a lot of fun. I was a junior lawyer, really didn't know what I was doing, but I was, I think, really fortunate that I was at the right place at the right time. And we were one of the first movers or if not the first mover in the Canadian markets in this area. So really, when it boils down to it, it's corporate laws, securities laws, understanding the interplay of those regulations very well, understanding TSXV rules. And then you layer on top of that the strategy and our litigation colleagues layering on top of that. So it's really a combination of all those practices. And that's what makes it so dynamic and so fun.

[00:08:04] Erin Brown Ted, I think we're going to need to send some gift baskets to Fahad and Evelyn's parents, because apparently they are a huge to the whole development of our Special Situations team and this podcast.

[00:08:14] Ted Brook And it's a unique team within the firm. Right? Being a highly integrated team of corporate securities lawyers and litigation lawyers. Fahad, how do you make a team like that work? If people from completely different backgrounds, trainings, views on what the right thing to do is views on risk and strategy?

[00:08:33] Fahad Siddiqui So I'm definitely one of the newer members. So I have and will have a better insight into this than me, but I really think it comes down to two things. The first is these traditional barriers between types of practice litigation, securities, corporate specializations. Within those three, they really don't exist in this practice because things are moving in real time. And you have a lot of people who are working together to achieve the same outcome, who are going to be called upon to provide high level strategic thinking and to execute on plans. And so when you're in the war room, so to speak, nobody's asking, are you the securities person? Are you the litigation person? Are you the corporate governance person? It's let's get this done. So I think that's point number one. Point number two is the team certainly seems to attract a certain type of personality. I think everybody's hard charging, hard working, but at the same time not territorial. People really look at this as though it's a team effort. I think the best analogy I've heard someone use is that this is really a SWAT team. Everybody on the SWAT team has their role. Everybody might be called upon to do a different thing, but at the end of the day, we're doing it as a team and we do it a lot. It breeds trust, and being able to lean on the judgment of the people that you work with and bounce ideas off of them and not have to constantly worry about team lines or hierarchy. I think that's what makes this team great.

[00:10:00] Ted Brook Evelyn, what are your thoughts on that? As someone who's been on this team for for many years? Are clients surprised when they see the level of integration or our new junior lawyers taken aback when when they're there on calls with with people who maybe they thought were in different practice groups? What are your perspectives on that and how do you think it hangs together?

[00:10:17] Evelyn Li Not sure I can say it any better than Fahad has. And really remember, what we call special situations are like crisis level transactions are situations that are very fluid that changes even multiple times a day. It could be a press release, could be a recommendation from a proxy advisor that really tips the scale one way or another. So from a client's perspective, they just need a guidance with the relevant expertise and experience. And then the strategy on top of all your legal knowledge. It doesn't really matter what our hats are, what our main practice areas are. They're relying on us and our expertise, and it necessitates that integration. And in the background, we're pushing each other, we're testing each other. We're like, well, what if they respond like this? And we have to anticipate potential outcomes and really test the robustness of our advice to client, that it has sufficient flexibility to be responsive to constantly changing situation.

[00:11:22] Erin Brown So not to put the distinction back where you've just told us that it really doesn't exist. But when we talk about litigations and disputes, specifically within the special situations practice, whether that's shareholder activism or other types of special situations, what are you seeing right now? What's what are you seeing recently and what's on the horizon in terms of disputes and litigation specifically?

