Authors: Anna Beatch, Erin Smith
This post was written prior to our January 2017 merger, under our previous firm name, MacPherson Leslie & Tyerman LLP.
The Canadian Securities Administrators (the “CSA“) have taken steps to improve the shareholder voting process by addressing issues with the Canadian proxy voting infrastructure and meeting vote reconciliation process.
Shareholder voting is one of the most important ways by which investors can exercise their franchise to affect corporate governance and communicate preferences to issuers. Issuers also rely on shareholder voting to approve certain corporate governance matters and transactions in accordance with corporate law requirements.
Shareholder voting generally occurs through a proxy appointment process, whereby investors appoint someone else to attend and vote on their behalf at a meeting of shareholders. This is because most investors are not the registered owners of their shares; rather, they hold their shares through intermediaries (such as banks and brokerage firms).
The intermediated shareholding system in Canada is complex. Several businesses, such as central depositories, intermediaries, proxy voting agents for intermediaries and meeting tabulators, operate the proxy voting infrastructure and implement the meeting vote reconciliation process – the process used to tabulate proxy votes for shares held through intermediaries.
Issuers and investors have expressed concerns that the Canadian proxy voting infrastructure and meeting vote reconciliation process are inaccurate, unreliable, and non-transparent. Over-voting (when more proxy votes are cast than are entitled to be voted) and missing votes were two specific problems identified by issuers and investors.
Their concerns triggered the CSA to conduct a review of the proxy voting infrastructure and meeting vote reconciliation process. Multilateral Staff Notice 54-304 – Final Report on Review of the Proxy Voting Infrastructure (the “Proxy Voting Report“), published by the CSA on March 31, 2016, concludes that information gaps and communication gaps undermine the accuracy, reliability and accountability of the proxy voting infrastructure and meeting vote reconciliation process and result in, among other problems, over-voting and missing votes. Specifically, meeting tabulators do not always have accurate and complete vote entitlement information required to establish which intermediaries have vote entitlements for a shareholders meeting and how many vote entitlements they have. Furthermore, there are no standard communication channels between intermediaries and meeting tabulators, which means that there is no way to efficiently confirm that all necessary information has been provided to meeting tabulators or to resolve information gaps that cause proxy votes to be rejected or reduced.
To address these gaps and to increase the accuracy, reliability and accountability of the proxy voting infrastructure and meeting vote reconciliation process, the Proxy Voting Report proposes four voluntary protocols. The proposed protocols set out the CSA’s expectations on the roles and responsibilities of the key participants and provide guidance on the processes that they should implement to ensure, among other things, that:
- issuers, central depositories, intermediaries and proxy voting agents for intermediaries generate the information that meeting tabulators require to accurately establish which intermediaries have vote entitlements and how many votes each intermediary is entitled to cast;
- meeting tabulators use a consistent process for recording how many votes each intermediary is entitled to cast;
- accurate and complete proxy vote information is provided to meeting tabulators, and proxy votes are tabulated and recorded in a consistent manner; and
- beneficial owners of shares are informed if their proxy votes were rejected or reduced at a shareholders meeting.
For more information with respect to the proposed protocols, see Annex A of the Proxy Voting Report.
The comment period on the proposed protocols closed July 15, 2016. The CSA plans to hold one or more roundtables in fall 2016 to discuss any significant concerns that were raised in the comment letters, including the cost of implementing the proposed protocols. The CSA intends to publish final protocols for the 2017 proxy season.
At this point, the CSA has indicated the proposed protocols will be voluntary but that it will closely monitor the implementation of the proposed protocols during the 2017 proxy season. The CSA has also indicated it may consider implementing mandatory rules in the future. It remains to be seen what the cost and resource impacts will be on the key stakeholders in implementing the proposed protocols and how issuers and investors, who ultimately bear the cost of carrying out these processes, will be affected.