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Shareholder Democracy Summit update

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

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