Canada's securities regulators have released for comment proposed National Policy 25-201 - Guidance for Proxy Advisory Firms. The proposed policy is a follow-up to the regulators' 2012 concept paper and is meant to address concerns expressed by public companies and other market participants about potential conflicts of interest and a perceived lack of transparency in the work of proxy advisory firms, whose advice may influence the outcome of shareholder votes. The proposed policy provides recommended practices but does not impose any mandatory requirements on proxy advisory firms. The deadline for providing comments to the Canadian securities regulators is June 23, 2014.

Proxy advisory firms have also been under scrutiny in the United States. The SEC issued a concept paper on the U.S. proxy voting system in 2010 and hosted a public roundtable on proxy advisory services at the end of 2013. Further regulatory action is expected, but it is difficult to predict whether the SEC's approach will be more prescriptive than Canada's. Below are highlights of the key recommendations set forth in the proposed Canadian policy.

  • Proxy advisory firms should maintain internal policies and procedures to identify and mitigate conflicts of interest. This may include developing a code of conduct applicable to employees and appointing a qualified officer responsible for compliance who reports to the firm's leadership. Actual or potential conflicts of interest should be communicated to clients in a timely manner.
  • Policies and procedures for engaging in dialogue with issuers and for developing proxy voting guidelines should be publicly disclosed, to the extent possible without compromising commercially sensitive information. Since proxy voting guidelines may influence issuers' corporate governance practices, proxy advisory firms should regularly consult with their clients, market participants and the public.
  • Vote recommendations should be determined in a transparent and consistent manner using methodologies aimed at reducing the risk of factual errors. This may include implementing a formal quality assurance program. Factual inaccuracies should be corrected in a timely manner.

In their reports to clients, proxy advisory firms should disclose the methodology used, the relevant factors, the weight of each factor and any deviation from proxy voting guidelines. They should also explain to clients any limitations or conditions on the research or analysis underlying the vote recommendation.

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