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  • 22 Oct 2012 3:25 PM | Anonymous member (Administrator)

    (revised August 31, 2012)

    The Canadian Society of Corporate Secretaries ("CSCS") took the initiative in October 2011 of convening the inaugural Shareholder Democracy Summit in Toronto. The purpose of the Summit was to bring together the key organizations that play a role or that have a stake in proxy voting in the Canadian capital markets. The two-day conference focused on the state of proxy and share voting in Canada.

    The Summit confirmed that there is a consensus among key Canadian stakeholders that the current shareholder voting processes are deeply flawed, and that there may be an opportunity to undertake fundamental reform.

    The Inaugural Report that we published following the Summit provides a detailed report of the proceedings and is available to be downloaded from the CSCS website by clicking here. If the link is not active in this document you may access the Inaugural Report at the following URLs:

    In our debrief following the Summit, CSCS concluded that, while the Summit was a success, and was in fact more successful than we had anticipated, real progress towards a meaningful and effective reform of the shareholder democracy processes will require a full-time impartial facilitation effort.

    To that end, after giving this some careful thought, CSCS is currently proposing to key stakeholders a five-year, full-time facilitation program whose broad outline is the following:

    • Kick-off: fall 2012;
    • 2012-2014: stakeholder working groups undertake a facilitated comprehensive survey and accurate mapping of every business process and information exchange in the proxy voting system;
    • 2015: based on the survey and analysis stage, development and submission of a detailed proposal for reform supported by the stakeholders, covering not only new business processes and normalized data flows, but also the legislative framework required to support them;
    • 2016-2017: implementation and monitoring to ensure that the new processes and supporting legislation take effect on schedule in 2017.

    The program will take the form of a partnership between sponsoring organizations and the CSCS as facilitator. The memorandum of agreement for the facilitation program will take into account:

    • The commitment of the sponsoring organizations for the term of the facilitation;
    • CSCS's commitment to act as the facilitator for the term of the facilitation;
    • The roadmap, key activities and milestones for the project;
    • The program budget; and
    • Quarterly reporting to the sponsoring organizations.

    The process we are following to establish the facilitation program is:

    • Reaching out to key stakeholders to inform them of the high level objective (this phase is now complete);
    • Engaging with the key stakeholders verbally to gauge the level of support for the initiative (this phase is now well advanced);
    • Submitting to willing stakeholders a formal Memorandum of Understanding setting out the terms of the facilitation program (this phase will begin as soon as we have informal expressions of support sufficient to fund the facilitation).

    One of the objectives of the Summit is to bring about amendments to the Canada Business Corporations Act and other corporate governing statutes, such as the Ontario Business Corporations Act, other corporation statutes, and the Bank Act and similar industry sector corporate laws, that will result in equal rights and equal treatment for beneficial and registered shareholders. The ultimate objective is to establish a robust, end-to-end, audit-able voting process, with digital information flows for voting data, and key analytical data sourced from XBRL-tagged securities filings, so that all shareholders are able to vote their shares effectively, easily, with confidence, and with the information needed to make well-informed choices.

    This fall we will no longer be holding a Summit 1.01 gathering.

    Summit 1.01 was originally slated for mid-June but that date interfered with activities of the Investment Industry Association of Canada ("IIAC") and since Summit 1.01 was designed to hear from brokers, dealers, managed funds and investment advisers, we felt it was best to hold off until the fall.

    In July we met with IIAC to brief them on the Summit facilitation program. While the meeting was cordial and we felt that we did a good job setting out the program and the potential benefits for the brokerage community, IIAC have indicated that their members decline to participate in the initiative, preferring to see how the regulators intend to deal with the matter.

    In August we met with the staff of the Ontario Securities Commission to discuss the Summit process and the CSCS facilitation program. The OSC indicated that they were firmly committed to addressing the proxy voting processes and have asked us to present a proposal to the OSC to show how the respective roles of the regulators and the facilitation program could work together towards achieving the goal.

    2012 will see the launch of an initiative to examine whether the Objecting Beneficial Owner vs Non-Objecting Beneficial Owner (OBO vs NOBO) distinction that is a present feature of the National Instrument 54-101 rule can be eliminated from the proxy solicitation process for beneficial shareholders.

    The overall program is ambitious but we believe that there is a sufficient consensus among the stakeholders that the time is right for fundamental reform, and that the reform program can proceed without a commitment on the part of the brokerage community to participate at this early stage.

    The first big step in that direction is to get the facilitation program backed and funded.

    While the budget is not yet final, we anticipate a budget of approximately $2.5M or $3M for the term of the facilitation.

    As a first step in the facilitation, our aim is to get as many sponsoring organizations as possible to join in the effort, including representative large issuers from across Canada.

    To date, we have received the following informal expressions of support for the program. Some of the organizations mentioned (regulators and industry associations) are not expected to provide financial support. 

    • Autorité des marchés financiers
    • Canadian Coalition for Good Governance
    • Canadian Securities Administrators
    • CDS
    • Computershare
    • Equity Trust
    • Canadian Stock Transfer
    • Ontario Teachers Pension Plan
    • Phillips Hager & North
    • RBC Dexia
    • Royal Bank of Canada
    • Securities Transfer Association of Canada
    • Toronto Stock Exchange
    • IIROC
    • British Columbia Investment Management Corporation, and
    • Bank of Montreal

    We anticipate that, depending on the number of funding organizations, the annual cost per sponsor will be approximately fifteen to twenty thousand dollars. None of the stakeholders mentioned above are committed to funding the facilitation program at this stage. We will canvass for funding commitments once we feel we have a critical mass of informal support.

