A number of recent legislative and regulatory initiatives in the
United States will likely result in corresponding changes in Canada
in the area of shareholder governance of companies.
Those changes include the following:
Mandatory 'Say-on-Pay' Vote — A requirement
was introduced under the US Emergency Economic Stabilization
Act of 2008 for a shareholder advisory 'say-on-pay'
vote on executive compensation for public companies receiving money
from the Troubled Asset Relief Program (TARP). On July 1, 2009, the
Securities and Exchange Commission (SEC) proposed changes to its
rules that would require public companies that are TARP recipients
to provide 'say-on-pay' votes. Shareholder advisory votes
on executive compensation have become more common both in the
United States and
Canada, however this is the first instance of a mandated
shareholder advisory vote in the United States or Canada. In
addition, bills have been introduced in both the US Senate (the
Shareholder Bill of Rights Act of 2009) and the US House
of Representatives (the Shareholder Empowerment Act of
2009) to make 'say-on-pay' votes mandatory for all US
public companies, and the US Treasury Secretary has announced that
the US Treasury supports these legislative initiatives.
Shareholder Nomination of Directors — A proposed rule
was published by the SEC on June 10, 2009 that would entitle
eligible shareholders to have access to a company's proxy
materials in order to facilitate the election of directors
nominated by those shareholders — by requiring inclusion
in the Company's proxy materials of a shareholder's
nominees for up to 25 per cent of the board if the shareholder has
held for at least one year a significant interest in the
company's voting securities (one per cent for large accelerated
filers, three per cent for accelerated filers and five per cent for
non-accelerated filers). The shareholders would be required to sign
a statement declaring their intent to continue to own their shares
through the annual meeting at which directors are elected and would
be required to certify that they are not holding their shares for
the purpose of changing control of the company, or to gain more
than minority representation on the board of directors. In Canada,
shareholders continue to avail themselves of the provisions of
corporate and securities legislation to use a dissident proxy
circular prepared and distributed at their expense to promote the
election of their nominees for election. Recent examples of
Canadian companies where proxy contests for the election of
directors have been waged include Biovail Corporation, PetValu
Canada Inc., Zarlink Semiconductor Inc., and Genco Resources
Broker Discretionary Voting of Street Name Securities
— The SEC recently approved an amendment to Rule 452 of
the New York Stock Exchange (NYSE) eliminating the right of brokers
to vote uninstructed shares in director elections at shareholder
meetings held on or after January 1, 2010. Under current NYSE Rule
452, brokers are allowed to vote on routine proposals, including
ratification of auditors and uncontested director elections, if the
beneficial owner customer has not provided voting instructions to
the customer's broker prior to the scheduled meeting of
shareholders. The current practice of most brokers is to vote
uninstructed shares in accordance with the recommendations of a
company's management. In Canada, National Instrument 54-101
Communication with Beneficial Owners of Securities of a
Reporting Issuer (NI 54-101) prohibits brokers from voting
securities of Canadian reporting issuers in street name without
specific voting instructions from the beneficial owner of the
These changes follow an earlier change in both
Canada and the United States in which many public companies,
without being required to do so by law or stock exchange rule, have
implemented a majority-voting-for-directors' policy. The
policy, which is frequently set forth in amended bylaw provisions
of a company, requires the company to determine whether a director
receives at a shareholders' meeting fewer votes for his or her
election than the number of votes withheld from voting for that
director. If so, the board must then consider whether to accept the
resignation of that director, which is required to be delivered in
such circumstances pursuant to the policy.
As always, Canadian securities industry participants will need
to keep an eye on US developments as they often migrate to
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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