Cara is buying St. Hubert for $537-million.
On the heels of its landmark acquisition of Quebec's St-Hubert restaurant chain, Cara Operations Ltd. has suffered a setback. At its annual general meeting last week, almost one-third of subordinate shareholders withheld their votes for the company's chief executive officer and two other directors.
To lose 10 per cent of the vote might make people pay attention. To lose 30 per cent certainly raises eyebrows.
To the naked eye, the vote tallies suggest there's a major grievance. Maybe shareholders are angry about executive pay, considering two of the affected directors sit on the compensation committee. Possibly they're unhappy with some strategic decisions, considering the CEO was dinged.
There's likely another reason. Reviewing the voting recommendations from proxy advisers Institutional Shareholder Services and Glass Lewis, one suggested voting against the three affected directors for a structural reason: "Three of the six directors are either affiliated with the company or are insiders," ISS wrote. "This raises concerns about the objectivity and independence of the board and its ability to perform its proper oversight role.
Chief executive officer Bill Gregson certainly isn't independent, because he runs the show. The two other directors, John Rothschild and Sean Regan, are former executives, so they're classified as affiliated outsiders.
Institutional shareholders often don't have the time to conduct thorough due diligence on how they should vote on annual proxies of companies they own, so they rely on the opinions of advisers such as ISS.
What's interesting in Cara's case is that Glass Lewis came to a different recommendation.
"We prefer boards with a lower percentage of affiliates and insiders," the adviser wrote in its report. "However, Fairfax Financial Holdings Ltd. beneficially owns 87,000 subordinate voting shares and 19,903,378 multiple voting shares, representing approximately 56.9 per cent of the Company's total voting power. We suspect that most shareholders both understand and accept the nature and the extent of Fairfax's control over the Company."
Put more bluntly: It doesn't matter who's on the board if Fairfax controls the company.
Despite the high number of withheld votes, Cara doesn't necessarily have to do anything about it. Still, the incident could be frustrating for Fairfax because it is another case of needing to win over proxy advisers.
Last year Fairfax endured a drawn out saga to help founder Prem Watsa keep control of the company for longer, but it had to come back to the table multiple times to win over shareholders, who were keen to follow what the proxy advisers recommended.