Canada: CSA Invite Comments On Regulating Proxy Advisory Firms

The Canadian Securities Administrators (the CSA) have requested comments from market participants on concerns raised about services provided by proxy advisory firms (such as Institutional Shareholder Services Inc. (ISS)), and their impact on Canadian capital markets and to determine if, and how, these concerns, should be addressed by Canadian securities regulators.

This consultation provides an opportunity to Canadian public company issuers which have concerns regarding their interactions with proxy advisory firms, notably ISS, with respect to voting recommendations provided by ISS on issuers' governance matters such as the election of directors, approval of stock plans, and approval of M&A transactions, to comment to the Canadian securities regulators on whether, and how, proxy advisory firms such as ISS should be regulated.

This CSA request for comments is contained in CSA Consultation Paper 25-401: Potential Regulation of Proxy Advisory Firms dated June 21, 2012 (the Consultation Paper).

Objectives of Consultation

The Consultation Paper indicates the CSA would like to obtain information and views about the concerns raised by market participants regarding proxy advisory firms to further inform the CSA's analysis before the CSA conclude whether there is a need to regulate such firms. The Consultation Paper outlines possible securities regulatory responses to the concerns raised and possible regulatory frameworks to implement those responses, and requests feedback on those.

Services Provided by Proxy Advisory Firms

As the Consultation Paper indicates, a proxy advisory firm is one which reviews and analyses matters (whether issuer or shareholder proposals) put for a vote at shareholders' meetings, and makes voting recommendations on such matters to its clients, which are usually institutional investors. These matters range from the election of directors to M&A transactions that involve a voting decision.

The Consultation Paper notes that, in addition to providing proxy advisory and voting services to institutional investors, some firms also provide consulting and advisory services to issuers on corporate governance matters.

The Consultation Paper indicates that the proxy advisory industry in Canada is dominated by two firms: ISS and Glass, Lewis & Co. The Consultation Paper notes that, in recent years, the demand for services provided by proxy advisory firms has grown for a number of reasons, including enhanced continuous disclosure requirements as well as the number and complexity of matters to be voted upon at shareholders' meetings.

The Consultation Paper notes that, while the potential or perceived influence of such firms on institutional and retail investors is a complex issue, it is the CSA's understanding that institutional investors generally follow the policies and recommendations of proxy advisory firms.

The CSA notes that some market participants cite the potential influence of proxy advisory firms over vote outcomes and corporate governance, combined with the possible negative impact of conflicts of interest and lack of transparency, as support for greater regulatory oversight over proxy advisory firms. The Consultation Paper also notes that critics argue that possible risks to market integrity are greater because of limited competition in the proxy advising industry.

Concerns with Proxy Advisory Services

The Consultation Paper identifies the following concerns raised by market participants with respect to proxy advisory services.

  1. Potential Conflicts of Interest. The Consultation Paper notes that a conflict of interest may exist if the proxy advisory firm provides voting recommendations to institutional investors for governance matters for which the same firm is providing consulting services to the issuer.
  2. Lack of Transparency. The Consultation Paper also notes concerns about the lack of disclosure about how proxy advisory firms arrive at their voting recommendations and the lack of public disclosure of the actual report.
  3. Inaccuracies and Issuer Engagement. The Consultation Paper notes concerns raised by some issuers with respect to inaccuracies in proxy advisors' reports and that such inaccuracies may lead to misinformed decision-making, particularly in the case of complex, controversial voting matters (including M&A transactions) or "close vote" situations.
  4. Development of Corporate Governance Standards. Another concern identified was that proxy advisory firms may have become de facto corporate governance standards setters, without necessary expertise and transparency, and that issuers are compelled to adopt "one-size-fits-all" standards which may not be suitable in specific circumstances.
  5. Reliance by Institutional Investors. There are concerns that institutional investors may rely too much on the vote recommendations provided by proxy advisory firms.

Current Regulatory Landscape

The Consultation Paper states that proxy advisory firms are not currently subject to any form of Canadian securities regulatory oversight, noting that such providers are not "advisors" under the securities registration regime as they do not advise as to whether or not to buy securities, and the current proxy solicitation rules expressly carve out proxy voting services.

The Consultation Paper also describes the initiatives taken by other jurisdictions, such as the U.S. S.E.C. and the European Commission, with respect to regulating proxy advisory firms.

Possible Requirements

The Consultation Paper indicates that, based on the feedback received and evidence of the impact of the concerns on market integrity, the CSA may determine that a securities regulatory response is warranted to address any or all of the concerns raised. The Consultation Paper also indicates that, to the extent that the CSA conclude that a securities regulatory response is warranted with respect to proxy advisory firms, the CSA's current preferred securities regulatory solution would be the creation of a new stand-alone securities regulatory instrument. The CSA say this would require that the CSA obtain clear legislative authority to regulate proxy advisory firms. The CSA currently believe the regulatory framework contained in National Instrument 51-102 Continuous Disclosure Obligations relating to proxy solicitation is not an appropriate securities regulatory framework for proxy advisors.

The Consultation Paper indicates that the potential requirements in a new securities regulatory framework for proxy advisory firms could require proxy advisory firms to have policies and procedures designed to identify and manage potential conflicts of interest and to separate proxy voting services from advisory and consulting services. The Consultation Paper suggests that the securities regulatory framework could also require increased transparency in the activities of proxy advisory firms, which would be required to disclose internal procedures, guidelines, standards, methodologies, assumptions and sources of information supporting vote recommendations and how proxy advisory firms would implement policies to deal fairly with comments received from issuers by allowing issuers an opportunity to review the reports and proxy advisory firms to respond to issuers' comments prior to issuing a report.

While the Consultation Paper indicates that the preferred securities regulatory framework may be a stand-alone securities regulatory instrument, the CSA note they considered a "designation" framework, similar to that in place for credit rating organizations, a certification framework where an appropriate person would certify compliance with the specific requirements, a "comply or explain" framework which require proxy advisory firms to comply with specific best practices or explain if they have not so complied, and "best practices guidance" which would be the CSA policy providing guidance on best practices for proxy advisory firms.

Request for Comments

The Consultation Paper directs a number of questions to all market participants, including whether participants agree with the concerns identified in the Consultation Paper, whether participants have other material concerns with proxy advisory firms not identified and whether participants believe that proxy advisory firm activities should be regulated in some respect. It also contains specific questions relating to the existence and possible remedies for addressing potential conflicts of interest, remedies for the perceived lack of transparency in methodologies and analyses, changes to processes relating to engagement with issuers and addressing potentially inappropriate interference in corporate governance practices, and the proposed regulatory response and framework.

The Consultation Paper also contains specific questions for institutional investors, such as the extent and ways they rely on proxy advisory firm services and how the voting recommendations of these firms impact their decision-making process.

Specific questions addressed to issuers include what their overall experience has been with proxy advisory firms, whether the concerns identified have had a negative effect at voting outcomes at shareholders meetings (including specific examples), to what extent issuers have adopted corporate governance standards recommended by proxy advisory firms not appropriate for their organizations, and whether there have been instances where the issuer has identified potential inaccuracies in the proxy advisory firm's recommendation, and whether these were material inaccuracies that would have resulted in a change of the proxy advisory firm's vote recommendation.

The Consultation Paper also poses questions for proxy advisory firms, such as their views on the identified concerns and possible regulatory responses.

The CSA have requested comments in writing with respect to the Consultation Paper on or before August 20, 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.