Case task The case of corporate governance in North American Paper company
North American Paper Inc. (NAP) is a major Canadian producer in the paper industry, providing coated paper that is used in the production process of magazines, catalogues, inserts and commercial printing.
The company expanded its operations throughout Canada and the United States; however acquired significant debt by doing so. Due to the declining price of paper, the company was forced to sell a good portion of their assets and issued 600 million shares to raise equity, therefore diluting the market.
NAP was highly leveraged and required a strategy to become profitable once again.
Erik Bassey, along with Fairview Funds became NAP’s largest shareholders, with 18.7% and 4.3% respectively in January 2011. Bassey, an American Lawyer and financier had no previous experience in the industry or in restructuring firms. Fairview on the other hand, was a U.S. investment and mutual fund company with experience in investing in troubled companies.
In January 2011, Bassey became director and the Chariman of NAP, as well as Chairman of the Compensation Committee. The following months involved numerous Corporate Governance practices that were questionable. In August 2011, Bassey was not re-elected to the board of directors by the shareholders and sued NAP for U.S. $27 million in the state of New Jersey.
This paper will illustrate the strengths and weaknesses of Bassey and NAP’s case, including an analysis of key governance weaknesses that led to the conflict. In addition, I will summarize the corporate governance measures that NAP should undertake to avoid future conflicts and conform to standards.
Problem Statement
At the time when Bassey became director and Chairman of NAP, his mandate was to increase shareholder value and assume a non-executive role. However, in the following weeks, he proposed an Executive Employment Agreement (EEA), proposing to become NAP’s Senior Executive Officer.
The terms of the EEA were extreme and received massive resistance by the board of directors. Due to Bassey’s persistence, the EEA was finally introduced in March 2013 to the discontent of Fairview Funds and shareholders. Did Bassey follow the Corporate Governance measures and did he act ethically? This will be evaluated in the following parts of the analysis.
Independent Advisor Analysis
Governance Strengths and Weaknesses
Bassey sued NAP for U.S. $27 million following his removal from the board of directors at NAP’s annual meeting in August 2011. The following table illuminates the governance strengths and weaknesses of the two sides in t.....[read full text]
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