    CSCS is continuing to reach out to key stakeholders. We seek representative Canadian senior issuers, both in terms of industry sectors and geography. In that regard, Canada’s leading transfer agents have indicated that they will work with CSCS to canvas Canadian issuers for their support of the facilitation program.

    This project has the potential to fix a serious flaw that affects a key process in the capital markets that is vital to support the governance role that shareholders have to play. The success of this project will ensure that Canadian capital markets will have yet another competitive advantage on the world stage.

    You may contact CSCS to discuss this important initiative, or to receive an update of this executive summary:

    David Masse
    Chairman of the Board
    Canadian Society of Corporate Secretaries
    (416) 921-5449 

  • 21 Sep 2012 3:22 PM | Anonymous member (Administrator)

    September 21, 2012

    Delivered by email

    British Columbia Securities Commission
    Alberta Securities Commission
    Saskatchewan Financial Services Commission
    Manitoba Securities Commission
    Ontario Securities Commission
    Autorité des marchés financiers
    Nova Scotia Securities Commission
    New Brunswick Securities Commission
    Office of the Attorney General, Prince Edward Island
    Securities Commission of Newfoundland and Labrador
    Registrar of Securities, Government of Yukon
    Registrar of Securities, Department of Justice, Government of the Northwest Territories
    Registrar of Securities, Legal Registries Division, Department of Justice, Government of Nunavut

    Mr. John Stevenson, Secretary            Me Anne-Marie Beaudoin, Secrétaire générale
    Ontario Securities Commission          Autorité des marchés financiers
    20 Queen Street West                       800, Square Victoria, 22e étage
    Suite 1900, Box 55                            C.P. 246, Tour de la Bourse
    Toronto, Ontario  M5H 3S8                  Montréal, Québec  H4Z 1G3        

    Canadian Securities Administrators Consultation Paper 25-401: Potential Regulation of Proxy Advisory Firms – Request for Comments

    The Canadian Society of Corporate Secretaries (“CSCS”) engages with Canadian securities regulators to ensure our members’ interests are represented.

    The effectiveness of Canada’s shareholder voting system is an important issue for those of our members who are from listed issuers or provide services to them. CSCS and our members have been vocal advocates for simplification of the proxy voting system. We developed and published a White Paper that made recommendations to address one of the corporate law issues in regard to the proxy voting system. We also provided extensive pre-release commentary on the report entitled The Quality of the Shareholder Vote in Canada released by Davies, Ward, Phillips and Vineberg in October 2010.

    More recently CSCS took the initiative in October 2011 of convening the inaugural Shareholder Democracy Summit in Toronto.  The purpose of the Summit was to bring together the key organizations that play a role, or that have a stake, in proxy voting in the Canadian capital markets.  The two-day conference focused on the state of proxy and share voting in Canada.

    The Summit confirmed that there is a consensus among key Canadian stakeholders that the current shareholder voting processes are flawed, and that there may be an opportunity to undertake fundamental reform.

    The Inaugural Report that we published following the Summit provides a detailed report of the proceedings and is available to be downloaded from the CSCS website by clicking here.  If the link is not active in this document you may access the Inaugural Report at the following URLs:

    As a direct result of that initiative CSCS is currently proposing to key stakeholders a five-year, full-time facilitation program whose purpose is to bring about a comprehensive reform of all processes in which Canadian shareholders vote their shares.

    We thank the CSA for leading the exploration of the critical processes that underpin the integrity of shareholder democracy in Canada, and for this opportunity to share our comments on shareholder democracy issues including the important role played by proxy advisory firms.

    Response to the request for comments

    Before responding to the CSA’s specific requests for comments, it is important to address concerns that in our view underlie all aspects of shareholder democracy.

    One of the concerns expressed in the Consultation Paper that may ultimately temper the CSA’s position on whether, and if so, how, to approach the regulation of proxy advisory firms is that the existing processes are manifested in a commercial enterprise among the proxy advisory firms and their clients.

    At some point the public interest must transcend the commercial interests of market participants.  That is what market regulation is all about, and that is why the CSA are examining the practices of proxy advisory firms.

    Corporations make up roughly half of the world’s largest economies.  In this way, decisions made by corporations have a significant impact on the way we live our lives, and in particular the fate of our savings.  Society therefore has a tremendous stake in the quality of corporate management.

    This reality, and the prominent failures that have cost us so dearly in recent years, justify the current focus on the importance of good corporate governance practices.

    The early focus was on the conduct of boards of directors and their role in managing or overseeing the management of corporate business.  More recently, the role played by shareholders in selecting, retaining, and replacing directors has also entered the spotlight.

    If in the past the role of shareholders in the equation for the governance of public corporations was the object of benign neglect, this is certainly no longer the case, and can no longer be the case.  There is an intention among regulators and large shareholders to use the shareholder’s franchise to promote and sustain good governance, and to deal effectively with poor governance.

