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
  • 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 

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