A new discussion paper highlights a number of issues that must be addressed to ensure confidence in Canada’s proxy voting systems.

On Thursday, Toronto-based law firm Davies Ward Phillips & Vineberg LLP released an executive summary of the paper which says, “The problems with the proxy voting system are so layered and complex that, in our view, a number of issues must be addressed before effective solutions can be proposed.”

“There is widespread concern, not just about the integrity of the Canadian shareholder voting system, but of the shareholder voting systems in the United States and around the world. Shareholder votes matter – we just have to get a handle on the problems that plague our systems and get them fixed,” says the paper’s lead author, Carol Hansell

The paper calls on securities regulators to take responsibility for improving the system. “Securities regulators must acknowledge the importance of an effective and reliable proxy voting system. They should be championing a comprehensive review of the system and be prepared to regulate aspects of the system in which they have not been involved,” it says.

In particular, the paper says that governments or regulators should commission a comprehensive audit of the proxy voting system, saying, “There is not enough information available about the proxy voting system to allow an independent party to either prove that systemic problems exist or provide the confidence that they do not.”

In notes that most of the information about the operation and effectiveness is controlled by players in the system (transfer agents, proxy agents, proxy advisors and proxy solicitors) who have vested interest in maintaining the status quo.

The paper also calls on regulators to do more to facilitate the move away from a paper-based system. Canadian securities regulators have proposed measures that would allow some movement towards a more electronic system, but the paper says these proposals “are only a first – and quite tentative – step towards a true paperless system.”

The paper points out that most firms in Canada have outsourced their responsibilities for communications between issuers and investors to Broadridge Financial Solutions Inc., based in Lake Success, N.Y. “Broadridge has played a leading role in improving and streamlining the proxy voting system in Canada. However, Broadridge is not subject to regulation in Canada and neither issuers nor investors have a line of sight into how Broadridge has handled the voting instructions from investors in connection with any particular meeting,” it says.

The paper calls for a fundamental rethink of the system that allows shareholders to remain anonymous from issuers, and recommends that institutional investors become more actively engaged in the issues facing the proxy voting system.

It also observes that voting lists compiled by brokers and other firms often aren’t reconciled, questions the role of proxy advisory firms, an says the question of empty voting must be examined.

The full paper will be released on October 25.

IE