Canada: OSC Priorities Include Improving Shareholder Democracy

The Ontario Securities Commission (OSC) recently released OSC Notice 11-768 – Notice of Statement of Priorities for Financial Year to End March 31, 2014 (Priorities Notice). The Priorities Notice, among other things, stated that the OSC recognized the importance of shareholder democracy and acknowledged that the OSC will be working to address the recently announced initiative of the Ontario government aimed at increasing the representation of women on boards of directors.

BACKGROUND ON THE PRIORITIES NOTICE

The Securities Act (Ontario) (OSA) requires the OSC to deliver to the Minister of Finance (Ontario) by June 30 of each year a statement setting out the OSC's priorities for its current financial year in connection with the administration of securities laws in Ontario, with a summary of the reasons for the adoption of the priorities.

The OSC previously published draft OSC Notice 11-768 – Statement of Priorities – Request for Comments Regarding Statement of Priorities for Financial Year to End March 31, 2014 (Request for Comments) on April 4, 2013, in respect of which interested parties were invited to make written submissions to the OSC.

In response to prior feedback that the OSC had identified too many priorities, the Request for Comments set out 13 key priorities intended by the OSC to address significant market issues and challenges and measurably benefit investors and other market participants. The Priorities Notice states that the OSC received 26 responses to the Request for Comments, covering a range of topics. Of the issues identified in the responses, the OSC included in the finalized Priorities Notice one additional key priority related to the recognition of shareholder democracy, bringing the number of key priorities to 14.

SHAREHOLDER DEMOCRACY

The Priorities Notice notes that shareholder democracy allows shareholders to elect directors, vote on governance matters such as say-on-pay and approve significant transactions involving the issuer, and is an important element that supports investor confidence in the securities regulatory regime in Ontario.

Shareholder democracy concerns were absent from the Request for Comments. Numerous commenters encouraged the OSC to continue the review and regulatory development of the shareholder democracy issues identified in OSC Staff Notice 54-701 – Regulatory Developments Regarding Shareholder Democracy Issues (OSC Staff Notice 54-701) published in January 2011.

Director Elections

As part of last year's statement of priorities, the OSC stated that a key initiative for the year ended March 31, 2013, was to facilitate shareholder empowerment in director elections by "advocating" for the elimination of slate voting, the adoption of majority voting policies for director elections and enhanced disclosure of voting results for shareholder meetings. See our July 2012 Blakes Bulletin: OSC to "Advocate" for Director Election Reforms.

Effective December 31, 2012, the Toronto Stock Exchange (TSX) adopted amendments to its Company Manual, which now generally require TSX-listed issuers to, among other things, provide for the election of directors individually and not by way of a slate, hold annual elections for all directors and make specified disclosures concerning the issuer's majority voting policies relating to the election of directors. The TSX also requested comments on a further proposal to require TSX-listed issuers to adopt a majority voting standard (TSX Majority Voting Proposal). See our October 2012 Blakes Bulletin: TSX Adopts, and Proposes, New Director Election Requirements. The TSX has stated that it anticipates the TSX Majority Voting Proposal, if implemented, will become effective as of December 31, 2013.

The Priorities Notice notes the OSC is supportive of the TSX Majority Voting Proposal and intends to improve shareholder democracy and protection by facilitating the adoption of majority voting for elections of directors by issuers listed on the TSX.

Proxy Voting Infrastructure

The Priorities Notice states that the OSC and the Canadian Securities Administrators are reviewing concerns about the effectiveness of the proxy voting system by which shareholder voting rights are exercised, as identified in OSC Staff Notice 54-701, and plan to publish a concept paper in the summer of 2013 to outline and seek feedback from stakeholders on key proxy voting infrastructure issues.

REPRESENTATION OF WOMEN ON BOARDS OF DIRECTORS

The Ontario government announced in its recent 2013 Ontario Budget that it strongly supports broader gender diversity on the boards and in senior management of major businesses, not-for-profit firms and other large organizations and that in conjunction with others, including the OSC, it will consider the best way for firms to disclose their approaches to gender diversity, with a view to increasing the participation of women on boards and in senior management.

Although not included as one of the 14 key priorities, the OSC acknowledges in the Priorities Notice that it will be working to address the recently announced initiative of the Ontario government aimed at increasing the representation of women on boards of directors.

***HIGHLIGHTS:

  • OSC to facilitate the adoption of majority voting for elections of directors by issuers listed on the TSX
  • OSC to identify key proxy voting infrastructure issues and publish a consultation paper in Summer 2013
  • OSC to address the initiative of the Ontario government aimed at increasing the representation of women on boards of directors

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