Canada: CSA’s Light Touch Proxy Advisory Firm Proposal May Disappoint Issuers

To address market participants' concerns about services provided by proxy advisory firms, the Canadian Securities Administrators (CSA) have published for comment proposed National Policy 25-201 Guidance for Proxy Advisory Firms (Proposed Policy). The purpose of the Proposed Policy is to set out recommended practices for proxy advisory firms in relation to the services they provide to their clients and their activities.

In June 2012, the CSA published for comment Consultation Paper 25-401 Potential Regulation of Proxy Advisory Firms. For details, please access our June 2012 Blakes Bulletin: CSA Invite Comments on Regulating Proxy Advisory Firms. After reviewing the comments received on the Consultation Paper, the CSA has concluded that in their view a policy-based approach providing guidance on recommended practices and disclosure for proxy advisory firms represents a sufficient and meaningful response to address the different perspectives of respective market participant groups while recognizing the private contractual relationship between proxy advisory firms and their clients.

In the Canadian market, it is acknowledged that Institutional Shareholder Services Inc. (often referred to as ISS) and Glass Lewis & Co. are the dominant proxy advisory firms.

As the Proposed Policy is "not prescriptive" and is largely in the form of suggestions for consideration by proxy advisory firms, it represents a very "light touch" CSA proposal and we expect issuers and their advisers may find this a very tepid response to addressing their concerns regarding the activities of proxy advisory firms.

In particular, the Proposed Policy provides guidance in the following areas:


The CSA states proxy advisory firms may address actual or potential conflicts of interest by implementing appropriate practices; considering steps such as establishing policies and procedures to identify, manage and mitigate actual or potential conflicts of interest; designing and implementing internal safeguards and controls to monitor the effectiveness of such policies and procedures; and establishing a code of conduct which incorporates guidance to promote the independence of the proxy voting process. The Proposed Policy indicates that the CSA expects proxy advisory firms to disclose any actual or potential conflicts to their clients in a timely manner.


The CSA states that it is important for market participants to be able to understand how proxy advisory firms arrive at specific vote recommendations and assess the quality of research and analysis behind such recommendations.

The CSA states proxy advisory firms may consider establishing and applying policies and procedures describing the approach or methodologies used to prepare vote recommendations, as well as internal safeguards and controls to increase accuracy and reliability of the information used. While the Proposed Policy indicates that the CSA expects proxy advisory firms to ensure that vote recommendations are determined based on up-to-date publicly available information about the issuers and in accordance with an approach aimed at reducing the risk of factual errors or inaccuracies, the Proposed Policy does not mandate, recommend or encourage consultation by proxy advisory firms with issuers before issuing their reports.


The CSA indicates it is "good practice" for proxy advisory firms to ensure their proxy voting guidelines are developed in a consultative and cooperative manner. The CSA indicates proxy advisory firms may consider establishing and applying policies and procedures describing the process followed in developing and updating these guidelines. While the Proposed Policy indicates proxy advisory firms may consider consulting with market participants in developing their proxy voting guidelines, the Proposed Policy does not require, recommend or encourage such consultation.


The CSA expects proxy advisory firms to communicate the following information to their clients in their reports in respect of the vote recommendations:

  • Any actual or potential conflicts of interest
  • Approach or methodologies used, the factors considered and the weight of these factors
  • Identification of the information that is factual and the information that comes from analytical models and assumptions
  • A description of the extent to which proxy voting guidelines are used or applied and the reasons for any deviation
  • Where applicable, the nature and outcome of any dialogue or contact with an issuer
  • Any known or potential limitations or conditions in the research and analysis used
  • A statement that the vote recommendations and the underlying research and analysis are intended solely as guidance to assist the clients in their decision-making process

In addition, under the Proposed Policy, the CSA expects proxy advisory firms to post on their website their policies and procedures regarding contact with issuers when they prepare vote recommendations, including whether they provide draft reports to the issuers for review. Furthermore, proxy advisory firms are expected to correct any factual error or inaccuracy found in a report and to duly inform their clients in a timely manner.


The Proposed Policy does not address concerns that proxy advisory firms may have become de facto corporate governance standard setters and that issuers are compelled to adopt certain "one-size-fits-all" standards set by the proxy advisory firms. Rather, the CSA suggests that issuers engage with their shareholders. According to the CSA, the information circular should be the primary means for issuers to communicate their corporate governance practices to their shareholders and that an issuer can include in its information circular a discussion of its approach to corporate governance, especially when certain "one-size-fits-all" standards may not be suitable for an issuer due to its specific circumstances.

The Proposed Policy is not intended to be prescriptive or exhaustive. The CSA will encourage proxy advisory firms to consider the guidance in the Proposed Policy in developing and implementing their own practices. The comment period is open until June 23, 2014. A copy of the Proposed Policy can be accessed here.

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.

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