October 03, 2013
Delivered by email The Secretary Ontario Securities Commission 20 Queen Street West 22nd Floor Toronto, Ontario M5H 3S8 Fax: 416-593-2318 Email: comments@osc.gov.on.ca The Canadian Society of Corporate Secretaries (CSCS) focuses on good corporate governance and reporting practices, shareholder communications, and effective board administration. It is within our scope of interest to engage with Canadian securities regulators to represent the views of CSCS and those of our Members in matters of regulator concern. We are pleased to have the opportunity offered by the OSC to respond to the request for comments on OSCP 58‑401. We applaud the OSC for addressing the critical issue of gender diversity on boards and in senior management of Canadian publicly traded corporations (Corporations). Although there is research to be quoted on both sides of this issue, there is significant emerging evidence that gender diverse management teams and boards are equipped with a greater range of skills, perspectives and experience that foster clear judgment in both the common place and complex situations facing today’s corporations. Member Consultation In preparation for this response CSCS undertook a consultation with our Members at open sessions held in Vancouver, Calgary and Toronto. The consultations were well attended and small, mid and large cap issuers were all represented. The comments provided herein represent the general views of our Members who participated in the consultations for a course of action that is believed to be both effective and not overly prescriptive. We believe that it is the responsibility of each Corporation to manage its internal processes and that each board of directors is the most knowledgeable about its business and industry practices to determine its policies and targets with respect to realization of effective gender diversity. Approach to Achieving Gender Diversity Quotas are particularly undesirable. Quotas may result in under-qualified directors being appointed merely to comply with regulatory requirements, to the detriment of a well-functioning board. Simply, quotas ensure quantity, but not quality. Best practice guidelines, together with mandated disclosure, are the ideal combination – allowing a Corporation to determine the appropriate path for it to reach gender diversity and ensure transparency to stakeholders. Members who participated in the consultations were divided in their views as to whether Corporations should be required to: (i) disclose their approach to gender diversity with reference to such best practice guidelines, explaining any differences (“comply or explain”) or (ii) satisfy certain minimum best practice guidelines including a target percentage of 20% to 40% to be achieved over a five year or longer period. In either case, we expect that most Corporations would be able to:
Requiring Corporations to explain their self-governing approach to implementing gender diversity practices in their senior management and on their boards will result in clear and useful disclosure (rather than boilerplate language) and provide stakeholders with good information on each Corporation’s views and commitments to creating gender diversity within their own organization. Board and Management Disclosure It is essential to require disclosure on gender diversity both at the board level and for the senior management team. In addition, preparing internal female candidates for senior management roles begins to prepare them for board service which assists in increasing the pool of available female director candidates. Specific usage of the “named executive officer” definition may be overly narrow and may not provide a true picture of women in senior management in organizations. Corporations should be required to choose and disclose a definition of “senior executive” and report the percentage of women at that level of management. The disclosure should be required to narrate how the Corporation encourages gender diversity throughout the organization and what programs it incorporates to develop its female workforce. Developing Women for Future Board Roles Members noted that an often heard concern is that the pool of appropriate female candidates for board positions is too small. This is, at least in part, a mere excuse to avoid the issue of achieving gender diversity. The real problem is not that the pool of well-qualified candidates is too small but that, although significant in size, the pool is generally unfamiliar to and untapped by Corporations. A critical issue in any board candidate identification and appointment is culture and chemistry. This is no less an issue when identifying female candidates. However, female director candidates are likely to be less known to an existing board and therefore remain undiscovered or be less comfortable option. Corporations should examine and disclose the means by which they intend to identify female candidates for board appointment. Venture Companies CSCS and a majority of Members, including those employed by venture issuers, who participated in the consultation process, agree that the OSC should not limit its policies on gender diversity to non-venture issuers. Unlike many regulations that have a significant financial burden associated with compliance, the issue of gender diversity presents no more of a hardship for venture issuers than it does for non-venture issuers. In some circumstances compliance is less of a burden as venture issuers tend to have smaller boards and smaller management team. Therefore, they will therefore be searching for fewer female director and executive candidates. Engaging women in senior management and on boards of venture issuers will result in an increased pool of candidates, who will gain their experience as venture issuers grow into mid-size and larger cap non-venture issuers. It also engrains good board practices early in a Corporation’s life. Broader Diversity Finally, achieving gender diversity is a positive step towards greater diversity and we encourage the OSC to consider further diversity initiatives that will encourage Corporations to work towards including under-represented groups in senior management and on the board of directors. CSCS thanks the OSC for this opportunity to share our comments and those of our Members on OSCP 58-401. We look forward to the implementation of effective and appropriate gender diversity requirements for all Canadian publicly traded corporations. Please contact the writer for additional information or to answer any questions on the consultation process. Sincerely, Lynn Beauregard President Canadian Society of Corporate Secretaries
Winners of the 1st annual Excellence in Governance Awards were announced last night by the Canadian Society of Corporate Secretaries ("CSCS") at the inaugural awards ceremony held at the Westin in Halifax. Peter Dey, Chairman of Paradigm Capital, considered Canada's 'Godfather of corporate governance' for the 1994 'Dey Report' was also honoured for his contribution to corporate governance in Canada.
