This is from a recent Globe and Mail opinion piece by Douglas Sarro, a securities law professor at the University of Ottawa:

• An upcoming Supreme Court of Canada case deals with public companies’ obligation to immediately disclose material changes that occur within their business rather than waiting until their next financial quarter to tell investors about these developments.
• For decades, the Supreme Court and securities regulators have interpreted the obligation to disclose material changes broadly, encouraging companies to err on the side of disclosing new developments sooner rather than later. This counters managers’ natural temptation to delay disclosing negative developments, perhaps in the hope that things will turn around or at least come to seem not quite as bad as they first appear.
• Now, however, the Supreme Court is being invited to reverse course by embracing the approach taken by a lower court judge in Markowich v. Lundin Mining Corporation, who seemed to think timely disclosure of bad news is only necessary when there is a ”threat to [a company’s] economic viability” – a very high bar. This approach would read the timely disclosure obligation largely out of existence.
• That would be a mistake. The Supreme Court should stay the course in its upcoming securities case and uphold its long-standing guidance.

To flesh that out a bit, the case dealt with Lundin’s detection of “pit wall instability, arising from an unstable wedge, in a localized area of its open pit operations,” and a subsequent rock slide, within a few days of each other in October 2017; the company didn’t disclose anything of these events until a general update press release about a month later. The plaintiff in the case alleged the events were “material changes” to Lundin’s “business, operations or capital” as defined by Canadian law, so that the company should have disclosed them immediately by a news release, followed up by a “material change report” within ten days. But as the article indicates, the judge concluded otherwise, the judgment stating:

• There is no evidence of any change to Lundin’s business, operations, or capital arising from the events. The only effect was that 15,200 tonnes of copper mining was deferred until 2020 or 2021, with some increased costs and decreased revenues arising from milling lower quality copper. The deferred copper represented less than 5% of Lundin’s annual production, which was already scheduled to be reduced (by a lower amount) due to previously planned resequencing.
• There was no evidence that either the Pit Wall Instability or the Rock Slide raised any threat to Lundin’s economic viability…At all times, Lundin was able to continue its business, operations and capital as a worldwide mining corporation.

There was a time in my career when I spent a fair bit of time fussing over the definition of “material changes” and whether public companies had interpreted their obligations correctly, and I’m sure at that time I would have been among those rolling their eyes (or worse) at the Lundin decision. Securities law aside, the decision seems even more regressive if judged against present-day realities, in which the hunger for information and (possibly AI-related) capacity to respond to it are ramped up way beyond what was once imaginable. Maybe there was a time when the quaint mechanism of the material change report was important in assisting investors to structure their review of a company’s disclosure record, but that certainly isn’t the case now; if the decision were to be judged appropriate as an application of existing requirements (not impossible I suppose, as it wasn’t exactly dashed off during a lunch break), it would only speak to the near-comic irrelevance of those requirements.

Sarro’s article takes a somewhat unexpected direction though. He states: “Some industry participants might feel that rewriting the rulebook will help reverse the significant decline in the number of Canadian public companies since 2000,” then goes on:

• For example, securities law lets business raise unlimited capital from pension funds and other institutions via private markets. This might not have been too important back when institutional investment was in its infancy, but today, it means businesses can access massive pools of capital without ever having to look to public markets.
• If we think more of these businesses ought to be going public, maybe the answer is to require them to start taking on public company obligations once they reach a certain size. U.S. securities laws have long imposed such a requirement – it’s why Google went public.
• You can criticize this proposal for interfering with free markets or potentially threatening our competitiveness, but it would seem to stand more of a chance of boosting the number of public companies in Canada than further deregulating our public markets.

As written, that seems essentially to say that the private markets should be saddled with various obligations that no one is really asking for, just so public markets will seem a little less onerous by comparison. Doesn’t seem like a particularly winning strategy to me. Anyway, the Lundin decision can be adequately critiqued without needing to head down such a quirky road…

The opinions expressed are solely those of the author.