On June 21, 2012, the Canadian Securities Administrators (CSA) published Consultation Paper 25-401 — Potential Regulation of Proxy Advisory Firms. In light of the increased demand for the services of proxy advisors, the paper seeks to initiate a discussion of concerns about the effect of such services on the Canadian capital markets and how these concerns may best be addressed by Canadian securities regulators.
The potential concerns identified by the CSA which they are seeking public response on include:
- any possible conflicts of interest that arise due to the fact that proxy advisors provide both vote recommendations on governance matters and consulting services or that arise due to their ownership structures;
- the perceived lack of transparency in how vote recommendations are determined by proxy advisors and the lack of public disclosure of their reports;
- the limited engagement proxy advisors have with issuers which may result in potential inaccuracies in their reports and recommendations;
- the potential for proxy advisors to become corporate governance standard setters which may result in issuers being compelled to adopt "one-size fits all" standards which may not be suitable for their circumstances; and
- the extent of institutional investor reliance on proxy advisory recommendations. One particular distinction identified is how reliance upon proxy advisors may differ between larger and smaller institutions.
The paper concludes that neither the current registration or proxy solicitation regime is the appropriate framework for regulation of proxy advisors, if regulation is in fact needed. The CSA is seeking consultation on whether any of the following regimes is appropriate for regulation: a separate regime applicable to proxy advisory firms; a certification regime or a requirements and disclosure framework.
The CSA staff initiative follows international regulatory initiatives which are addressing the role of the proxy advisors in capital markets and the appropriate standards of transparency and accountability of such advisors. The paper invites public comment on these issues until August 20, 2012.
Norton Rose Group
Norton Rose Group is a leading international legal practice. We offer a full business law service to many of the world's pre-eminent financial institutions and corporations from offices in Europe, Asia, Australia, Canada, Africa, the Middle East, Latin America and Central Asia.
Knowing how our clients' businesses work and understanding what drives their industries is fundamental to us. Our lawyers share industry knowledge and sector expertise across borders, enabling us to support our clients anywhere in the world. We are strong in financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and pharmaceuticals and life sciences.
We have more than 2900 lawyers operating from 43 offices in Abu Dhabi, Almaty, Amsterdam, Athens, Bahrain, Bangkok, Beijing, Bogotá, Brisbane, Brussels, Calgary, Canberra, Cape Town, Caracas, Casablanca, Dubai, Durban, Frankfurt, Hamburg, Hong Kong, Johannesburg, London, Melbourne, Milan, Montréal, Moscow, Munich, Ottawa, Paris, Perth, Piraeus, Prague, Québec, Rome, Shanghai, Singapore, Sydney, Tokyo, Toronto and Warsaw; and from associate offices in Dar es Salaam, Ho Chi Minh City and Jakarta.
Norton Rose Group comprises Norton Rose LLP, Norton Rose Australia, Norton Rose Canada LLP, Norton Rose South Africa (incorporated as Deneys Reitz Inc), and their respective affiliates.
On January 1, 2012, Macleod Dixon joined Norton Rose Group adding strength and depth in Canada, Latin America and around the world. For more information please visit nortonrose.com.
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.