    This justifies focusing sharply on the processes that attend shareholder voting.  These processes have suffered neglect.  We hasten to add that no one is responsible for that neglect.  The CSA in particular have devoted substantial efforts for a long time now to improve the quality of shareholder voting.  The reality however is that the processes are complex and go beyond the confines of securities regulation.  The time is right for all stakeholders to examine those processes and work vigorously to ensure that they deliver trustworthy and timely results.

    Proxy advisory firms play a very important role in the way institutional shareholders vote their shares.  They provide essential services in terms of policy development, analysis of particular items of business on meeting agendas, and the logistics that gather voting intentions and deliver votes.

    The importance of that role in the modern social context makes the integrity of the process administered by proxy advisers a matter of public interest, and therefore causes aspects of it to rise above private commercial interests.

    Improving corporate voting in a meaningful way necessitates simultaneous macro and micro approaches to the challenge.  There are many, many issues intertwined in the voting process.  It is isn’t possible to address one issue, such as the role of proxy advisory firms, without considering the ramifications of that role in other areas, such as continuous disclosure, dematerialized voting, record dates, and the electronic dissemination and aggregation of information pertaining to voting and shareholder meetings.

    It is against that backdrop that CSCS provides comments in response to the CSA Consultation Paper.

    CSCS Responses to solicited concerns


    • Do you agree, or disagree, with each of the concerns identified in the Consultation Paper

    CSCS agrees with each of the concerns identified in the Consultation Paper.

    • Are there other material concerns with proxy advisory firms that have not been identified?
    • Are there specific gaps in the current practices of proxy advisory firms which justify regulatory intervention?

    CSCS believes that the gaps relate primarily to disclosure and to the way that proxy advisory firms engage with issuers.  Our responses to specific requests for comments follow below.

    • Do you believe that the activities of proxy advisory firms should be regulated in some respects and, if so, why and how?

    We agree with the regulatory approach set out in section 5.2.1 of the Consultation Paper.  Please see our more detailed response below.

    Potential conflicts of interest

    • To what extent do you consider proxy advisory firms to: (i) be subject to conflicts of interest in practice, (ii) already have in place appropriate conflict mitigation measures, and (iii) be sufficiently transparent regarding the potential conflicts of interests they may face? If you are of the view that current disclosure by proxy advisory firms regarding potential conflicts of interest is not sufficient, please provide specific examples of such insufficient conflicts of interest disclosure and suggestions as to how such disclosure could be improved.
    • If you are of the view that there are conflicts of interest within proxy advisory firms that have not been appropriately mitigated, which of these are the most serious in terms of the potential (negative) impact on development of their voting recommendations and why?
    • Should we propose an amendment to NI 51-102 to require reporting issuers to disclose consulting services from proxy advisors in their proxy circular? Or would such disclosure undermine the existing controls and procedures (i.e., “ethical wall”) in place which currently may prevent proxy advisory firm research staff who review an issuer’s disclosure from being made aware of the identity of their firm’s consulting clients?

    CSCS does not believe that the conflicts of interest that may arise as a result of the services provided by proxy advisory firms and those provided to issuers raise concerns that justify regulatory intervention beyond suggesting guidelines for the management conflicts, disclosure of conflicts, and procedures in place to mitigate the conflicts, at most in a ‘comply or explain’ regulatory framework.  To date there has not to our knowledge been a situation that gives rise to significant concerns.

    Codes of ethics and internal controls to segregate the potentially conflicting operations are appropriate controls.

    CSCS does not see how disclosure concerning the source of advisory services related to the development of governance practices assists investors.  The governance practices stand on their own and may be judged against best practices regardless of the sources used to develop them.  There is an identity of interest in most cases between the governance practices that proxy advisory firms recommend to their clients and those that it recommends that issuers adopt.  The risk would be that proxy advisory firms recommend one thing to their clients, and something completely different to issuers, a situation that is unlikely to arise and that if it were to arise, would tend to kill the issuer consulting business, making the issue go away in the normal course.

    The situation with respect to auditors and human resources consultants is different.  In that case there are independence issues that may arise from conflicts of interest that are likely impair the judgment of the consultant charged with rendering an opinion on the quality of financial reporting or the appropriateness of compensation levels.  The investing public relies on those opinions.  That aspect of public reliance on opinion is not present to the same degree with respect to the services of proxy advisory firms.

    Perceived lack of transparency

    • Could disclosure of underlying methodologies and analysis provide beneficial information to the market or would the commercial costs of doing so be too significant?

    To some degree, proxy advisory firms rely on proprietary methodologies that they do not disclose.  CSCS believes that disclosure is important, and does not believe that the cost of doing so could be so significant as to impair the profitability of the services rendered.

    Some quantitative models have fallen short of expectations, or have been relied upon beyond the point where they were designed to yield meaningful results.  A prominent example is the ‘value at risk’ model that some feel exacerbated risks that the model was meant to measure and mitigate when it was applied to mortgage-backed derivatives.

    This is an area where disclosure and academic review can shed useful light on the appropriateness of methodologies and analytical tools.

    The risk to the investing public is that the undisclosed ‘black box’ in the proxy advisory firm’s toolbox yields inappropriate results, leading to flawed recommendations.

