Canada: Six Lessons Learned From The CP Rail Proxy Battle

In late September 2011, funds controlled by Pershing Square Capital Management, Inc. (Pershing Capital) began acquiring common shares of Canadian Pacific Railway Limited (CP Rail) at prices approximating the 2-year low in CP Rail's trading price. By October 18, 2011, Pershing Capital had acquired over 5% of the outstanding CP Rail shares, prompting an obligation to file a Schedule 13D report with the Securities Exchange Commission. By the time that report was filed on October 28, 2011, Pershing Capital's interest exceeded 10%, resulting in an obligation to file an early warning report with the Canadian Securities regulators, which ultimately was filed five days later. Pershing Capital disclosed in those reports its belief that CP Rail's shares were undervalued and that it was engaging in discussions with management, the board and other shareholders regarding CP Rail. Subsequent negotiations between CP Rail's board and Pershing Capital broke down and by early January 2012 the two sides were entrenched in their positions and the public was aware that a proxy battle was imminent.

Pershing Capital sent a requisition for a shareholder meeting to CP Rail on January 23, 2012 but when CP Rail later that same day announced that its annual meeting would be held on May 17, 2012, Pershing Capital withdrew its requisition.

Pershing Capital filed a dissident information circular on January 24, 2012 and began holding public investor meetings to build support. CP Rail filed its proxy circular on March 22, 2012 and began holding its own public investor meetings.

Support for Pershing Capital's proposal grew over the months, including support from proxy advisory firms Institutional Shareholder Services (ISS) and Glass, Lewis & Co (Glass Lewis), and established Canadian institutional investors, such as the Canada Pension Plan Investment Board and the Ontario Teachers' Pension Plan Board. Prior to the shareholder meeting, it became clear that Pershing Capital's nominees would be elected. Prior to the shareholder meeting, and to avoid further embarrassment, CP Rail's CEO left the company and he and five other directors decided not to stand for re-election. Immediately following the meeting, the board consisted of seven Pershing Capital nominees and nine continuing directors; a continuing director was appointed as acting Chair and a Pershing Capital nominee was appointed as interim CEO.

The story did not end with the annual meeting. On June 4, Paul G. Haggis, a Pershing Capital nominee, was appointed Chairman of the board. Subsequently, two non-Peshing Capital nominees resigned from the board - David Raisbeck on June 11, 2012 and Rick George on June 26, 2012. On June 29, 2012, Hunter Harrison was appointed as CEO and as a director. As a result, within 1˝ months following the shareholder meeting, Pershing Capital nominees constituted a majority of the board, holding eight of the fifteen positions, with Pershing Capital nominees serving as CP Rail's Chair and its CEO.

Key Lessons Learned

  1. No Public Company Is Immune From Shareholder Activism – Pershing Capital took on one of Canada's biggest, widely-held, blue chip companies, with a well-respected board of directors and deep connections in corporate Canada. And they won.
  2. Relative Performance Matters, Not Absolute Performance – CP Rail has been consistently profitable, notwithstanding the economic downturn. Dividend rates on its shares have increased steadily. However, CP Rail's performance over time consistently lagged its peers. For example, the five-year shareholder return in the Globe & Mail's board games analysis in each of the last six years for CP Rail has consistently underperformed the five year shareholder return reported for CN Rail. It was CP Rail's historic relative underperformance and the absence of any change in the trend to relative underperformance which appears to have motivated shareholders to support change at the board level.
  3. Corporate Governance Best Practices Are Necessary But Not Sufficient – CP Rail has generally been ranked within the top 20 companies included in the Globe & Mail's annual board games analysis and tied for fourth in 2011 and tied for sixth in 2010. In the Canadian Coalition for Good Governance's annual Governance Gavel Awards CP Rail received an honourable mention in 2005 for excellence in the disclosure of director information and in 2009 won the award for Best Disclosure of Board Governance Practices & Director Qualifications. However, external recognition of CP Rail's corporate governance practices was not enough to dissuade CP Rail shareholders from voting for change to address CP Rail's historic relative underperformance.
  4. Canadian Institutional Shareholders Will Support Change To Improve Returns – Generally, Canadian pension funds prefer to make their views known or instigate change through dialogue rather than costly, public proxy battles or litigation. However, the CP Rail battle shows that in the current low-yield environment, institutional shareholders are willing to support change if someone else spearheads a proxy battle and provides a compelling argument for change.
  5. Proxy Advisory Firms Do Have Influence – The debate continues on the prominence and perceived power of firms which provide proxy voting advice, such as ISS and Glass Lewis, and is the subject of a recent consultation paper issued by the Canadian Securities Administrators (CSA Consultation Paper 25-401 "Potential Regulation of Proxy Advisory Firms"). (See our Osler Update.) But there is no question that Pershing Capital's strategy was influenced by the need to court and win the support of proxy advisory firms. Pershing Capital deliberately chose to nominate less than a majority of the board, thereby avoiding detailed review of its plans for CP Rail, questions about the loss of continuity on the board, and concerns about triggering of a change in control under CP Rail's contracts and agreements. Pershing Capital's disclosure emphasized ISS' key performance metric, total shareholder return and performance relative to peers. And Pershing Capital ensured that the recommendations of both proxy advisors were widely distributed.
  6. Boards Need to Engage More With Shareholders – Effective shareholder engagement can help build resiliency to withstand criticism by activist shareholders or to defuse matters before parties become entrenched in their positions. There were warning signs that CP Rail was a potential target for activism – its relative stock underperformance was easy to assess, none of the businesses spun-out from CP Rail in 2001 were ultimately able to succeed on their own and of those spun-out businesses, Fairmont Hotels & Resorts Inc. had even been targeted by an activist shareholder. Despite these warning signs, there are reports that the CP Rail board did not do enough to seek and respond to input from its shareholders on company performance. Through engagement, other Canadian boards, such as Maple Leaf Foods Inc. and Cott Corporation, have been able to establish a working relationship with an activist shareholder on the board. But clearly there was a breakdown in constructive engagement between Pershing Capital and the CP Rail board. And Pershing Capital, by issuing a proxy circular even before a record date for determining shareholders entitled to vote at the meeting had been set, and well before CP Rail distributed its proxy circular, was able to take the lead in communications with CP Rail's shareholders.

Andrew J. MacDougall is a partner and practices corporate and securities law, with a particular focus on mergers and acquisitions and corporate governance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.