[00:11:43] Fahad Siddiqui So I think the three big trends. The first is both issuers, meaning big companies and shareholders are becoming much more sophisticated about where they bring cases. So people are paying attention to the differences between jurisdictions. I'll give you an example. A large part of the dispute, recent dispute involving control of Rogers, one of Canada's biggest telecom companies, happened in British Columbia, even though the company's headquarters are in Toronto and the vast majority of its, I would say active Canadian shareholders are all in Toronto. And that's because the company was incorporated or part of the company's foundational documents are based in British Columbia. And British Columbia, had a more friendly law for the side that wanted to pursue a particular perspective on that litigation. At the same time, I think litigants are also realizing that Toronto has a very sophisticated commercial court that understands complex securities issues and how they interact with company issues, and a court that is willing to hear disputes very quickly, which is not the trend in courts across Canada. Number two, I think you're seeing more issuers and activists understanding that sometimes a fight is not just a court fight or a regulatory fight. It's sometimes both, and sometimes it's both at the same time. So we recently were engaged in a dispute involving a Canadian issuer and a significant shareholder based in Saudi Arabia. And there were multiple rounds of disputes both in front of the Capital Markets Tribunal, which is the tribunal that sits above the Ontario Securities Commission and before the Superior Court, both at the same time. I think the third thing you're seeing is that there are more international players in Canadian stocks who are willing to go active, because we have very activist friendly laws in this jurisdiction. I think that's becoming more and more common knowledge, and they are learning who the players are in Canada and how to use, specialists in Canada to their advantage, rather than simply defaulting to the biggest name.

[00:13:50] Erin Brown How do you manage litigation or disputes on all of those fronts at one time?

[00:13:56] Fahad Siddiqui I wish there was a flawless strategy to pull that off. I haven't found it yet, but I do think number one, clear strategic direction helps. I don't think these are the kinds of disputes where you can fumble your way along, right? You really need to have a vision of how you're going to get to your result at the outset and then go out and execute it. And I think to bring it back to one of Evelyn's earlier comments, you have to have a good team. You need specialists in every one of our jurisdictions, because companies may have been founded in a province where you don't practice exclusively, and it's constating documents might end up taking you to that court. So, for example, we're doing some advising for a large public issuer that's based in Calgary. It's constating documents are based in Alberta. So you've got to go to Alberta Court for relief under the Alberta Corporation statute. But it has certain shareholder agreements that are governed exclusively by Ontario law. And you're not going to be able to effectively litigate that unless you've got specialists in Alberta that you trust and you've got specialists in Toronto that you trust. So being truly national and not just national in the sense that you've got a bunch of offices around the country with people in there that you've never met, but national and league, so that you actually have a team across the country that you can pick up the phone and speak to in a way that you trust, makes a huge difference in managing complex litigation.

[00:15:18] Ted Brook Now I want to pick up on what Fahad was saying about trends in special situation litigation that we're seeing and tie back to the Litigation Trends survey report, which are from published earlier this year. And what jumped out for me in the report was that the Canadian respondents were actually more concerned about certain board governance disputes than respondents in the U.S. and in particular, we saw concerns over the impact of board composition, executive compensation, conflicts of interests, and issues with proxy statements being selected by half of the respondents as potential contributors to growth of governance disputes. And I'm wondering Evelyn, are those four issues board composition, executive compensation, conflicts and issues with proxy statements, things that that you saw in 2023 or are seeing in 2024 as contributors to disputes around governance. And if so, just help us on unpack why?

[00:16:22] Evelyn Li Sure. I think governance is always part and parcel of any proxy fight, because these are things that are easy to understand when you go out to an investor base, right? These people are the same group of people that have been on the board now for 15 years. They all come from a similar background. They all look like each other. You start to wonder how independent is that board? How much deference are they giving to the same CEO that's been there for the same time? So these are easy things to wrap your mind around, right? Especially in this day and age where there's a lot of focus on diversity and representation at different levels. Are they bring the right skill set to the table, different viewpoints, or are they in a groupthink situation? Compensation, another easy one, especially when there's such a spread between, let's say, the valuation or the intrinsic value of a company's assets versus their stock price, or if they're underperforming their peers while still compensating the CEO, CFO or the C-suite disproportionate to the rest of the employees, or disproportionate to the performance. So these are easy things to be able to persuade investors to why an activist shareholders proposal? It could be nominating alternate directors to the board, or even an advisory vote on the strategic direction of the company, maybe to sell it off or to spin out certain assets that doesn't seem to be fitting with the overall strategy. So that's why corporate governance is still always, I think, 99.9 percent, if not 100 percent included in every fight. And as Fahad alluded to earlier, Canada is known to be the most friendly activist jurisdiction because of all the enshrined shareholder rights that are right in the corporate statute. Just to give you a very quick example, under the federal the CBCA, you only need 2,000 dollars worth of shares to put forward a shareholder proposal. And under all our corporate statutes, shareholders who one or more shareholders together hold 5 percent of the shares. So not a really high bar can requisition their own meeting to to do many things to put forward their own proposals to nominate alternate directors. That right doesn't exist as far as I know, in the same form in the U.S., so it makes it very easy to agitate for these changes and then have the story of these are the corporate governance bad things that the companies doing now that we can change?