The awards ceremony was attended by close to 300 of Canada's top governance practitioners and leaders from the corporate, non-profit, crown and public sectors. "In this first inaugural year, we received an impressive 80 nominations across all industry sectors," says Lynn Beauregard, CSCS President. "We couldn't have been more pleased with this outcome and I believe that this validates that these awards are indeed a very important and welcome program for the Canadian governance community."
The evening's winners, recognized in 8 categories, were:
CSCS also honoured Peter Dey, Chairman of Paradigm Capital, considered Canada's 'Godfather of corporate governance' for the 1994 'Dey Report' for his contribution to corporate governance in Canada, which served as the inspiration for the creation of the CSCS.
Judging Panel CSCS is grateful to the Canadian Corporate Counsel Association representatives Grant Borbridge QC, Emergo Group of Companies; Cathy Cummings, Canadian Corporate Counsel Association; and Terri Uhrich, K+S Potash Canada for reviewing all submissions and determining the shortlist of nominees.
CSCS put together an illustrious panel of expert judges consisting of Brendan Sheehan, The Illawong Group; Gigi Dawe, Canadian Institute of Chartered Accountants; Stephen Griggs, Smoothwater Capital Corporation; Carol Hansell, Davies Ward Phillips & Vineberg LLP; Sylvia Groves, Governance Studio; Dr. Richard Leblanc, York University; Andrew MacDougall, Spencer Stuart; Paul Schneider, Ontario Teachers' Pension Plan; Elizabeth Watson, Watson Inc. This all-star team of governance leaders identified the best practitioners of governance in Canada to be celebrated at the first ever CSCS Excellence in Governance Awards.
TORONTO, June 4, 2013 /CNW/ - CSCS is pleased to announce the shortlist for the inaugural Excellence in Governance Awards. A total of 76 nominations were received from across all sectors and from close to 40 organizations. The short listed nominees, organized by category, are presented below:
The Excellence in Governance Award winners will be announced and recognized at the opening dinner of the 15thCSCS annual conference on August 18th in Halifax NS. The Excellence in Governance Awards jury panel is composed of seasoned and well-respected governance experts from across Canada and include: Gigi Dawe, CICA;Stephen Griggs, Smoothwater Capital Corporation; Carol Hansell, Davies Ward Phillips & Vineberg LLP; Sylvia Groves, Governance Studio; Dr Richard Leblanc, York University; Andrew MacDougall, Spencer Stuart; Paul Schneider, Ontario Teachers' Pension Plan; Elizabeth Watson, Watson Inc; Brendan Sheehan, The Illawong Group (moderator).
CSCS would like to acknowledge the contribution of the Canadian Corporate Counsel Association (CCCA) to the short listing judging for the Excellence in Governance Awards. We thank the following three individuals who volunteered a considerable amount of time and effort in reviewing close to 80 submissions for the Excellence in Governance Awards, to generate the shortlist of finalists for the Awards judges. Cathy Cummings MBA, CAE, Executive Director, Canadian Corporate Counsel Association (CCCA); Grant K.D. Borbridge QC, Executive Vice President, Investments and Chief Counsel, Emergo Group of Companies; Terri Uhrich, Vice President, Legal Affairs at K+S Potash Canada.
CSCS is committed to supporting and enhancing the role of the corporate secretary and governance professionals across all industries in Canada. The Society's members work on the front lines of governance and the organization is well positioned through reputation, influence and representation, to celebrate the practice of good governance inCanada. We are very pleased with the excellent show of support for this inaugural program and look forward to announcing the finalists on August 18th in Halifax, NS.
For more information about the awards, visit http://www.cscs.org/EGA and for more information about the CSCS annual conference and program, visit: http://www.cscs.org/AnnualConference
TORONTO, Feb. 15, 2013 - Nominations are now open for the inaugural Excellence in Governance Awards (EG Awards), presented by the Canadian Society of Corporate Secretaries (CSCS). Nominations can be submitted at www.excellenceingovernanceawards.org starting today, February 15, 2013, until April 15, 2013.
The shortlist of finalists will be announced in early June, 2013 and winners will be announced and celebrated on August 18, 2013 in Halifax, Nova Scotia at the opening dinner of the CSCS' 15th Annual Conference.
The CSCS EG Awards recognize the important contribution governance professionals make to the best practices that build shareholder and stakeholder value in Canadian organizations across sectors and industries. The awards underscore the critical role that good governance plays in sustaining the value of Canada's public and private companies, crown corporations, government agencies, and not-for-profit organizations, and in contributing to Canada's economy, its services, and its capital markets.
"Corporate secretaries and governance professionals so rarely get the acknowledgment they deserve for their contribution to the successes of their organizations," says CSCS President, Lynn Beauregard. "We created the EG Awards to celebrate their leadership, guidance, and the best practices they bring to their boards, their organizations and to the quality of governance in Canada."
