Headline governance issues like say on pay or majority voting get all the attention. But governance reform is bound to founder without major fixes to the nitty-gritty voting underpinning it.
This week CIRI issued a position paper in response to a weighty October 2010 study, ‘The quality of the shareholder vote in Canada‘, put out by law firm Davies Ward Phillips & Vineberg. CIRI echoes the Davies paper’s conclusion that Canada’s complex proxy voting system is making for an inefficient market.
This is the second time CIRI has launched an advocacy salvo under CEO Tom Enright, the first being a February 2011 call to lower Canada’s investor ownership disclosure from 10 per cent to 5 per cent. The professional association’s issues committee, co-chaired by Elaine Wyatt and TMX Group’s Eleanor Fritz, has had the help of Jerry Ormiston, former head of IR at DRAXIS Health, who has been working under contract to CIRI.
Canada’s proxy system has been tweaked regularly over recent years. For example, National Instrument 54-101, which made it easier for companies to communicate with non-objecting beneficial owners (NOBOs), is now being revised with notice and access for annual and special meetings. A new rule, 54-107, which covers say on pay, majority slate voting and proxy plumbing, is up for comment.
But a lot of the changes to the proxy process have been ‘band-aid solutions,’ says Enright. The Davies paper, which runs close to 200 pages, took a broad view in tackling issues affecting a range of interest groups from regulators to investors.
CIRI’s discussion paper chimes in on four recommendations touching investor relations:
1. Review the whole OBO/NOBO system, at least making NOBO the default, so investors would have to opt in – and pay – if they wanted to be OBOs.
2. Establish guidelines for proxy advisers like ISS so issuers get advance copies of reports and plenty of time to discuss them.
3. Prevent investors who borrow shares from voting them, and mandate input on voting from the actual investment decision-makers.
4. Make electronic delivery of proxy materials the default option and introduce electronic voting across the board.
‘In addition,’ Enright adds, ‘there needs to be continued leadership in order to take us through the maze and drive this to a conclusion.’ By that he means creating a task force, as the Davies paper recommends.
Obviously Canada has its eyes on what the SEC will do with its own review and potential overhaul of proxy plumbing. Progress in the US, Enright says, could determine how much momentum the issue carries in Canada.
One of the next moves for CIRI will be to take part in a Shareholder Democracy Summit organised by the Canadian Society of Corporate Secretaries on October 24 in Toronto.
Enright sums it up well when he points out that all the improvements issuers have made to disclosure and governance are for naught if the shareholder vote is suspect: ‘If we’re going to put more and more reliance on voting, we’ve got to make sure the voting process is pristine. And we just aren’t there right now.’
[Article by Tim Human, Inside Investor Relations]
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