[00:19:04] Erin Brown That's fascinating. One of the things I wanted to draw out is you have this great quote in the Litigation Trends survey, and one of the things that you mentioned is lack of alignment between the board and the shareholders. Can you just walk us through a little bit what you mean by lack of alignment and how that can cause issues?

[00:19:19] Evelyn Li Yeah, lack of alignment goes to do the executives have skin in the game. What that really boils down to is do they also hold shares in the company that they manage day to day? Because if they are incentivized to grow the value of the stock. So that means, you know, investors are going to make a return on their investments. The executives have exposure, whether through formal compensation or just their own shareholdings. It really helps to say, "Hey, I'm the CEO. I know that we've been underperforming, but we're on a path to growth and here's how we're going to do it. And I hold 5 percent, 6 percent of the company's shares. So I'm as much invested to see this to success as all the other shareholders." That's compelling. Whereas a lot of times now in fights, we often see as a group, the entire executive team or the entire board in aggregate holds less than 1 percent of the shares while it continues to underperform its peers. And it's not giving the return on investments to shareholders. It's really hard to convince people that you're not just doing things and collecting a paycheck, but yet you don't have skin or alignment with the shareholders interests.

[00:20:36] Ted Brook Thanks, Evelyn. Changing gears a little bit. Last episode, Erin and I were talking with Heidi Reinhart and Allison Babbitt about ESG, and there's a lot of buzz around ESG right now. And I'm wondering both for you and for for Fahad, in your view, how important is ESG to shareholder activism campaigns in Canada right now? Are they secondary to sort of core investment theses which might focus on shareholder alignment or governance, and are they sort of window dressing, or are you seeing ESG concerns have the potential to be serious drivers when it might come for a campaign for change?

[00:21:14] Fahad Siddiqui So I think ESG is a tricky one, because it puts a company's board in a tricky position where there is this traditional dichotomy between the primary purpose, which is to drive shareholder value, and other purposes, such as improving ESG performance, corporate responsibilities to different stakeholders, including to the environment, for lack of a better work. And companies are not just facing pressure from small groups of activists in the traditional sense, non shareholder activists, but for example, environmental activists. But those activists are now becoming more and more sophisticated, they're becoming shareholders. And as Evelyn said, as folks have realized that you don't need a significant number of shares to put forward proposals at shareholder meetings. Traditional ESG environmental type activists are now putting forward ESG related resolutions at shareholder meetings. So they've gone from becoming activists social causes to activist shareholder, which is putting pressure on companies. At the same time, you have regulatory pressure to improve on ESG. So, for example, our competition officials in Canada have suggested that environmental disclosure, environmental related disclosures are things that they're going to be looking into. So boards are now stuck in a position where they need to come up with a cohesive thesis that is both loyal to increasing growth and shareholder value through growth, and at the same time demonstrating responsibility to other issues based on the ESG concerns. And that's a difficult needle to thread. And I think the more sophisticated boards and management teams are realizing that this is not something that you can come up with on a quarter by quarter basis, or a shareholder meeting by shareholder meeting basis. You actually have to chart a vision for your business that is consistent with both of those sometimes antagonistic pressures. And so the most successful boards and the most successful management teams are the ones who head that off and have a thesis, a long term growth thesis and ESG thesis that they're driving towards both in response to activists and in response to regulators.

[00:23:35] Ted Brook Evelyn, what's your kind of thought on responsible business and sustainability as being an issue in the special situations practice?

