Amid rising shareholder activism and growing concerns about the reliability of shareholder voting, Canadian securities regulators are embarking on a review of the proxy voting infrastructure.
The Canadian Securities Administrators (CSA) published a paper Thursday, CSA Consultation Paper 54-401 Review of the Proxy Voting Infrastructure, that aims to examine the proxy voting infrastructure in Canada, including whether it ensures accurate vote counts, and whether a new vote confirmation system needs to be introduced to bolster shareholder confidence in their votes.
“Issuers and investors have a common interest in a reliable and transparent proxy voting infrastructure that reduces transaction costs, reduces discretion in processing votes and gives each vote its full weight,” the paper notes. And, it says that, while various parts of the industry have expressed concerns about the integrity of the current system, it’s difficult for concerned issuers and investors to assess the reliability of the infrastructure as a whole due to lack of information.
“It is important to assess the reliability of the proxy voting infrastructure as a whole because the value and weight of an individual investor’s proxy vote ultimately is affected by all the other proxy votes that are solicited, collected, submitted and tabulated,” it says.
The paper then seeks feedback from issuers, investors and others on a proposed approach to address concerns regarding the integrity and reliability of the proxy voting infrastructure. In particular, it focuses on whether there is accurate vote reconciliation occurring; and, it suggests that the lack of an end-to-end vote confirmation system “can undermine confidence in the accuracy and reliability of proxy voting results.”
The CSA notes that this sort of system is under development, but says, “We want to review the current development status of an end-to-end vote confirmation system, as well as consider what features such a system should incorporate.” However, the CSA indicates that it hasn’t come to any conclusion as to whether any regulatory intervention is required yet.
The paper indicates that the regulators interest in the proxy voting system comes in the wake of increased shareholder engagement over the last few years, including a rise in shareholder activism, and a greater willingness to challenge corporate management, which “has imposed greater stress on Canada’s proxy voting system”. And, it says the CSA expects this trend to continue, which is why it has decided that reviewing the proxy voting infrastructure is a priority.
“Shareholder voting gives individual shareholders a voice on important corporate issues and the confidence that they have ultimate control over membership on the board of directors,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC). “It is important that the CSA thoroughly examine the proxy voting infrastructure and ensure the quality, integrity and legitimacy of the shareholder voting process in Canada.”
The comment period for the paper ends on November 13, and the CSA says that it intends to engage in other targeted consultations to help inform it on the issues set out in the paper, which may include holding a roundtable following the comment period, and forming an advisory committee to serve as a forum for sharing data and discussing possible policy initiatives.