    It may not be necessary to compel disclosure of proprietary methodologies as long as the results are monitored in some way in order to identify whether there are flawed methodologies at work.  Requiring that the comments of issuers who disagree with the voting recommendation be disclosed as part of the recommendation and be disseminated to the clients addresses a part of the concern.  Requiring that those contested recommendations be filed with the regulator would provide an opportunity to conduct a review that might determine whether there are consistent flaws in a given proprietary methodology.

    Issuer engagement

    • To what extent could there be an improvement in the dialogue with issuers during the vote recommendation process?
    • During proxy season, is it appropriate for a proxy advisory firm to engage with issuers in all circumstances or are there legitimate business and policy reasons why it should not be required to do so? Are there certain special types of situations where it is more important that issuers are able to engage with proxy advisory firms?
    • If a proxy advisory firm, as a matter of policy, believes that there are certain circumstances where it is not appropriate for it to give issuers an opportunity to review its reports, would it be sufficient to only require in these circumstances that the underlying rationale for such policy be disclosed? Please explain. Or, alternatively should proxy advisory firms be required to provide issuers with an opportunity to review their reports in all circumstances?
    • Should we prescribe the details of the processes that proxy advisory firms implement to engage with issuers? If so, what do you suggest the requirements should be?

    CSCS believes that proxy advisory firms ought to engage with issuers in all cases to allow issuers to review and comment on their voting recommendations.

    In all cases issuers ought to be given a meaningful opportunity to comment on a proposed voting recommendation before it is sent to the firm’s clients.  In the event that the issuer takes issue with the recommendation and the firm declines to amend its recommendation, the issuer’s comment on the recommendation should form part of the recommendation and be provided to the firm’s clients.  In this way the client will have the benefit of the alternative perspective offered by the issuer resulting in better and more balanced information for the client.

    It is likely that flawed voting recommendations stem in some measure from the volume of work that the proxy advisory firms are called upon to do.

    Some types of information that are required to permit analysis to be carried out presently require substantial effort simply to identify and aggregate information.  This is as true for professional decision support service providers as it is for retail shareholders.  To the extent that the CSA place special importance on the implementation of XBRL for all types of continuous disclosure information (for instance executive compensation, director compensation, attendance, and seniority to name a few) the effort presently expended on gathering XBRL-amenable information might be devoted to other analytical tasks and this might militate in favour of improved accuracy.

    Measures such as these would substantially improve the issuer engagement process by reducing the incidence of flawed recommendations and by serving to address in a fair and balanced way those that remain.

    Potentially inappropriate influence on corporate governance practices

    • To what extent should there be a more fair and transparent dialogue between proxy advisors and market participants on the development of voting policies and guidelines? Is it sufficient for proxy advisors to address governance matters by soliciting comments from their clients?

    CSCS feels that as long as the voting policies and guidelines are made accessible by means of publication, the process of developing the policies and guidelines is a matter that may appropriately be left to the proxy advisory firm and their clients.

    Proposed regulatory responses and framework(s)

    • Do you think a securities regulatory response is warranted in connection with each of the concerns identified above? Please explain why or why not.
    • Do you agree with the suggested securities regulatory responses to each of the concerns raised? If not, what alternatives would you suggest?
    • Do you agree or disagree with the requirements and disclosure framework set out in section 5.2.1 to address the concerns identified? If not, please indicate why. Would you prefer instead one of the other suggested securities regulatory frameworks identified above? If so, please indicate why. Do you agree or disagree with our analysis of these frameworks? Do you have suggestions for an alternative regulatory framework?
    • Are you of the view that we should prescribe requirements in addition to or instead of those identified above for proxy advisory firms?

    CSCS agrees that a regulatory response is justified and agrees as well with the disclosure framework set out in section 5.2.1 of the Consultation Paper.

    We would add, in keeping with our earlier remarks, the importance of XBRL tagging to facilitate data gathering and analysis by all investors and their advisors.

    Additional questions for issuers:

    • Overall, what has been your experience with proxy advisory firms? Please be as specific as possible.
    • Do you believe that the concerns identified negatively affect voting outcomes at shareholders’ meetings? Please provide specific examples of situations where any of the concerns identified above resulted in what you consider to be an inappropriate vote outcome and describe the nature and extent of the harm caused to market integrity.
    • To what extent do you adopt the corporate governance standards proposed by proxy advisory firms in your choice of corporate governance policies, even if such standards are not appropriate for your organization? Please provide examples of the types of practices that have been changed due to a proxy advisory firm’s guidelines and why such changes were not appropriate or did not improve your organization’s overall corporate governance.
    • In those instances where you have identified potential inaccuracies in a proxy advisory firm’s recommendation, were these material inaccuracies that would have resulted in a change in the proxy advisory firm’s vote recommendation? Please provide specific examples of how this situation resulted in an improper vote outcome (i.e., what was the risk to market integrity).