[00:23:42] Evelyn Li I think Fahad is right, where we're starting to see more inbound inquiries from clients as to how how the board should approach this as part of, you know, their strategic direction of the company. It's definitely making it onto the board agenda as one area that they need to have oversight over. And we did see in 2023 nine carbon emissions or net zero target shareholder proposals during that proxy season. So we're starting to see those. But I think remember, there are certain things that a shareholder can do like, you know, nominate directors, vote for directors, and they can have an advisory vote on certain more operational matters such as, Say on pay. So I think ESG related activism, it's more that it's more like on an advisory basis, we think the company should commit to net zero, targets by X date or something to that effect. But it's one tool that investors have in their pocket to let the board and management know what the investor sentiment is around ESG. To date, I don't know whether it makes or breaks any fight. Maybe there's more to come in 2024. And I wonder, is it more a litigation matter where there's a lot of now sustainability statements, responsible business statements, and I wonder if there's going to be more litigation around statements being overblown or greenwashing and all of that, as opposed to that being the focal point of a proxy fight.

[00:25:23] Erin Brown This is super interesting. So looking ahead, what do you think are the sort of trends or the issues that we're likely to see in 2024 and beyond?

[00:25:33] Evelyn Li I've been to a few securities law related conferences this year, and one topic that has come up time and again is whether or not it is time for our securities regulators to look at National Policy 62-202, which are defensive tactics in the context of takeover bids. Those rules have been around for a long time, and oftentimes it gets pulled up in the context of shareholder activism and whether or not, you know, a lot of times would be a private placement in the context of a takeover bid or a private placement in the context of a proxy fight. Is that an improper defensive tactic, or is that a legitimate business purpose? So while currently that policy does not directly address shareholder activism, there's some debate as to whether it should be made more explicitly applicable so that people understand what are appropriate or inappropriate defensive tactics in the context of a proxy fight, whereas the other side of the camp, it says, we have so much robust case law already, we don't need more prescribed regulations. So that's something that I'm excited to see where it goes. But it's a topic that has come up a couple times already. Another quick trend is I think I mentioned earlier because of the spread between stock prices. Take, for example, the peak in 2021 of all the IPO's and the technology stocks, the high valuations we had and then the market depression or the share price depression we have seen since. I think we're going to see more trends towards go private transactions. So that's another potential exposure to shareholder activism, where opportunistic or strategic buyers coming in to buy out the company at a low valuation at this point a low premium to their trading price. And I wonder if there will be more M&A activism in that context.

[00:27:30] Ted Brook Very interesting. Fahad, what are your thoughts on trends for 2024?

[00:27:36] Fahad Siddiqui I think two things. First of all, I think both shareholders and boards are showing greater appetite to see litigation through. We spoke earlier about growing sophistication among all parties about jurisdictional differences and a willingness to bring and defend cases in multiple fora. I think that's continuing, and you're seeing that folks aren't using litigation simply as a tool of brinksmanship and settling on the courthouse steps. Folks are actually seeing these things through, and you're seeing a very robust set of case law develop around everything having to do from the law shareholder meetings to the law of standstill agreements, to all of the securities laws that relate to join actor ship and shareholder conduct requisitioning of meetings. I think everything is kicking up and becoming more sophisticated because you have more and more cases that are actually going to a decision. I think the second big thing you're seeing is folks are willing to take a stand on the meaning of certain very technical rules in our securities laws and litigate them. And whereas these rules have been in existence for ten, 15 years, very rarely are they litigated because they're so specialized, they're so highly technical. The dollar amounts involved are so significant that very often parties will reach an accommodation between themselves. So I'll give you an example. If you were to look up the case law on the meaning of Joint Act or Ship and Joint Act or Ship, is this concept in securities law that has to do with the disclosure that significant shareholders have to make when they're working together? And the theory is when you have a bigger player in your stock, that bigger player should be making fulsome disclosure because they have the ability to influence the company that a regular retail shareholder sitting at home does not. And one of the disclosures that they have to make relates to whether they are working together with other shareholders to effect particular outcomes in respect of the company and the public policy theory, is, well, if you've got a 12 percent shareholder and that 12 percent shareholder has an agreement with a 10 percent shareholder, that they're going to try and turn over the board or change the way that a company operates, they together are deemed to be a 22 percent shareholder for the purposes of public disclosure to other shareholders, and they may, in fact, also be required to make a mandatory takeover bid. Now, what does it mean to be working together with another shareholder in such a way that you've actually triggered that reporting requirement, that you now are considered under securities law to be working as a group, and the case law is still very unsettled. For a long time, it appeared that most forms of cooperation with a view to any specific end goal needed to be reported, and our firm was involved in one of the seminal cases from Alberta in which that understanding of the rule was laid out almost ten years ago. And last year we got another decision from the BC Securities Commission, in which the BC Securities Commission seemed to suggest that because the regime is triggered by acquisitions, it doesn't matter if you're working together with other shareholders until there's an acquisition, there is no actual disclosure event. In other words, you have one decision that suggests that the market needs to be advised when big shareholders are working together, regardless of when they start working together. Now you have another decision out of BC that suggests that until that group of shareholders acquires another share, there's no disclosure that is required. And so to my mind, this is one of the rules that looks like to securities practitioners that it makes sense. And we all understand how it works. And I think what we're learning as more and more of these cases are actually litigated to a decision, we don't actually know how regulators think about these rules and how they actually work. And so as these rules get developed in the case law, and there are more and more decisions, I think you'll see the way people report and do public disclosure change. And I think you'll also see regulators starting to ask questions about whether these rules are working the way that they were intended to.

