Canada: Canadian Securities Administrators Publish Comment Letters On Proposed National Policy 25-201 Guidance For Proxy Advisory Firms

On April 24, 2014, the Canadian Securities Administrators (CSA) published for comment proposed National Policy 25-201 Guidance for Proxy Advisory Firms. Issuers, law firms and other market participants submitted comment letters which were recently published by the CSA. The proposed policy, including the comment letters received, may be downloaded from the website of the Alberta Securities Commission (PDF).

The purpose of the proposed policy is to address concerns of market participants about services provided by proxy advisory firms by providing non-mandatory guidance on recommended practices and disclosure for proxy advisory firms on conflicts of interest, transparency, development of proxy voting guidelines and communications with the public.


On June 21, 2012, the CSA published for comment Consultation Paper 25-401 Potential Regulation of Proxy Advisory Firms. The purpose of the consultation paper was to facilitate discussion about services provided by proxy advisory firms and to explore the need for the CSA to address concerns of market participants surrounding proxy advisory firms. Based on comments received on the consultation paper, the CSA subsequently published for comment the proposed policy.

Key Provisions of the Proposed Policy

Conflicts of Interest

The potential for conflicts of interest in the proxy advisory industry may compromise the independence of advice provided by proxy advisory firms. The CSA expects firms to identify, manage and mitigate actual or potential conflicts of interest and to consider doing so by, among other things:

  • establishing policies and procedures to mitigate actual or potential conflicts of interest that could influence research, analysis, voting recommendations or proxy voting guidelines;
  • designing and implementing internal safeguards and controls to monitor policies and procedures and adopting a code of conduct to mitigate actual or potential conflicts of interest, (which have the endorsement of the CEO and board of directors of the firm); and
  • regularly evaluating the effectiveness of processes to ensure they remain appropriate (including appointing an appropriately qualified person for monitoring and assessing compliance by the firm of its processes).

In addition, proxy advisory firms are expected to disclose actual or potential conflicts of interest to their clients in a timely manner, and, where possible, to post or describe on their websites their policies, procedures, safeguards, controls and code of conduct.

Transparency and Accuracy of Vote Recommendations

The CSA promotes transparency in the processes leading to voting recommendations, so that market participants can appropriately evaluate the merits of such guidance. The CSA expects proxy advisory firms to ensure that voting recommendations are determined in a consistent manner, based on up-to-date publicly available information and prepared in accordance with a methodology aimed at reducing the risk of errors.

Proxy advisory firms may consider taking the following steps:

  • regularly evaluating the effectiveness of internal controls and procedures;
  • implementing a quality assurance process to review voting recommendations before they are provided to clients;
  • establishing and, where possible, disclosing policies and procedures describing the methodology used in the analysis as well as internal safeguards and controls to increase the accuracy and reliability of the information and data used in the preparation of voting recommendations; and
  • ensuring that they have the resources, knowledge and expertise required to prepare well-researched and analyzed voting recommendations, by hiring and retaining individuals with the appropriate competencies.

Development of Proxy Voting Guidelines

Proxy advisory firms are encouraged by the CSA to ensure that their proxy voting guidelines, which may have influence on corporate governance practices of issuers, avoid a "one-size-fits-all" approach and to consider the following when developing such guidelines:

  • establishing, maintaining and applying written policies and procedures describing the process followed in developing and updating proxy voting guidelines;
  • regularly consulting with clients, other market participants and the public and taking into account local market or regulatory conditions;
  • having the resources, knowledge and expertise required to develop and update voting guidelines; and
  • where possible, posting on their website their proxy voting guidelines, policies and procedures and consultations leading to the development of proxy voting guidelines.

Communications with Clients, Market Participants, the Media and the Public

The CSA encourages proxy advisory firms to foster understanding of the activities of such firms by:

  • communicating to their clients in their reports: (i) any actual or potential conflicts of interest arising from the voting recommendations; (ii) the approach or methodologies used, factors considered and weight given to such factors in determining the vote recommendations; (iii) information that is factual or that comes from analytical models or assumptions and their reasons for voting recommendations; (iv) the extent to which proxy voting guidelines are used when making voting recommendations; (v) the nature of any dialogue with the issuer in the preparation of voting recommendations; and (vi) any known or potential limitations or conditions in the research and analysis used in the preparation of voting recommendations;
  • correcting any factual error or inaccuracy found in a report in a timely manner;
  • establishing policies and procedures governing their communications with clients, market participants, the media and the public and posting such policies and procedures on their websites; and
  • establishing a contact person to manage communications with clients, market participants, the media and the public.

Next Steps

The CSA has not given an indication regarding next steps for the proposed policy, and at this time it is unclear whether it will be adopted as drafted, revised or even abandoned altogether. Bennett Jones will continue to monitor the proposed policy and provide updates on further developments.

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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William S. Osler
Matthew R. Olson
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