Law Times

Law Times • June 29/JuLy 6, 2009 Door opens to return of the noose I n an interview two weeks ago with the influential French-lan- guage daily, Le Devoir, Canada's Foreign Affairs Minister Lawrence Cannon said that capital punish- ment is okay for Canadians as long as they are convicted in "sovereign and democratic countries" which adhere to the primacy of law. He said the Harper government would not seek clemency for Ca- nadians sentenced to capital pun- ishment in those countries. Not a blessed word appeared in English-Canada about Cannon's announcement in support for the death penalty abroad. It was as if the rest of Canada was totally asleep or hiding out somewhere north of Red Deer, Alberta. It wasn't a slip-up either. Can- non came back on June 19, the last day of the session, and re- peated what had been reported in print, linking the death penalty to Canadian values of liberty, de- mocracy, and human rights. Cannon stopped short of the old saw about "an eye for an eye, a tooth for a tooth," perhaps re- alizing that a country blind and toothless might put an additional strain on our medical resources. Nor did he indicate whether this is the first step towards bringing back the death penalty in the fall when the session resumes. Cannon repeated that the Harper government would re- spect "the decisions of sovereign and democratic states" about ex- ecuting Canadians. He did not mention anything about torture. Canada abolished the death pen- alty in 1976, and seeking clemency for Canadians convicted abroad has been automatic ever since. But in November 2007 the government Harper announced that it would not help Ronald Al- len Smith, a Canadian sentenced to death in Montana for killing two natives. Smith is still on death row. Last March a Federal Court ordered Harper to seek clemency for Smith. A Canadian youth, Mohamed Kohail faces execution by de- capitation in Saudi Arabia in the 2007 death of another student in a schoolyard fight in Jeddah. Harper has not lifted a finger to help so far. Does that mean that Saudi Arabia, home of 15 of the 19 New York 9/11 terrorists, is on Cannon's list of "sovereign and democratic" countries? King Saud would argue that it should be, and he has the oil exports to Canada to prove it, but some refugees might question the "demo- cratic" label for Saudi Arabia. Sharia law is in effect in Saudi Arabia. Was Cannon referring to respect for primacy of "Sharia" law, or did he mean only "Cana- dian" law? Another problem. And what about a third Cana- dian awaiting execution by a fir- ing squad in China who was con- victed of something or other that has to do with offending the state, a law that Chinese courts take se- riously, at least serious enough to execute him? In Canada, it's called a Letter to the Editor. Cannon's announcement raises The Hill By Richard Cleroux all sorts of international problems for Canada. Perhaps that was why Prime Minister Stephen Harper chose Cannon to make the an- nouncement. There are 192 countries in the United Nations. Most are "sover- eign" although only about half we would consider "democratic" and even that can be debated. Countries will want to know if they are on Cannon's list of good guy countries whose laws he re- spects, which means they can ex- ecute Canadians at will. And the ones who are not on his list, are going to be awful mad. How agreeable are they going to be to grant his request for clemency? Either way, it is a dumb move. Cannon has boxed himself into a no-win situation with the lives of Canadians at stake, all this from a Harper government which promises to protect at all cost the "lives and security" of all Canadians. It would have been much simpler to avoid indulging in an ideological "pick-and-choose" of who lives and who dies, and continue to ask for clemency in every case, at least be- ing consistent with the absence of a death penalty in Canada. The Opposition in the Com- mons was ready for Cannon on the last day of the session. Liberal Bob Rae asked, "If the death penalty is not acceptable in Canada why would it be accept- able for Canadians in the U.S., China or Saudi Arabia?" "He's in favour of capital punish- ment," said Bloc Leader Gilles Du- ceppe. "It's as simple as that." Bloc MP Francine Lalonde said the Harper government has given itself arbitrary power of life and death over certain Canadians by deciding who gets clemency and who doesn't. The new policy may be an in- dication the Harper government is planning to try to bring back the noose in Canada. It all depends on how well its new "pick-and-choose" policy goes over on the BBQ circuit this summer while the Commons is on holidays. Both the UN and Amnesty In- ternational have asked the Harper government not to play "pick-and- choose" with Canadians' lives. For years the Liberals have been saying — especially at election time — that the Conservatives are secret- ly planning to bring back the death penalty, by steps, if not all at once. But until now the Liberals nev- er had any tangible proof to back up their allegation. Cannon's an- nouncement changes all that. The summer will tell how far he gets. LT Richard Cleroux is a freelance reporter and columnist on Parliament Hill. His e-mail address is richardcleroux@ rogers.com. COMMENT Say on pay I n these dark days of economic recession, executive compensation is the hottest issue in the staid world of corporate law. Shareholder activists and government regulators — particularly in the United States — are rethinking corporate management doctrines developed two centuries ago. As the world slithers, governments are bailing out banks in order to keep the financial system from sinking. Meanwhile, some