Open this photo in gallery: The logo for Dye & Durham Ltd. is shown in this undated image. The embattled company has already sustained heavy high-level turnover.Dye & Durham Ltd. has twice attempted to use a Competition Bureau investigation into the company to entrench management and directors in the face of a governance challenge by an activist shareholder, documents filed with the Federal Court of Canada show.
In early September, D&D’s outside lawyer, Emrys Davis of Bennett Jones, wrote to the bureau as it was drafting an order for the court compelling the Toronto legal software vendor to produce records and information to the bureau for its investigation into alleged trade restricting practices.
The bureau is investigating whether D&D refused to permit rival vendors of real estate transaction conveyancing software from establishing interoperability with its products, locking customers into product bundles and limiting their ability to export data if they switched to a competitor. The regulator says D&D’s rivals have experienced hindered growth as a result. D&D has achieved a dominant market position through acquisitions, dramatically hiking prices and angering legal professionals who had little choice but to pass on higher fees to customers.
In the letter to bureau counsel Katherine Rydel, Mr. Davis requested the bureau extend the time in the draft order for D&D to comply to 90 days from 60, which it did.
But because activist hedge fund Engine Capital LP was seeking to replace three directors at a special meeting of shareholders, Mr. Davis made an additional request. Given the likely departure of senior executives should Engine succeed, the “loss of institutional knowledge could further delay Dye’s compliance and frustrate the commissioner’s ability to receive a timely response,” he wrote. So he asked the bureau to insert a clause in the draft order that, to ensure compliance, “the respondent shall maintain its current directors or a majority thereof” until it complies with the order.
The embattled company has already sustained heavy high-level turnover. An organization chart in the court file shows eight of the 10 executives reporting directly to chief executive officer Matt Proud have departed since the spring of 2022. If the bureau agreed and the court had accepted the request, it would have delayed changes to company leadership. The bureau didn’t bite.
Then on Monday, Engine expanded its challenge, proposing to replace nearly the entire seven-person board at next month’s annual meeting with a six-person slate and “rebuild a top-performing executive team.”
A day later, just before a court hearing, Mr. Davis again wrote the bureau, asking that, given Engine’s expanded threat, competition commissioner Matthew Boswell reconsider D&D’s request “to include a term in the order that maintains management pending Dye’s compliance with the order.” He called the governance challenge “an extraordinary situation that demands management’s near-complete attention” as D&D expects Mr. Proud and several other senior executives to lose their jobs if Engine succeeds. Maintaining the team and their institutional knowledge “is critical to Dye’s ability to compile the necessary information to comply with this order,” he wrote.
The last-ditch gambit failed again. The court’s order that day contained no such provision, meaning D&D is now fighting two time-sensitive battles simultaneously – to produce extensive records for a regulator that has been flexing newly granted legal powers while preparing for a showdown at its annual meeting on Dec. 17.
Engine managing partner Arnaud Ajdler said in an e-mail: “Under a competent CEO with a focus on operational excellence, none of these issues with the competition bureau would be occurring. Instead, we have a weak board and CEO that are trying to use their own mismanagement as an excuse to hold onto power.” He blamed Mr. Proud and the board for a “broken culture” and said “they should not be trying to use regulatory intervention to avoid accountability” at the meeting. “Wholesale change is clearly needed to fix the company’s culture and restore trust with its customers, employees and shareholders.”
D&D spokesman Wojtek Dabrowski said in an e-mailed statement that Engine “is dramatically mischaracterizing the company’s good faith effort to keep the bureau informed and provide it with options to mitigate the impact” of the activist’s campaign on the investigation, which, if successful, “would make it near impossible to comply” with the court order. He accused Engine of “reckless disregard” for the other stakeholders “in its relentless pursuit for control.”
The latest turn adds to a tumultuous year for D&D, which since last fall has faced three other governance challenges, refinanced its high debt, cut staff and launched a strategic review that could lead to the company’s sale. Other investors including ex-chairman Tyler Proud, brother of the CEO, have expressed discontent over its mounting debt, pace of acquisitions, board oversight over management and rich compensation to the CEO while its stock has remained at depressed levels.
News of the bureau’s investigation sent D&D stock tumbling 12.5 per cent Thursday. It recovered less than half that drop Friday after the CEO said D&D was co-operating with the probe and didn’t think it had done anything wrong. He speculated that if D&D was ultimately fined the penalty would be $15-million or less.