Canada: Key Takeaways From The First Half Of 2015

ISS' preliminary postseason review for 2015 provides a report on U.S. activism trends in 2015.  ISS identifies five key takeaways from the first half of 2015:

  • Proxy access proposals arrived in a big way this season, with almost 120 proposals and average votes in favour of 54.4% (a jump of more than 20 percentage points from 2014). A typical proposal grants shareholders who have held 3% of the company's shares for 3 years the ability to include, in the company's management proxy circular, nominees for up to 25 per cent of the board.  As discussed in our previous posts by Kaitlind de Jong and Trevor Zeyl, the topic of proxy access has been picked up by the Canadian Coalition for Good Governance, so we can expect to see this issue surface increasingly in Canada as well.
  • A greater proportion of proxy contests settled in 2015 as compared to 2014, as more companies elected to negotiate rather than go to a contested meeting. Despite this trend, the first half of 2015 still featured more contested meetings than the same period in 2014, and the size of targets was larger, with the median market cap of targeted firms reaching an all-time high of $518 million.  Of proxy contests that went forward, activists' success rate in placing a director on the target board fell from a high of 70 per cent in 2014 to under 50 per cent this year.
  • Environmental & social issues continued to account for the largest number of shareholder proposals. The voting success of these proposals was down from 2014, but proponents continued to find success in engaging boards.  Discussions with management resulted in the withdrawal of about 40 per cent of environmental & social issues proposals, typically in negotiations resulting in agreement by the targeted company to take steps to address the concerns raised.
  • Other forms of shareholder engagement, such as letter writing campaigns, took some of the action out of the proxy arena in 2015, as activists found success with these alternative means of engaging boards and making their concerns heard.
  • Average support for management say-on-pay votes rose slightly over last year, as compensation issues receded in prominence.

The ISS report shows that activist activity continues to grow, incorporating new and old issues.  While the number of contested meetings is up, more challenges are also being resolved outside of a formal proxy contest, either through early negotiation and settlement or through the use of alternative means of board and shareholder engagement.

ISS' data is from the U.S., but new issues such as proxy access have already been raised in Canada.  We can expect to hear more about these trends in the remainder of 2015 and into 2016.

Norton Rose Fulbright Canada LLP

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