A colleague recently suggested that my last contribution to Timely Disclosure called to mind the more familiar view, which has gained in prominence over the past half-decade or so [1], that the time has come for Canadian securities regulators to “vacate the field” of poison pill regulation, leaving oversight of shareholder rights plans to the courts.  I found his suggestion rather troubling.  Frankly, I do not wish to be associated with that view.

To be sure, there is some superficial similarity between the “vacate the field” perspective on poison pill regulation and my own view that Canadian securities regulators should not in principle be advancing any campaign for legislative reform that aims to limit the power of shareholders on the basis of perceived threats that shareholder activism allegedly poses to corporate North America and the economy as a whole.  Both views call for restraint from securities regulators in deference to other rule-making agencies — the courts, or the legislatures (for purposes of such a general point of comparison, the specifics don’t really matter) — that are better positioned, we claim, to adequately serve the relevant regulatory objectives.

But that’s about where the similarity ends.  Indeed, I happen to think that the “vacate the field” perspective on poison pill regulation makes a version of the mistake that I effectively accused Martin Lipton of making in my last post: it fails to give Canadian securities regulators their proper due.  Mr. Lipton gives to Canadian securities regulators more than they are properly due, implicitly vesting in them the power to legislate in the name of broad policy objectives that far outstrip the scope of their twin policy mandates of investor protection and capital market efficiency and fairness.[2] The “vacate the field” view, in contrast, makes the obverse mistake of giving to Canadian securities regulators less than they are properly due, calling upon them to vacate a field of regulation that they properly occupy by virtue and in furtherance of those mandates.

Let’s pause for a moment on that last statement: Canadian securities regulators, I am claiming, are properly authorized to regulate poison pills by virtue and in furtherance of their twin policy mandates of investor protection and capital market efficiency and fairness.  I would not have thought this to be a particularly controversial claim.  Indeed, I would have thought it rather obvious that a policy mandate of investor protection can ground regulation safeguarding the ability of investors to dispose of their investments without undue restraint and on terms of their own choosing; equally obvious that the objective of fostering fair and efficient capital markets can justify regulating third-party interference in secondary market transactions between otherwise willing buyers and sellers.

But somehow these claims have been anything but obvious to those who have argued that Canadian securities regulators should vacate the field of poison pill regulation.  They have repeatedly misapprehended the basis upon which securities regulators in Canada are competent (in fact, I’d argue duty-bound) to regulate poison pills.  
Continue Reading Give to Caesar What is Due to Caesar: Foundations for an Active Role for Securities Regulators in the Regulation of Poison Pills