corporations have shovelled bonuses out the back door just as corporate executives have voluntarily renounced their pressure performance to "claw pay. Corporations generally award bonuses for superior performance. In the absence of stellar performance, there has been mounting back" past bonuses. Some corporate boards Financial as quickly government By Vern Krishna bailouts came in through the front door. There are essentially three aspects of executive compensation: How much? Who determines? And, who discloses? In February, the Royal Bank of Scotland was set to award its staff ₤1 billion in bonuses, after the British government — which now owns 70 per cent of RBS — had poured in ₤20 billion in bailout money to keep the bank afloat. The British Finance Minister, Alistair Darling, announced a hasty review on bonuses: "I expect the review to make recommendations about the effectiveness of risk management by banks' boards, including how pay affects risk-taking." By June, British MPs (including the House Speaker) were resigning their seats over disclosure of bizarre expense claims. The principles of modern corporate governance evolved from 19th Century concepts. Shareholders contribute money in exchange for shares and own the corporation; directors manage the corporation in the best interests of the corporation — not necessarily the interests of shareholders. Thus, shareholders have no direct legal input on executive compensation policies. "Say on pay" may be slow in coming, but has the potential to radically shift the principles of corporate governance in North America. Corporations are under increasing pressure to allow shareholders some input into the amount, form, and disclosure of executive compensation. Shareholders want a voice. Canadian banks set a good example and exercised leadership early. The Canadian Imperial Bank of Commerce, the Royal Bank of Canada, and others passed resolutions that shareholders should be permitted non-binding votes on executive compensation. The banks acceded to the requests in light of impending shareholder revolts on corporate compensation. Manulife Financial initially resisted allowing shareholders any say, but capitulated under peer pressure and changed its policy to allow non-binding shareholder input. We should reasonably expect similar demands on governmental and regulatory bodies. "Non-binding vote" may appear to be an oxymoron to some. For others, however, it is the first step to shareholder participation in corporate decisions. In public corporations the issue is whether shareholders have any input into management and board decisions. In regulated industries, the issue is whether the shareholders have any "right to know" before they have any "right to say." In light of the erosion of corporate earnings and equity values, some senior www.lawtimesnews.com introduced Matters innovative ways of conceding executive bonuses. They channel what would have been the executive's bonus to a charity of the chief executive officer's choosing. Although such a contribution does not restore shareholder wealth, it benefits the charity in these times of dwindling charitable contributions. Presumably, the charity issues a charitable donation receipt and the corporation —not the CEO — gets a deduction. Charitable donations to divert executive compensation can be a minefield. If the donation actually diverts the executive's compensation at the executive's direction, it may be an indirect payment to him or her. The Canada Revenue Agency can challenge indirect payments and tax the executive on the amount diverted. There are no easy answers to these structures and they should be carefully reviewed. Another aspect of executive compensation that warrants scrutiny is the practice of "grossing-up" of corporate perks and benefits. The "gross- up" payment covers the tax bite of perquisites — such as club memberships, the use of corporate cars and jets. In some cases, gross-up payments extend to differentials in tax even rates between countries. The most expensive type of gross-up is payment on golden parachutes payable upon voluntary or involuntary severance. The amount of the gross-up for taxes payable is itself taxable as a perquisite. Hence, the gross-up requires a further gross-up and the cycle continues. For example, assume that an individual receives a $100 benefit that is taxable at 35 per cent, leaving a net of $65. In order to restore the individual to the $100 net of tax benefit, the corporation must gross-up the amount of the perk by 54 per cent to $154, which will leave a net after-tax benefit of $100. For example, Tiffany & Co. disclosed in its 2008 proxy statement that its Chief Executive Officer Michael Kowalski would have received a gross-up of $7.7 million on his severance valued at $20.8 million if the company had been acquired. As the recession grinds on, corporate boards and shareholders are taking a closer look at gross-ups. At least 43 companies in the Standard & Poor's 500 stock index had already decided by April 2009 to stop paying gross-ups for taxes on executive perquisites and benefits. It is too early to predict whether shareholder activism is merely transient and will abate when we climb out of the recession and equity values improve. At the very least, CEOs of responsible companies will disclose more information to their members. After all, in corporate governance, sunlight is the best disinfectant. LT Vern Krishna, QC, FCGA, is tax counsel with Borden Ladner Gervais LLP, and executive director of the CGA Tax Research Centre, University of Ottawa. He can be reached at vkrishna@blgcanada.com. PAGE 7

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