Canada: Are We Closer To Fixing The Proxy Voting System?

The integrity of the shareholder vote is a cornerstone of shareholder democracy for public companies. Shareholders' ability to "have their say" is exercised at shareholder meetings largely through proxy voting, which is a fundamental feature in our capital markets. The layers of depositaries and intermediaries for beneficial ownership are viewed by many as a necessary evil. To facilitate the complexities and the sheer number of market participants involved in proxy voting, an accurate, reliable and accountable infrastructure must be in place for a fair and efficient capital market.

The Canadian Securities Administrators (CSA) have recently published CSA Staff Notice 54-303 Progress Report on Review of the Proxy Voting Infrastructure (the Progress Report) to report on the progress made in its review of the Canadian proxy voting infrastructure since the initial publication in August 2013 by the CSA of Consultation Paper 54-401 Review of the Proxy Voting Infrastructure (the Consultation Paper). (See our August 2013 Blakes Bulletin: Regulators Consult on Concerns About Canada's Proxy Voting Infrastructure describing the Consultation Paper.)

Based on the public's responses to the Consultation Paper and a series of roundtable discussions with provincial securities commissions and key market participants, the CSA have determined that securities regulators must assume a leadership role in breaking the silo nature of the existing vote reconciliation process. This has resulted in critical information about proxy votes and vote entitlements not being shared among issuers, investors and other key market participants, such as depositories, intermediaries, Broadridge and meeting tabulators. Moreover, there was consensus that over-voting was occurring, but no consensus as to cause. It was unclear whether the issue was caused by over-allocation of vote entitlements to individual investors or problems with the vote reconciliation process at shareholder meetings, or other causes.

Subsequently, in 2014, the CSA conducted a qualitative sampling review of six uncontested shareholder meetings (the Shareholder Meeting Review). The six sample shareholder meetings were selected by the CSA for variety. They included reporting issuers in different provinces, exchanges and industries that were widely and closely held, and had conducted meeting solicitation with different methods and tabulators.

The CSA also formed a technical working group comprised of a cross-section of key market participants, including representatives from issuers, investors, intermediaries, Broadridge, transfer agents and the Canadian depository.

These initiatives confirmed that, among other things, the existing proxy voting infrastructure is "antiquated and fragmented and needs to be improved." In the Progress Report, the CSA outlined its findings on the meeting reconciliation process and the steps it intends to take in the 2015 and 2016 proxy seasons to move towards a more accurate, reliable and accountable voting system.

KEY FINDINGS AND CONCLUSIONS

The following are summaries of the CSA's five key findings to date based on the Shareholder Meeting Review and its work with the Technical Working Group:

  1. Apparent and Widespread Over-Reporting and Over-Voting

    There is apparent and widespread over-reporting (where there is a discrepancy between the voting entitlements calculated by an intermediary and the meeting tabulator) and over-voting (where a meeting tabulator receives proxy votes from an intermediary in excess of its official vote entitlement). However, the amount involved in the six uncontested shareholder meetings reviewed did not appear to be material nor affect the outcome of a shareholder meeting. The Progress Report also noted that according to statistics compiled by the Securities Transfer Association of Canada (STAC), over-voting occurred in 51% of shareholder meetings. These findings offer support to the long-standing complaint by market participants that voting results often appear to be inaccurate.
  2. Missing and Incorrect Omnibus Proxies

    Over-reporting and over-voting appear to be linked to missing or incorrect vote entitlement information from meeting tabulators rather than double voting by intermediaries. In the six shareholder meetings reviewed, the causes of missing or incorrect information included paper omnibus proxies sent but not received by the tabulator, coding errors and outdated intermediary names on an omnibus proxy. The CSA has also raised other potential sources of errors, including service providers not having the necessary information from an intermediary to generate an omnibus proxy and missing omnibus proxies from U.S. shareholders who are holding shares through the U.S. depositary DTC. The CSA concluded that improvements must be made to modernize how meeting tabulators receive omnibus proxies and to ensure the accuracy and completeness of vote entitlement information in omnibus proxies.
  3. Intermediaries Left in the Dark Regarding Their Voting Entitlements

    There is an increased risk of over-reporting and over-voting due to intermediaries not knowing their vote entitlement as calculated by meeting tabulators based on information provided by depositories and intermediaries. As a result, intermediaries are unable to reconcile any discrepancies before the shareholder meeting. Although Broadridge offers a vote entitlement report to subscribing intermediaries, the report is based purely on data feeds and not the information actually used by the meeting tabulators. Sometimes The Depository Trust Company (DTC) holdings through The Canadian Depository for Securities (CDS) were included in both DTC and CDS counts. The CSA concluded that steps must be made to enable intermediaries to find out their vote entitlement prior to a meeting from meeting tabulators.
  4. Inconsistent Vote Reconciliation Methods

    Meeting tabulators are using different methods to reconcile proxy votes, causing inconsistency in the ultimate vote count. The CSA concluded that there should be a single, industry-wide protocol to perform the reconciliation.
  5. Errors Made by Meeting Tabulators Go Undetected

    The CSA observed that human errors are sometimes made by meeting tabulators resulting in valid proxy votes from intermediaries not being counted. These errors are not detected by the intermediaries because there is no communication with the meeting tabulators concerning the outcome of individual proxy votes. The CSA concluded that improvements must be made to establish communication between meeting tabulators and intermediaries about whether proxy votes are accepted, rejected or prorated.

The CSA has also investigated whether securities lending has led to double voting. It was found that custodians such as CIBC Mellon, RBC Investor Services, State Street and Northern Trust have back-office systems that track lent shares per client account that would eliminate the possibility of double voting. Investment dealers, on the other hand, often do not have this system capability for retail margin accounts because there is no linkage between the systems that track lent shares and the ones that track individual margin accounts. However, the CSA's review to date shows that the likelihood of a share actually being lent and voted concurrently by investment dealers is relatively low.

MOVING FORWARD

From its review to date, the CSA has found that the current proxy voting infrastructure is "antiquated and fragmented and needs to be improved." In its conclusions, the CSA has made some helpful recommendations to improve the gaps by encouraging the development of standards in vote reconciliation and communication among the key market participants. Although the Progress Report is helpful in advancing the discussion from hypotheticals to problems observed in actual shareholder meetings, some market participants have expressed concern that the findings are based on only six shareholder meetings, which may not fully and accurately represent the root of the problems.

For the 2015 proxy season, the CSA intends to expand the review to contested meetings where there are typically higher volumes of proxy votes and revocation, and other procedural differences such as the use of a dissident form of proxy. In 2016, the CSA plans to direct key entities involved in vote reconciliation to develop industry protocols that would, at a minimum, address the five key findings discussed above and any additional areas of concern identified through the planned review of proxy contests this year. The CSA also intends to continue gathering information on client account vote reconciliation practices.

There is skepticism that market participants can by themselves break the silos in the existing infrastructure and arrive at a common, permanent solution. As the CSA pointed out, the proxy voting infrastructure is meant to operate for the benefit of investors and issuers. They, and even other market participants, may be pleased to see that the CSA is assuming a leadership role in the development of industry-wide protocols. The CSA has gone further to indicate that it will consider mandating aspects of protocols and/or regulating entities if necessary or appropriate.

A full copy of the Progress Report can be found 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.

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

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

Authors
Events from this Firm
23 Nov 2018, Other, Toronto, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

28 Nov 2018, Speaking Engagement, Toronto, Canada

Arbitration has a number of advantages and some disadvantages for the resolution of domestic and international commercial disputes.

Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Norton Rose Fulbright Canada LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Norton Rose Fulbright Canada LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions