The problem is that tax-privileged RRSP (Registered Retirement Savings Plan) portfolios, which are used by many Canadians for their pension plans, are allowed to contain only 30% in foreign stocks and bonds. That means that institutional investors offering funds to the savings market must put 70% of their assets in Canadian securities. As the Financial Post points out, this is in spite of the fact that Canada represents only about 2% of the world economy.

The rule was meant to encourage the flow of capital into Canadian firms, but as is so often the case it has had the opposite effect: by protecting Canadian firms from competition in the capital markets against their foreign peers, they have been feather-bedded and are now weakened to the point that many investors would actively avoid them if they could.

The Post says that the best firms have already been taken over, and of the remaining ones many have undemocratic voting structures, are controlled by family trusts or are simply unprofitable. Some Canadian companies, such as Bombardier Inc., Alliance Atlantis Communications Inc., Chum Ltd. and Shaw Communications Inc., use preferred shares to let insiders control the majority of votes, although they may own only a small proportion of the common stock. Such structures are unusual or banned in other main equity markets such as the US or the UK.

Mark Rarog, a portfolio manager with Investors Group, told the newspaper: 'You'd never have a company in the United States doing stuff like this. You couldn't have a situation like the one at Magna International, with Frank Stronach owning 2% of the stock but controlling 75% of the votes, paying himself exorbitant amounts of money and making his daughter chief executive. Investors would just say 'No way.' "

Due to the gradual leaching away of well-managed companies into foreign or private ownership, the percentage of strange voting structures is becoming greater. In 1997, 23% of companies listed in the Toronto Stock Exchange 300 had a single shareholder holding more than half of the voting shares, and 17.7% of the companies in the index had preferred shares giving insiders with minority equity stakes voting control; now the comparable figures are 30% and 22.7%.

Forensic accountant Al Rosen told the Post: "Overall, I'm just exasperated with how little protection minority shareholders have," Mr. Rosen said. "It's really hard to go down the list of Canadian companies and say 'That's a company I'd be willing to put my granddaughter's money into.' "