    In preparing its response to the Consultation Paper, CSCS surveyed its members and offers the following anecdotal evidence that CSCS gathered from the survey responses:

    • Many of our members report that they are aware of flawed voting recommendations on the part of proxy advisory firms.
    • Some members report success in having flawed recommendations corrected, while others report that they were unable to have inaccurate or flawed recommendations corrected.
    • The following anecdotes were offered:
      • “We opted in to ISS's proxy review and received a draft, which outlined that they were going to recommend approval of all meeting items.  A few weeks later, one of our major institutional shareholders called us to inform us that they had received ISS's proxy review, and it recommended voting against our say on pay and against 2 directors, based on a supposed "lack of gender" diversity.  When we called ISS, they seemed to acknowledge that they had made an error, and revised their recommendation back to the original one.  We did NOT receive a copy of that 'second', not draft report, so if our institutional shareholder had not called us, it may very well have resulted in an inappropriate vote outcome.”
      • “We were informed that a proxy advisory firm recommended against a Stock Option Plan amendment.  We succeeded in engaging with the proxy advisor and learned that the peer group that had been used as a benchmark in making the voting recommendation was inappropriate for an analysis of our program because the so-called peers were not in the same sector as us, none were competing for the same talent pool as we do, and were very junior issuers, and not at all comparable in terms of scale, either in revenues or headcount.  The proxy advisory firm refused to alter their voting recommendation.
    • A number of our members report that changes were adopted to their governance practices that may not have been in the issuer’s best interests as a result of pressure brought to bear by proxy advisory firms.
    • The following anecdotes were offered:
      • “We recently amended our by-laws to address a unique issue, but felt compelled to make other changes to our by-laws to satisfy proxy advisors' expectations (e.g., a change to our quorum requirements).  The proxy advisors would have recommended against our by-law amendment, even though it was not controversial, unless we amended our quorum provision at the same time.”
      • “We took a former CEO (who was independent by regulatory standards and one of the best able to understand and question the company's financials) off of our Audit Committee as the proxy advisory firm deemed him not-independent and issued withhold vote recommendations.”

    Thank You

    On behalf of our members, we thank the CSA for this opportunity to share our comments on proxy advisory firms.

    We also look forward to working closely with the CSA in the context of CSCS’s continuing focus on shareholder democracy and we feel certain that through stakeholder engagement, and particularly the facilitation program that CSCS is currently suggesting to stakeholders, working together as issuers, investors, regulators, service providers and industry associations, we will come up with a uniquely Canadian solution that will address the significant issues in the proxy voting system and resolve many of the challenges that presently exist.


    Please contact David Masse, Chairman, at or at 514.841.3277, or Lynn Beauregard, President, at or at 416.921.5449 ext 306


    Lynn Beauregard                                                                            David Masse
    President                                                                                     Chairman of the Board
    Canadian Society of Corporate Secretaries

  • 20 Aug 2012 5:30 PM | Anonymous member (Administrator)

    Toronto, Ontario – August 20, 2012    The Canadian Coalition for Good Governance is pleased to announce the recipients of the 2012 Governance Gavel Awards.  The awards were presented at the 14th Annual Corporate Governance Conference hosted by the Canadian Society of Corporate Secretaries earlier today in Vancouver.

    Best Disclosure of Board Governance Practices and Director Qualifications      
    Suncor Energy Inc.

    Best Disclosure of Approach to Executive Compensation 
    Canadian National Railway Company

    Best Disclosure of Governance Practices and Approach to Executive Compensation by a Small or Mid-Sized Issuer
    MacDonald, Dettwiler and Associates Ltd.


    CCGG Governance Gavel Awards were created in 2005 to recognize excellence in shareholder communications by issuers through their annual proxy circulars focusing on executive compensation disclosure and the communication of director qualifications and board practices.  Please contact Tony D'Onofrio at or at 416-363-8253 for more information.
  • 07 May 2012 3:18 PM | Anonymous member (Administrator)

    It has long been an open secret that Canada’s shareholder voting system is broken, but until it caused a mess at a name-brand company, nobody would get around to fixing it.

    Well, it might just happen. Two of Canada’s biggest corporations face contested votes in coming days: Telus Corp. on Wednesday and Canadian Pacific Railway Ltd. on May 17. Telus wants to collapse its dual-share structure, but a hedge fund is challenging the plan. CP is trying to fend off activist investor Bill Ackman, who wants to replace a good chunk of the board.

    (Read More)
  • 28 Oct 2011 3:16 PM | Anonymous member (Administrator)

    The Summit was an unprecedented gathering of all the key stakeholders who have a role to play in the regulation and administration of the processes by which the holders of shares of Canadian public companies vote their shares at shareholder meetings.

    The current processes do not adequately serve the interests of participants in the Canadian capital markets. The reasons for this are many and varied, and are in large measure due to the unprecedented growth in the volume and complexity of transactions in the capital markets in the recent past.

    The Summit process, which is continuing, is a unique and unprecedented opportunity for all stakeholders to gather and share vital information with the objective of improving the voting process to ensure that it can serve appropriately as regulators and public interest groups place increasing importance on shareholder democracy.

    The Society has taken upon itself the role of catalyst for the Summit as our members as corporate secretaries and governance professionals witness the dysfunction of the current system first hand and we see the companies we serve and their shareholders suffer the consequences.

    What we have learned in organizing the Summit to date is that the simple act of getting the stakeholders in each other’s presence, and sharing information that is presently trapped in silos, affords insights that will allow all the stakeholders to learn how they are able to contribute to improving the existing processes.

    The Summit process presents an opportunity to the participants, as Canadians, of developing an efficient modern shareholder democracy process that will be a significant competitive advantage for Canadian capital markets and serve as an example to US, European and Asian markets.

