Canadian Securities Administrators (CSA), the umbrella organisation for Canada’s mosaic of markets regulators, is seeking feedback on its proposals for a policy on proxy advisory firms. “National Policy 25-201 Guidance for Proxy Advisory Firms” is the result of its 2012 consultation paper which looked at possible issues with the shareholder voting research industry. The CSA says that its proposed policy is intended to ‘address concerns raised in the consultation process by certain market participants related to conflicts of interest, transparency and accuracy’.
The recent global lobbying against governance analysts has been notable for being overwhelmingly based on the critical views of the corporate lobby rather than the experiences of the users of proxy research services, the shareholders. The CSA notes that the extent of the actual influence of proxy advisory firms is ‘subject to debate’. Therefore, rather than taking a hard-law approach to regulation they are proposing a series of best practice guidelines for analysts which they hope will: ‘promote transparency in the services they provide to clients and to foster an understanding among market participants about proxy advisory activities’.
If that language sounds rather familiar, followers of the proxy analyst debate will also recognise the themes in the proposed guidance: conflicts of interest; transparency and accuracy of vote recommendations; proxy voting guideline development; and communications with clients, market participants, the media and the public. Interestingly, and for the first time, CSA is raising questions about “automatic voting services” and asks whether positive confirmation of policy preferences should be obtained from investors.
Commenting on the consultation, Bill Rice, Chair of the CSA and Chair and CEO of the Alberta Securities Commission said: “The CSA recognize that proxy advisory firms play an important role in advancing good corporate governance by facilitating institutional investors’ ability to exercise their voting rights at shareholder meetings.” Uniquely among regulators (so far) CSA has responded directly to criticism of proxy analysts by the issuers and their advisors. Noting the lobby effort from issuer associations and law firms which continue to raise the spectre of governance analysts becoming defacto standards setters ‘compelling’ issuers to adopt one size fits all standards, the CSA has responded very directly:
“We wish to remind issuers that they may engage with their shareholders, who have the ultimately responsibility of determining how to exercise their right to vote, to explain why they have adopted a given corporate governance practice. Where appropriate, issuers may discuss corporate governance and proxy voting matters with institutional investors to address their concerns. If issuers have practices that are different from the standards set out in the proxy advisory firms’ proxy voting guidelines, these practices can be discussed with institutional investors.”
The global attempts to regulate governance analysts have clearly influenced the CSA, as has the shareholder voting research industry’s own response via the Best Practice Principles. CSA received a total of 62 responses to the original consultation and their views were supplemented by input from other international initiatives: the U.S. Securities and Exchange Commission’s Concept Release on the U.S. Proxy System, 2010; the New York Stock Exchange Commission Report on Corporate Governance; the French Autorité des marches financiers’ (AMF France) Recommendation No. 2011-06 of 18 March, 2011 on Proxy Advisory Firms; and the European Commission’s 2011 Green Paper: The EU Corporate Governance Framework.
Many institutional investors have been surprised by the level of lobbying against their service providers and the CSA has emphasised the need to balance the different perspectives of stakeholders ‘while recognizing the private contractual relationship between proxy advisory firms and their clients’.
The proposed guidance is open for comment until June 23 2014.
Last Updated: 26 April 2014