The Canadian Securities Administrators (the CSA) have extended
the comment period to September 21, 2012 for 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.
As indicated in our previous bulletin, the Consultation Paper
indicates that 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 identifies concerns raised by market
participants with respect to proxy advisory firms, such as
potential conflicts of interest, lack of transparency as to the
basis for voting recommendations, inaccuracies in reports and
degree of issuer engagement, development of corporate governance
standards, and the extent of reliance on such firms by
A number of comment letters have already been submitted to the
CSA in response to the Consultation Paper. Issuers who have
submitted comment letters have generally agreed with the concerns
articulated in the Consultation Paper. Issuers, and issuers'
directors, have advocated that proxy advisory firms make completely
available the criteria and methodologies applied for voting
recommendations, provide issuers with sufficient time to review and
comment on draft reports and voting recommendations before
disseminating such reports and voting recommendations to the proxy
firm's clients and for proxy advisory firms to disclose
conflicts of interest generally and with respect to particular
reports on specific issuers. Issuers and issuers' directors
have also expressed the view that proxy advisory firms should
consult with issuer and director communities as to proxy voting
guidelines so that the proxy advisory services voting guidelines do
not reflect a "one-size-fits-all" approach. Some issuers
have also proposed that proxy advisory firms be required to
disclose the number of shares subject to automatic vote execution
services by proxy firms. The commentators to date who believe the
concerns should be addressed in some form are not definitive as to
whether the concerns are best addressed as a CSA policy, a set of
best practices or requirements set forth in binding rules.
On the other hand, institutional investors have indicated that
they do not agree that the concerns identified in the Consultation
Paper have an adverse impact on the integrity of the markets and
accordingly in their view regulatory intervention is not warranted.
ISS has also made a submission, indicating that it believes that,
in light of its efforts as outlined in its response, the perception
of its limited engagement with issuers is misinformed. It also
believes it has a rigorous, inclusive and transparent policy
development process. ISS also believes its potential conflicts of
interest are appropriately mitigated, in the ways set out in its
submission. ISS says it has seen no evidence of market failure
arising from the proxy advisory industry that might warrant
It will be interesting to see how the CSA addresses the concerns
raised by market participants as to proxy advisory services, in
light of the differing views of issuers and directors, on the one
hand, and institutional investors and proxy advisory firms, on the
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