[00:31:49] Ted Brook Very interesting, Fahad. And and what do you think is driving that more laser focus on, on rules that perhaps previously stakeholders took the mutual understanding for granted?

[00:32:01] Fahad Siddiqui It's a great question. I wish I knew the answer. I think, number one, you have a sophisticated and growing market in Canada, and so more cases usually means more results and more results means more development of the law. I think number two, when you have more foreign players in the Canadian market, I think they tend to be a little more aggressive. So many American based shareholders are used to litigating every day. They go to the Delaware Court of Chancery every other week and look for guidance from the court, and they figured out how to price that into their risk. And they use litigation as a true investment tool. And I think that approach is now in greater proportion being brought to bear in Canada, both as more foreign players come to Canada and litigate in Canada, but also as Canadian companies and Canadian shareholders see how foreign players play the game.

[00:32:54] Evelyn Li If I can jump in and add to this, because this is something that we're working on at Norton Rose right now, is, as I alluded to at the start, that the market for shareholder activism is much more developed in the US, even though we have matured over the last ten years or so in Canada. Just one quick example, the advanced notice by law, which is that by law, pursuant to which there's an orderly nomination process, if you want to nominate a director other than who management's putting forward, they're in the third generation of advanced notice bylaws in the US. We are still in our first generation of advanced notice bylaws where, you know, I think if you pull up all the TSX 60 companies and compare them, they're probably 90 to 95 percent the same across the board. So we haven't had the level of sophistication in the development of these tools that are available to the company. And I want to emphasize these are not entrenchment or defensive tactics. This is just good governance to ensure that shareholders have the information so that if there is a 9.9 percent shareholder or  to 8 percent shareholders working together, there is some sort of orderly disclosure and that that the more passive investors, before they go to a vote at a contested meeting, half that relevant information in hand. So I think this is an area that we're going to see more case law until the law is more settled in Canada or until we have advance the practice of the use of these bylaws to ensure there's an orderly conduct of business and there's an equal playing field amongst shareholders.

[00:34:39] Fahad Siddiqui I think that's a great point, but I just wanted to layer onto it, which is we've touched on this theme about the Canadian market growing in sophistication and to a certain extent learning from the American market. And I think you see that reflected to a certain extent in the Litigation Trend survey. There's a reason why one of the biggest discrepancies in terms of the expectations for future disputes growth between Canadian in-house counsel and American in-house counsel is board composition. One of the reasons, I think, is that American Council are used to dealing with this as a fact of life, of being a public issuer in the United States. And there are still a significant number of Canadian in-house counsel, not for whom this is new, but who aren't used to facing these kinds of questions every day. And that's why I think you see a little bit of that delta in expectation for growth.