    In the course of the Summit, the participants thanked the Society for assuming the leadership role on these issues and all the key stakeholders confirmed their belief that the issues raised by the Summit process were vital issues and that the CSCS should continue to lead the stakeholders towards the development of a renewed, efficient and transparent shareholder rights process.

    Here are the interesting things I picked up in my notes. Some are similar to Sylvia's observations. I missed the US panel and some of the international panel because of interviews I was giving to the Canadian media.

    • Danielle Larivière of Jarislowsky Fraser noted that while wrap accounts are entitled to vote, the current systems for data exchange lack fields for voting with the result perhaps 20% of the vote is not coming through. She also pointed out that the complexity and lack of transparency in the system is such that it can take a number of annual meeting cycles of an issuer before the voting problems become evident to the investment manager, and thereafter another cycle or two to address;
    • She further noted that in theory the time required to recall shares before the record date so that they can be voted is T+3, but in practice it takes longer than that, futher complicated the recall process;
    • Paul Schneider of Ontario Teachers noted that the lack of transparency is where all the confidence erodes, and that in an era where the shareholder vote has become a very important issue, and important for the issuers as well, since there is more riding the votes with Say on Pay, and Majority Voting, it is critical for the system to become transparent.
    • He added that the chief issue is the lack of end to end confirmation. ‘We only see the vote going to Broadridge, then we see the voting results and we have no way to know if the vote actually counted, we always have a nagging question whether the vote counted and we shouldn’t have to rely only on hope.’
    • Jason Milne of Phillips Hager & North noted that there were several processes in place for beneficial shareholders to gain the right to attend and participate fully at meetings, but that in practice none of those processes are capable of actually working.
    • He added that shareholder confidence in the proxy voting system is essential to the functioning of the capital markets.
    • Danielle Larivière added that ‘we want the same confidence for votes that we get for dividends and corporate actions and currently there are no checks and balances and no audit assurance’.
    • Bill Brolly of Computershare noted the need to improve business processes and data interchange among participants in the shareholder voting system. He noted that faxes are still in use to convey data related to voting.
    • He added that he thought that the continued existence of the OBO / NOBO distinction was inconsistent with resolving the business process issues.
    • Benjamin Silver asked whether the rumoured practice of so-called ‘restricted proxies’ by which dealers upon request assign voting rights to beneficial shareholders who acquired shares after the record date in fact existed and Suzy Monteiro of Phoenix Capital Partners, a proxy solicitor confirmed that it did.
    • Fran Daly of CDS suggested that a central reconciliation hub might be an ingredient in improving the voting processes.
    • David Masse suggested that a single shareholder dashboard where all shareholders might vote their shares and drill down to the underlying disclosure information would be desirable.

    As for next steps, we have are reconvening the organizing committee next week to arrive at a consensus, but some things seem fairly obvious:

    • It became clear that we were missing a panel of investment managers, managed funds, etc., as well as a panel of broker/dealers and retail shareholders. The retail shareholder view, in my opinion, is represented by the securities commissions. Our attempts to get FAIR to participated were not successful. I think that as long as we get the other two groups we’ll have completed the “show & tell” step that was the objective of year 1 of the Summit. RBC Dexia, Canada’s largest custodian, has offered us its conference facilities and some grunt work to organize the two remaining panels in the coming months;
    • The conference materials, including the rapporteur’s notes and the transcript of the sessions need to be posted online (that work is well advanced and is continuing) and organized.
    • A timeline with achievable milestones needs to be developed to carry the project forward;
    • The next instalment of the Summit, in a year’s time, will focus on the issues from a process perspective, looking for paths that can be taken to arrive at an efficient system for shareholder democracy. Features of a transparent efficient systems that will be explored will likely include:
      • A complete revamp of the business processes for sharing information among the transfer agents, the depository, the proxy agent, custodians, brokers, institutions, voting agents, and ultimately retail shareholders, coupled with information processing standards to permit the flow of information in a consistent way among the players;
      • A unified shareholder information and voting dashboard allowing all shareholders to vote in the same way with the same ability to drill down into the supporting documentation;
      • Processes that lend themselves to reconciliation and verification to support third party audit and quality assurance so that the voting process is transparent and effective;
    •  Proposals for regulatory reform to table at the next Summit, including
      • Changes to the corporation laws to allow issuers to treat registered and beneficial shareholders equally;
      • Changes to the securities laws and regulations, and to corporation laws to all the gap between the record date and the meeting date to be all but eliminated, and reduced to M-3, with the proxy cutoff and voting record date possibly being the same day;
      • Changes to the securities laws and regulations to provide standards and structure for the role of the proxy agent.

    David Masse
    Chairman of the Board
    Canadian Society of Corporate Secretaries
    (514) 841-3277

  • 07 Sep 2011 3:12 PM | Anonymous member (Administrator)

    The focus on all aspects of corporate governance has been steadily increasing.  
    The initial focus was on the role of directors in ensuring that the business of the corporation is managed to maximize value for shareholders. As enterprises failed earlier in the decade as a result of mismanagement, the focus increased sharply, and the burden of regulation and expectations related to best corporate governance practices increased proportionately.

    It is the natural course of that progression to focus on the role of the shareholder in selecting, electing, evaluating and eventually replacing the directors.

