Over the past week, a shareholder proposal requesting that the
board of directors take steps to adopt a "proxy access"
by-law was considered at the annual meetings of both The
Toronto-Dominion Bank (TD Bank) and Royal Bank of Canada (RBC). The
proposal was approved by 52.2% of the votes cast at the TD Bank
meeting last week, but was defeated at the RBC annual meeting
yesterday, where it received support from 46.83% of the votes
The level of support for the proposal at both of these meetings
suggests a degree of interest among shareholders that will ensure
that proxy access remains on the board agenda in Canada.
What is proxy access?
"Proxy access" refers to the ability of qualified
shareholders to have director nominees included in the
company's proxy circular and form of proxy, subject to certain
The ability of shareholders to include director nominees on the
company's form of proxy has long been a feature of Canadian
corporate law. Under the Bank Act, as in the Canada
Business Corporations Act, shareholders who collectively hold
at least 5% of the outstanding shares may do so provided that, for
the prior six months, they have held shares which either (i)
represent 1% of the outstanding shares, or (ii) have a market value
of at least $2,000. Notwithstanding the availability of proxy
access in Canada, it has rarely been used.
By contrast, in the U.S. proxy access generally has not been
available. It was one of the changes mandated by the Dodd-Frank
Act. However, the SEC's proposed rule to introduce proxy
access was challenged and struck down on the basis that the SEC had
failed to adequately assess the economic effects it would have.
U.S. institutional shareholders sought to introduce proxy access by
initiating shareholder proposals, and have had some success.
However, there is a wide variation in the versions of proxy access
which have been adopted and an ongoing debate on the conditions
which must be satisfied for shareholders to be qualified to submit
The shareholder proposal
The same shareholder proposal was considered at the TD Bank and
RBC meetings. It was submitted by an individual retail shareholder,
not an institutional shareholder, and was one of several
shareholder proposals put forth. Although the proponent of the
proposal did not attend either meeting, both banks accommodated the
shareholder by arranging for the proposal to be moved and seconded
at the meeting in his absence.
Similar to most U.S. proxy access proposals, the proposal would
have permitted shareholders holding at least 3% of the outstanding
shares to submit director nominees to be included in the
company's proxy circular and form of proxy. However, unlike
U.S. proxy access proposals, this right would have been subject to
several restrictions, including
the number of shareholder-nominated
candidates could not exceed 25% of the directors then serving
the submitting shareholders must have
held at least 3% of the outstanding shares continuously for at
least the three preceding years
advance notice of the nominations,
including the consent of the nominees and proof of ownership of the
required shares, must have been provided
the submitting shareholders must
certify that they will assume liability arising from their
communications to shareholders (including the content of the
shareholder proposal) and that they will comply with all applicable
laws and regulations if they use their own soliciting material, and
must have acquired the shares in the ordinary course of business
and not to change or influence control
Compared to the proxy access rights currently afforded to bank
shareholders under the Bank Act (and the corresponding
provisions under the Canada Business Corporations Act),
the shareholder proposal was significantly more restrictive, except
that it proposed an ownership threshold of only 3% of the
outstanding shares (instead of the 5% prescribed under the
statutes). As a result, it is somewhat surprising that the
shareholder proposal received the level of support that it did at
each bank. That support may reflect a more general desire for
change in the area of proxy access rather than an endorsement of
this specific shareholder proposal at these particular
In light of shareholder interest in proxy access demonstrated at
the meetings, both TD and RBC have committed to continuing the
dialogue with stakeholders on proxy access and to report back to
shareholders next year. Accordingly, proxy access will continue to
be on the board agenda in the coming year.
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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