[00:35:31] Erin Brown That's fascinating. And given all of these trends that we've talked about, you have, say, two minutes with the general counsel of an issuer and they ask you as a member of the Special Situations team for some advice to mitigate risks of an activist shareholder campaign. What's your advice? What do you say?

[00:35:50] Evelyn Li I think you have to know your company strategy well. You have to know your shareholder base really well. It all goes to preparation. The activists are sophisticated. They have done their homework. They've done their research. By the time they come to you, they've been in your stock or they've been circling your stock for a while. So they already have an investment thesis. They already have a lot of ideas. They're likely spoken to some shareholders or other activist shareholders about your stock. So as a company fundamentally you need to know what is your strategy? Do you have a robust and diverse board that is equipped to deal with changing economic times, or if there is an activist coming in your midst? So not to be cheeky, but like we work with a lot of clients and we know we have a preparedness and a defensive playbook that we work on with clients, and it can be customized to them so that they have thought about these things before. There's an even a hint of a potential activist approach. And we always say, you know, in our practice, it's always better to adopt these policies, to enhance your bylaws, to build up your board, and to do all of that groundwork on what we call a sunny day or a clear day when there is no trouble brewing, because whatever you do then will be under less scrutiny than trying to do these things in the middle of a proxy fight.

[00:37:17] Ted Brook Yeah. Where every statement, every change, every major decision is going to be examined under a microscope, potentially in litigation and regulatory proceedings. Fahad, what are your thoughts? I'll actually flip it around. If you had five minutes with the GC of of an activist investor looking to get a foot into the Canadian market, and they said they wanted some advice as to how to move forward with a campaign. And maybe they've identified some potential targets, but they just want to get a better understanding of how they go about this in Canada.

[00:37:48] Fahad Siddiqui I think the best answer to that question is to have your ducks in a row and then execute your plan. Shareholders have a number of advantages that companies don't. They don't have the same regulatory scrutiny. They're not under the microscope in terms of their public disclosure. They're really stakeholders of one. Whereas companies have to pay attention to stakeholders of many. And so if you are planned, if you are organized, if you understand the rules of the game you're about to play. If you've already got friendly shareholders who are willing to discuss with you, you have a media plan in place, you have a contingency plan in litigation in place, and you have a true activism plan in place, meaning not just they want to effect some change at the board level, but I've got alternative directors in mind, and I'm prepared to put together a slate. You can cause some real damage in a very short period of time for a relatively efficient investment. So think, for example, about your typical Canadian mid-cap or small cap company. Much more common in Canada, much smaller in Canada than in the United States for a relatively less significant investment. You can take a large position in a Canadian company that entitles you to requisition a meeting at a time of your choice, and to put forward a slate of your choice to put real pressure on a company and its board of directors to effect the change that you want. And so I think the advice to activists is they have a lot of optionality if they're organized. And the right way to do this is to target your company, target your stock, target your board, get your advisors in place, get your media strategy in place, and then go.

[00:39:33] Erin Brown Okay, I know we said that was going to be the last question, but I have one last burning question I need to ask you. So you're saying that the floor is set for it to be a little bit easier for the activist in these battles? Does that actually result in us seeing activists win more of these battles, or are there other factors at play that result in issuers being successful, even though sort of shareholders or activists have a bit of a maybe an easier time in some senses?

[00:39:58] Fahad Siddiqui So I'm not smart enough to give you a longitudinal study on whether the balance between activists and issuers has changed over time, but my sense is that activists have gained the upper hand of late because they're able to be a little bit more nimble. Often in activist, you've got one or two decision makers. They decide on the strategy and you go, whereas when you're acting for an issue or you've got a board of many people, many voices, many different interests, you've got a management team that sometimes may not be aligned entirely with their board, and that group collectively has to be responsible, not just to that one activist shareholder, but to all shareholders. And in Canada, not just to the shareholders, but to all stakeholders, whatever that means. So I think the answer to your question is I couldn't tell you whether activists are becoming more successful statistically, but my gut tells me that they are.