    A number of important initiatives along those lines are gaining traction in all jurisdictions. Say-on-pay and majority voting are two of the most important of those initiatives. Institutional shareholders and their advisors are paying much more attention to how they vote their shares in director elections.

    This is good because it has real potential to motivate directors to pay closer attention to their role, and to how their decisions are perceived and evaluated by shareholders. Social pressure resulting from votes withheld from directors, particularly where the directors’ re-election might be in doubt, is strong medicine indeed.

    The amalgam of these measures is what is generally referred to as “shareholder democracy”.

    For a democracy to function well, the people must be able to vote. This begs the question whether shareholders have the right to vote. The answer at first blush for holders of common shares is self-evident: of course shareholders have the right to vote.

    The real nub of truth for director elections is much more nuanced and quite a bit more problematic to arrive at however.

    First off, not all shareholders have the right to vote. Some shares may not have voting rights. But even for typical common shares that do have voting rights, not all holders of those shares are treated equally. Only registered shareholders are contemplated as having the full exercise of the rights that are attached to the shares they hold. Shareholders whose name is not entered on the register of shares are not shareholders within the meaning of most corporation laws, and those holders have no standing to vote.

    This is increasingly problematic since most shareholders are not registered holders. Their shares are held on their behalf by others. In the first case, the actual registered shareholder is the depository. In the US it’s the Depository Trust Company, in Canada it’s the Canadian Depository for Securities. The depositories hold the shares on behalf or brokers and other intermediaries. As often happens, there can be a maze of intermediaries between the holder and the registered share position. Holders whose shares are held this way are “beneficial shareholders”.

    The financial rights attached to shares are well administered in the current system. This means that registered and beneficial shareholders alike receive the dividends and proceeds of transactions to which they are entitled quickly and reliably.

    It is not necessarily so with the right to vote. Whereas the incentives of all market participants are clear and well-aligned with respect to financial rights, voting rights haven’t benefitted from the same focus. The incentives are sometimes not as well perceived or appreciated, with the result that the alignment among participants that would be required to allow votes to be delivered and counted as easily and efficiently as dividends is lacking.

    The result is that the shareholder voting system is in large measure dysfunctional.

    That dysfunction is some way or other sometimes results in the effective disenfranchisement of beneficial shareholders. The impact is not merely felt by small retail shareholders as one might expect. Large institutional shareholders fall victim to the dysfunction as well.

    The problems are exacerbated by the complexity of the capital markets, with the practices of share lending and short selling compounding the difficulty of determining who is truly entitled to cast the votes associated with a given share. Because many shareholders simply do not vote, it can be difficult to determine instances of over-voting, which is where more than one holder votes the same share.

    There is a growing acknowledgement in the US and Canada that the processes of shareholder democracy need attention, particularly since both regulators and institutional shareholders are placing substantial wagers on shareholder votes as an incentive for better and more robust corporate governance.

    Those that have sought to map the processes by which shares are voted have drawn flow charts of daunting complexity. A symptom of that complexity is that each of the stakeholders in the voting process only sees the narrow slice of the overall voting pie that is closest to them. This is true of shareholders, issuers, transfer agents, proxy agents, intermediaries, depositories, custodians, proxy solicitors, brokers, regulators, and governance professionals.

    Each stakeholder has a vested interest in the way the current processes work. In some ways they perceive themselves to be invested in the dysfunction. In some cases this may be true. In other cases the complexity of the system makes it difficult for a given stakeholder to perceive where their best interests truly lie, and they may be reluctant to consider change that they might otherwise embrace if they had a better understanding of the whole pie.

    The Canadian Society of Corporate Secretaries represents one of those stakeholders: corporate secretaries and governance professionals. In many ways we are the professionals closest to the front lines.

    CSCS believes that a necessary first step in transforming the processes of shareholder democracy to make them suitably efficient and reliable, is for all stakeholders to gain a better understanding of the whole pie. The multiplicity of parties and the very different worlds in which they operate have to date impeded gathering and sharing the information that is vital to that understanding

    The Canadian Society of Corporate Secretaries has decided to become the catalyst for that vital first step.

    CSCS is hosting an unprecedented gathering of the key stakeholders in the Canadian capital markets on October 24 and 25, 2011 in Toronto. The two-day summit conference will assemble all stakeholders in moderated expert panels. Participants will be strongly encouraged to submit papers to the Summit that set out the processes that they administer along with an evaluation of current outcomes, the strengths and weaknesses of the processes, and the opportunities for improvements they feel exist.

    As part of the Summit, there will be expert panels focusing on the proxy voting processes in other markets including the US, Europe, and Asia.

    At the conclusion of the Summit, CSCS hopes to have created an unparalleled repository of information that can serve as a basis for understanding how the current system works, identifying the points of failure, and proposing changes that serve to level the playing field for all shareholders, registered and beneficial alike. We will be working with noted academics from prominent Canadian universities to ensure that the documentation from the Summit, including video and transcripts of the sessions are assembled as a cohesive work to facilitate subsequent reference.

