The greatest weakness of the regulatory system is that it does not protect investors. The Bre-X debacle still has not established a culprit nor compensation. The Castor Holdings case is now 10-years in the Court. As a witness, I still have not been called. Unfair takeovers continue, squeeze outs by eliminating dividends; unfair takeovers as the Tarkett merger with Domco and now the Domco Tarkett minority squeeze out are examples. Dupont of Canada too is a case where de facto the law accepts 51% of the minority in case of merger with other firm, instead of the 90% bar. This is legal circumvention! Is it proper? So-called independent directors are often not independent and expert fairness opinions carry such high fees that the investment dealers are careful not to offend the companies, even if their job is to protect the minority.

The weakness is amplified by the fact that the commissions operate strictly within the established law and regulation, rather than in terms of fairness. The more complex the laws, the simpler it is to find loopholes. Lawsuits (see Bre X) take years and that alone denies justice.

The second weakness of the system is the cost to companies in the investment business of all the forms to be filled out at intervals and the enormous work required to meet all the commission demands for compliance. It has become for a counseling firm a total nightmare with 10% of our people doing nothing but that, and there is ever more and more of it. This should be simplified to what is truly essential and which will be scrutinized actively by the commission staff and acted upon.

The compliance requirements are so arduous that they will lead to higher fees for clients - the opposite of protecting them, while detracting materially from the research and implementation work.

Reporting to all provinces separately plus the federal government is a crazy quilt requirement. A consensus on one report emailed to all is indicated. (13 regulatory agencies now).

The commission lawyers are not paid nor as 'lawyerish' as those of the large law offices and, since they want to return to these, are often not truly independent enough.

I have often said that if the commission didn't exist, investors would not naively believe that there is someone out there to protect them.

How many small clients have had restitution from brokers for the travesties visited on them during the hi-tech bubble? And those that have at what legal cost?

There is ever more red tape and no real enforcement! The crooks rarely go to jail and sums levied on them favor the odds on the criminals for any amateur gambler!

The commissions spread a wide-net, which allows not only small crooks to get through, but some of the biggest.

The proxy voting system is such that Board of Directors have major advantages even over large public or private investors. How often have the automatic management proxies (often encouraged by a cash reward) of the banks, brokers investment dealers and trust companies punished shareholders and not even allowed 20% holders to obtain fairness? There should be NO reward paid by companies to intermediaries for sending in proxy votes. Proxies on lent-out shares should remain with the true owner and only true owners or intermediaries with the same benefit should be allowed to act as agents. The present system is leveraged against the investor interest and destroys investor confidence and capital! Trust companies, banks, other custodians often are too close to corporate management nor do they find time to stand up for shareholders.

The laws should allow investors to vote for individual directors - not for slates. The proxy should allow investors to vote 'against' rather than only 'abstain', etc.

The TSE should not be the guardian of governance as it has a conflict. It should be a panel of investors. The Canadian Coalition for Good Governance was formed exactly because neither the Security Commissions nor the Stock Exchanges do their job.

Directors of both the Securities Commissions and the Stock Exchanges should have strong investor representation (at least 50%).

Moreover, the Commissions should not have to rely only on laws and regulations, but to address fairness and true investor protection. As Warren Buffett says "Compensation has been more about the distribution of wealth (to the management) rather than creation of wealth".

I do not see the need to meet regional or local requirements specifically, rather what we need is a national standard based on reality and common sense and commissions which can do what is right rather than going by a quilt work of laws and regulations established by theoretical nonsense dreamt up by civil servants and lawyers. The Canadian Tire case some years ago was handled right and rationally by Stanley Beck, then head of the OSC. The Southam law suit was abandoned with a slap on the wrist rather than a fine of $250 million, a few weeks before an election in which newspapers might be helpful. To right this, I later made common cause with Messrs. Black and Desmarais and so eventually got a fair price in the end.

I believe that the Canadian Coalition for Good Governance with minimal funds can and will be far more effective to enforce integrity and good boards than all the security laws and commissions put together, only because we can act and have the will to do so. Laws in 5000 years since Hamurabi have failed to stop the crooks. There should be a minimum of regulation and a maximum of common sense and real protection. Information, long prospectuses that no one reads serves no purpose -only creates costs.

An inefficient, little protection regulation structure obviously is not helpful to be internationally competitive, nor to woo investors worldwide. A system that purports to protect but only largely heaps red tape on the participants only detracts from important and effective work by the investment management firms. It loads costs, passed on to clients and so yanks an extra fee out of their pocket. You should see all the work we need to do - a firm that has not been sued by a single client in forty-eight years. When we bring problems to the attention of a commission we get a polite answer, but not a real action. Investors cheated have time after time turned to commissions with minimal response. Our system is poor. The fact that those of other countries are equally poor or worse is no reason to crow!

Obviously some regulations are sensible, but not if they are not enforced. Much of the stock market today is a transfer of savings to greed of managers or controlling owners. Many companies are created for little else (Calgary exchange). You see I am a little bitter after having fought battle after battle with none or minimal help from the Commissions and having endured ever growing 'chicken shit' regulation, especially recently based on political hype of politicians seeing 'terrorists' behind every tree! When the CIA and FBI have no clue either re: 'weapons of mass destruction' in Iraq, it is difficult to understand being terrorized by regulation that has a life of its own, ever more swallowing valuable time from real research and real money management. The insult on injury is that we have to pay ever more for this nonsense, both as companies directly and as taxpayers indirectly.

Jarislowsky Fraser Limited
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