[00:40:57] Evelyn Li Not to mention well funded. A lot of these activists are very well funded. But one thing I do want to quickly add is that what we see statistically in the public is probably just one third of all the board agitations and activist approaches, because a real win for an activist is to be able to agitate for the change they want without ever going public. That means no impact on the stock price. There's no distraction or less distraction for resources being expended on calling a special meeting of shareholders. So we're only seeing the tip of the iceberg publicly, but a lot of this happens behind closed doors.

[00:41:35] Erin Brown So we may next year, Ted, see an even higher, assuming that the survey respondents are listening to this podcast, we may see sort of special situations shareholder activism rank even higher in terms of potential concerns around litigation to come.

[00:41:51] Ted Brook Fahad, Evelyn, thank you so much for spending time with us today. It's been very informative, and thank you for joining us on our last episode of the Litigation Trends Survey mini series.

[00:42:01] Fahad Siddiqui Thank you guys.

[00:42:02] Evelyn Li Thank you.

[00:42:07] Erin Brown Ted, that was a great discussion. What did you think of our conversation with Evelyn and Fahad?

[00:42:12] Ted Brook Very interesting. I always love talking with Evelyn and Fahad and getting a little peek into their practice and how they're able to keep juggling so many balls in the air all at the same time. That's very impressive.

[00:42:24] Erin Brown One of the things that stood out to me, that I'm still reflecting on, and probably will after this episode, is Fahad's line that, you know, of using litigation as an investment strategy. Did you have any thoughts on that?

[00:42:35] Ted Brook It was a great line. And it's a good thing to remember, right? Because for for a lot of clients, a lot of lawyers, litigation is a net negative, right? It is it is a cost of doing business. Right? You've been sued or you have to sue. Whereas in a different arena, litigation is is a way of effecting change, which can if your thesis proves out result in a win for you in your business. So so it is interesting and I know a lot of clients don't think like that, but I mean it depends on the type of litigation you're involved in I suppose.

[00:43:08] Erin Brown Yeah. I just thought that was, you know, some, some of our episodes we've had a little bit more of a kind of, I don't wanna say negative takeaway, but maybe some sort of raising a lot more concerns. And I thought that was just kind of a nice, maybe more positive point to end on is not always, you know, when we talk about litigation and disputes, we're often talking about risk and risk exposure and dealing with issues and seeing it as an opportunity and as a way to advance a plan and to use litigation as part of a positive plan, I thought was a nice reframing of sort of all these conversations that we've been having around potential disputes.

[00:43:40] Ted Brook And particularly as they stressed at the end, like when an activist is prepared, right, when they have their plan, when they have a proposed slate, or when an issuer is ready and knows their business and their market and their stakeholders, litigation can makes sense. But I feel like if you're flying by the seat of your pants as an activist, it's litigation.

[00:44:04] Erin Brown Yeah. To the.

[00:44:05] Ted Brook Being.

[00:44:05] Erin Brown Problematic.

[00:44:06] Ted Brook You have more, much more problematic. Or maybe you just won't get a great return on your investment.

[00:44:13] Erin Brown Yeah, I think that's a nice common thread for some of our other episodes as well. That preparation in advance is worth having your ducks in a row is one of the best ways to sort of go into these things with better chances of success, and having people like Fahad and Evelyn on your side, it probably doesn't hurt either.

[00:44:28] Ted Brook Fantastic. All right, so so the mini series is officially done. We've got some exciting things planned for our listeners, so I look forward to our next episode of Disputed. And stay tuned for details which we’ll be releasing soon.

[00:44:56] Erin Brown Thank you for listening to Undisputed. A Disputed Spin-Off. To learn more and download our 2024 Litigation Trends survey, visit Litigationtrends.com or visit the link in our show notes.

[00:45:10] Ted Brook And you can subscribe to Disputed on Apple Podcasts, Spotify, or wherever you get your podcasts currently so that you won't miss any of our episodes.