Nominations are sought for the following Awards categories:
Descriptions of each category can be found at http://cscs.org/EGA_entry.
The Excellence in Governance Awards jury panel includes the following governance thought leaders:
Gigi Dawe, Risk Oversight and Governance, and National Practice Area Leader, Governance, Strategy and Risk, CICA Stephen Griggs, Director and past Executive Director of CCGG Sylvia Groves, President and Creative Director, Governance Studio Carol Hansell, Senior Partner, Davies Ward Phillips & Vineberg LLP Richard Leblanc, Associate Professor, Governance, Law & Ethics, Faculty of Liberal Arts and Professional Studies, York University Carol McNamara, Vice President, Associate General Counsel and Secretary, Royal Bank of Canada Paul Schneider, Manager, Corporate Governance, Ontario Teachers' Pension Plan (OTPP) Elizabeth Watson, Q.C, President of Watson Inc.
These experts will be joined by Honorary Judge Peter Dey, Chairman, Paradigm Capital, Master of Ceremonies, David Beatty, Conway Director Clarkson Centre for Business Ethics and Board Effectiveness, and judging facilitator Brendan Sheehan, Founder and President, The Illawong Group.
Toronto, ON (January 24, 2013)-The Canadian Society of Corporate Secretaries ("CSCS") announces an esteemed judging panel for the Excellence in Governance Awards/Prix d'excellence en gouvernance (EGs). The highly respected jury will select the winners for the awards which will be announced and celebrated on August 18, 2013 in Halifax, Nova Scotia at the opening dinner of the CSCS' 15th Annual Conference.
The Excellence in Governance Awards jury panel is composed of seasoned and well-respected governance thought leaders from across Canada. CSCS has carefully selected the judges to ensure representation from all aspects of the governance community including shareholder representatives, regulatory experts, leading academics and practitioners.
Gigi Dawe, Risk Oversight and Governance, and National Practice Area Leader, Governance, Strategy and Risk, CICA
Stephen Griggs, Director and past Executive Director of CCGG
Sylvia Groves, President and Creative Director, Governance Studio
Carol Hansell, Senior Partner, Davies Ward Phillips & Vineberg LLP
Richard Leblanc, Associate Professor, Governance, Law & Ethics, Faculty of Liberal Arts and Professional Studies, York University
Carol McNamara, Vice President, Associate General Counsel and Secretary, Royal Bank of Canada
Paul Schneider, Manager, Corporate Governance, Ontario Teachers' Pension Plan (OTPP)
Elizabeth Watson, Q.C, President of Watson Inc.
These eight experts will be joined by Honorary Judge Peter Dey, Chairman, Paradigm Capital and judging facilitator Brendan Sheehan, Founder and President, The Illawong Group.
The CSCS EG Awards recognize the important contribution governance professionals make to the best practices that build shareholder and stakeholder value. The awards underscore the critical role that good governance plays in sustaining the value of Canada's public and private companies, crown corporations, government agencies, and not-for-profit organizations, and in contributing to Canada's economy, its services, and its capital markets.
Candidates eligible for nomination include individuals and/or teams of individuals who play a role in the governance of their organizations.. The call for nominations will open on February 15, 2013, the deadline for nominations is April 15, 2013, and the shortlist of finalists for the awards will be announced in early June, 2013.
CSCS will seek nominations in the following award categories:
Best sustainability, ethics and environmental governance programs
Best use of technology in governance, risk and compliance
Best approach to board and committee support
Best shareholder or stakeholder engagement by a governance team
Best overall corporate governance
Best approach to board diversity
Joyce Borden-Reed CSCS distinguished contribution award
Peter Dey Lifetime achievement award
CSCS expects that the recognition winners and nominees alike will gain from these awards will raise awareness for the key role played by governance professionals, further the reputation of their organizations, and inspire others to follow their example.
CSCS expects that the recognition winners and nominees alike will gain from these awards will further their careers, raise awareness for the key role played by governance professionals, and inspire others to follow their example.
(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: http://www.cscs.org/Resources/Documents/summit/Summit%20Repor.pdf
http://tinyurl.com/7ywgxw6
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:
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 process we are following to establish the facilitation program is:
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.
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 david.masse@cscs.org www.cscs.org/summit
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 jstevenson@osc.gov.on.ca consultation-en-cours@lautorite.qc.ca
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:
http://www.cscs.org/Resources/Documents/summit/Summit%20Repor.pdf http://tinyurl.com/7ywgxw6
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
General
CSCS agrees with each of the concerns identified in the Consultation Paper.
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.
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
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
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
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
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)
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:
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:
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.
Contacts
Please contact David Masse, Chairman, at david.masse@cscs.org or at 514.841.3277, or Lynn Beauregard, President, at lynn.beauregard@cscs.org or at 416.921.5449 ext 306
Sincerely,
Lynn Beauregard David Masse President Chairman of the Board Canadian Society of Corporate Secretaries
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