    Information concerning the Summit, including the preliminary program, registration and sponsorship is available on CSCS’ website at

    David Masse
    Chairman of the Board
    Canadian Society of Corporate Secretaries
    (514) 841-3277

  • 26 May 2011 3:11 PM | Anonymous member (Administrator)

    Effective reform proposals that ensure equality, fairness, simplicity and clarity for all shareholders of Canadian companies

    This CSCS policy initiative explores the more important challenges that beneficial ownership of securities presents in the Canadian market.  The CSCS White Paper on Shareholder Communication available for download on this page proposes specific reforms to the current rules including proposals to amend the existing corporation statutes and the securities rules relating to shareholder communications.  These proposals, when they are adopted, will eliminate the most significant disparities that currently exist between beneficial and registered ownership as well as the challenges that issuers regularly face in their attempts to treat all their holders with an even and fair hand.

    Materials related to the CSCS Shareholder Communication initiative

    CSCS White Paper on Shareholder Communication

  • 26 May 2011 3:08 PM | Anonymous member (Administrator)

    The OSC recently established a NI 54-101 Advisory Committee and Notice-and-Access Technical Working Group, which met for the first time in January to discuss developing a model for delivery of meeting materials through posting on a website, with the goal of implementing notice-and-access on a trial basis this coming proxy season.  

    The working group consists of representatives from CSCS, CCGG, CIRI, Broadridge, STAC, the dealer community and the proxy solicitation firms. The discussion at this first meeting focused on the following areas:

    Key mandate of the group to include:

    • Reducing delivery costs and improving timeliness of delivery by permitting notice-and-access delivery on the basis of implied consent
    • Minimizing risks that beneficial owners will not receive materials and vote in a timely fashion by identifying what, if any, minimum standards should apply to the delivery and voting processes used by issuers, intermediaries and their service providers
    • Giving priority to technology (electronic delivery of materials) and voting reporting and verification

    The following were raised as key issues (many of these will be the starting point for the work of the committee going forward):

    • issuer concerns about control of costs in the system and paying for services they don’t need
    • equal treatment of all shareholders and ability of shareholders to get information they want/need (or don’t want/need or think they don’t want/need, i.e., OBO’s not wanting mailings)
    • responsibilities that shareholders have as investors and “owners” a company (related to distribution of materials) and previous point
    • practices around use of proxies, omnibus proxies, voting information forms
    • transparency of who holds shares
    • transparency of voting process and results to ensure integrity of outcomes
    • concerns re: early search costs for small issuers (related to controlling costs)

    The Timeline for the outcome of the committee’s work is targeted for the summer. Further updates will be provided along the way by CSCS.

  • 20 Apr 2011 11:34 AM | Anonymous member (Administrator)

    On December 19th, the Canadian Securities Administrators (CSA) submitted a Proposed Repeal and Replacement of National Policy 58-201 Corporate Governance Guidelines, National Instrument 58-101 Disclosure of Corporate Governance Practices, and National Instrument 52-110 Audit Committees and Companion Policy 52-110CP Audit Committees. These proposed changes were posted for a comment period of 120 days, that expired on April 20th.

    The proposed new regime’s key features include:

    • A principles-based policy that moves away from the current ‘comply and explain model’
    • A new set of disclosure requirements which would apply to both venture and non-venture issuers
    • A broader scope of principles to encourage issuers to develop their own corporate governance and disclosure practices
    • A principles-based approach to the concept and definition of independence

    The Canadian Society of Corporate Secretaries (CSCS) ensured that our members were consulted and their views taken into consideration in this comment process.

    To that end we held a series of cross-country meetings during the months of March and April in Montreal, Toronto, Edmonton, Calgary and Vancouver, to obtain our members’ views on the impact of the proposed changes.  We invited representatives from the AMF, the OSC, the ASC, and the BCSC to provide detailed presentations on the proposed regime.  In all close to 200 participants attended these sessions, and their views were included in our comment letter which was submitted to the CSA in response to their request for comments.

    Click here to view the CSCS comment letter to the CSA.

    Click here to view Proposed New Governance Rules

  • 31 Mar 2011 11:06 AM | Anonymous member (Administrator)

    In conjunction with the changes proposed to NI 54-101 in 2010, CSCS surveyed our members to get their views on proxy voting system issues. Here we provide an overview of the key comments and concerns of CSCS members.

    CSCS members overwhelming agree that there are significant issues in the Canadian proxy voting system that must be addressed through revised regulation, including: overall complexity of the system; Difficulty communicating directly with shareholders; and inability to ensure that the votes that should count are the votes that do count

    CSCS has recommended that the OSC take an active role with the Canadian Securities Administrators and the regulators responsible for related corporate legislation to review the proxy voting system with the intention of proposing new regulations aimed at improving and simplifying the mechanisms and processes.

    CSCS also asked our members for their views on the treatment of beneficial and registered owners. The members overwhelmingly support equal treatment of both beneficial and registered owners.

    Accordingly, we strongly recommended that the OSC, together with the CSA and other securities and corporate regulators in Canada review existing legislation to address the current imbalances and ensure equality, fairness, simplicity and clarity for all stakeholders including shareholders, issuers, market professionals, and their agents, including transfer agents and proxy agents.

    We have deliberately chosen to address only the issue of the proxy voting system as we believe it is the most important issue to be addressed by regulators on behalf of shareholders and corporate Canada.

    To view the full response letter from CSCS to the OSC, click here.

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