The annual proxy circulars of the Big Six banks are the groundhogs of the corporate reporting season: they always pop up this time of year, offering a sign of whether companies will face a blizzard of shareholder proposals or some fairly blue skies. So far, it appears as though spring is in the air.

The reason: banks tend to be at the leading edge of corporate governance practices; plus, they have early fiscal yearends and a broad shareholder base. Hence, they provide a good indication of governance issues that shareholder activists will be pushing.

This year’s roster of proposals suggests that executive compensation issues will remain the hot topic in corporate governance circles. Shareholder activists in Canada really have yet to push for more influence over management’s pay — but Toronto-based ISS Canada Corp. predicts such a push may begin this year.

Shareholder votes on compensation are already required in some other jurisdictions. Companies in Britain, for instance, are required to hold such a vote. And shareholders in the U.S. are starting to press for controls on executive pay. In early February, a group of U.S. pension funds and other investors announced that they had filed resolutions with 44 companies calling for them to provide shareholders with an annual vote on the pay of the firms’ top executives. Similar resolutions filed with six companies in the U.S. last year garnered more than 40% support from shareholders.

The Vancouver-based Share-holder Association for Research and Education has called for such votes to be adopted in Canada, arguing that it’s the only way to put to rest complaints about the size of and justification for executive compensation relative to both average salaries and corporate performance.

Of the Big Six banks, four — Bank of Montreal, Bank of Nova Scotia, Royal Bank of Canada and CIBC — had issued their proxies at the time Investment Executive went to press. Shareholder proposals include efforts to curtail executive compensation and enhance transparency.

BMO has the biggest list of shareholder issues to ponder, so far — 13 in all — from the usual shareholder gadflies. The Montreal-based Mouvement d’éducation et de défense des actionnaires has six proposals on the docket, while shareholder activist Bob Verdun of Kitchener, Ont., has seven. The bank says three other proposals were withdrawn.

MEDAC has identical issues on the proxies of BMO, Scotiabank and RBC, as well as National Bank of Canada.

A database maintained by SHARE says the proposals will also be on TD Bank Financial Group’s proxy, which has yet to be issued.

VOLUNTARY COMPLIANCE

Only five of MEDAC’s six proposals are on CIBC’s list, as the bank already provides the type of disclosure one of the proposals demands. Indeed, CIBC says it is also complying voluntarily with new executive compensation disclosure rules that have been proposed by the U.S. Securities and Exchange Commission.

Excepting CIBC, MEDAC wants the banks to start providing more insight into the setting of executive compensation by identifying the experts they consult when determining executive pay, and revealing how those experts are paid, among other information.

The group initially made the same request of CIBC but withdrew it in light of the disclosure offered by the bank in its current proxy. This year, CIBC reveals it held an open bidding process for the role of compensation advisor, and that it opted to replace its previous advisor. CIBC also disclosed the fees it pays for the mandate, along with any other fees paid to the same firm for other work for the bank. It remains to be seen if such a level of disclosure catches on with the other banks, which, for the time being, are recommending that their shareholders vote against the proposal.

Two of the MEDAC proposals aim to change how the banks pay their top managers. The proposals call for the banks to begin linking the size of executive compensation to that of the average employee, and to link their executives’ option grants to the metric economic value added, a performance measurement. MEDAC is also seeking increased transparency regarding the banks’ exposure to hedge funds, and it wants the banks to include a summary of the results of their subsidiaries in their annual reports. The organization also calls for the banks to ensure that within three years at least one-third of their board members are women.

@page_break@The list of proposals from Verdun is much more varied, bank by bank. Although he has seven proposals on BMO’s proxy, Scotiabank, RBC and CIBC face only one proposal each, after Verdun withdrew one from each.

Among the proposals for BMO is a call to make its executive compensation simpler and more transparent, and to make non-cash compensation payable after executives retire. Even then, Verdun proposes that compensation can be retracted in certain circumstances, such as if the bank ends up having to pay out profits earned in the CEO’s tenure because of legal or regulatory penalties imposed for dirty dealings that occurred when the CEO was at the helm.

This proposal had also been made to Scotiabank and CIBC, but was withdrawn in recognition of their current compensation practices and disclosure.

The common proposal for all of the banks calls for a tighter definition of what constitutes an “independent” director. In each case, the proposal also includes a statement from Verdun outlining what he alleges is an example of a failure of independent board oversight involving the old Clarica Life Insurance Co. Scotiabank notes that it is required by the Bank Act to include such shareholder statements in its proxy, but it stresses that it doesn’t agree with them.

BMO goes further, noting, “Over the past two years, this shareholder has embarked upon repeated personal attacks against [former Clarica chief executive Robert] Astley, one of the bank’s directors. These attacks have progressed to where Mr. Astley has commenced litigation against this shareholder for defamation. This shareholder continues to try to use our shareholders’ forum to further his personal grievances. This course of action is inappropriate and a misuse of the bank’s and our shareholders’ time and resources.”

PROTECT WHISTLE-BLOWERS

The same response is essentially repeated concerning two other of Verdun’s proposals on BMO’s proxy: one calling on the bank to adopt industry-leading corporate governance standards; another demanding that it encourage and protect whistle-blowers.

Beyond the universal sort of corporate governance issues, BMO faces several other, essentially business-specific proposals, including that it: change certain practices concerning RRSPs; disclose the margin status of stocks; and maintain around-the-clock customer service for investment and credit card customers.

Such issues are unlikely to have an impact on corporate Canada.

Missing from Canadian bank proxies this year are proposals dealing with board election practices and social issues. Not so in the U.S., where, according to a tally of shareholder proposals by proxy-monitoring firm Institutional Shareholder Services Inc. of Rockville, Md., the most popular issue by far this year is majority voting to elect directors. There have been 104 proposals on the issue so far this year, which is more than double the second-biggest issue — requiring companies to disclose their political contributions, which garners 45 proposals. In Canada, the banks have already adopted majority voting in one form or another, but this may signal that it will continue to be an issue for other companies in the months ahead.

There is also a notable lack of proposals dealing with the environment. BMO reports that Vancouver’s Ethical Funds Inc. has submitted two proposals, which have since been withdrawn, calling on the bank to issue reports dealing with its exposure to climate-change risks, as well as its policies for preserving biodiversity, sustainable forestry and indigenous rights in its corporate finance activities. The bank pledges to address both issues and report on its progress in its management discussion and analysis for 2007.

Before the start of proxy season, ISS Canada had predicted that the social issues would appear on BMO’s slate of proposals this year. It also had predicted that financial institutions that haven’t yet adopted the Equator Principles for managing environmental, social and governance risks will be facing proposals that they do so. Among the banks, only TD has yet to sign on to the initiative. SHARE’s database indicates the issue will be on TD’s proxy this year.

While the banks are facing no shortage of shareholder proposals, it appears some of the more chilling issues won’t arrive until next winter or later. IE