The Canadian proxy voting system is fundamentally flawed says Canadian law firm Davies Ward Phillips & Vineberg LLP. In a forthcoming white paper the firm has, in its words: “uncloaked the mystery surrounding the proxy voting system in Canada.”
Canadian proxy voting is circuitous and results in complicated communications between issuers and investors that lack transparency and accountability. It reveals a number of serious issues which the firm asserts must be addressed in order for Canadian issuers and investors to have confidence that shareholder votes are properly captured and counted .
After 16 years of daily involvement in the proxy process the following observation didn’t come as a surprise to the Manifest team, but the first thing the firm discovered was ” that very few people understand how the proxy voting system works from end to end.” Which is not to belittle a very thorough exposition of the proxy plumbing problem, not just in Canada, but world wide.
According to Davies Ward, an effective proxy voting system must satisfy at least the following five criteria:
- investors must be in a position to make an informed decision about how to vote or how to direct that their votes be exercised and must therefore have adequate time to review the proxy materials;
- investors must be able to cast their votes or provide voting instructions in accordance with rules that are clearly explained, impartially applied and practical for investors to follow;
- if an investor casts a vote or provides voting instructions in accordance with the established rules, that vote must be given its full weight at the shareholder meeting in question;
- votes attached to the securities of an issuer should be cast by those investors who hold the economic interest associated with those securities; and
- there must be sufficient transparency in the voting system so that both issuers and investors are confident that the system works.
These paper’s lead author, Carol Hansell, notes, “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.”
Davies Ward has invested 16 months of effort in consultation, research and writing so far. Ms. Hansell notes, “Our goal is to improve the system. To do that, all stakeholders need to be working from a common base of knowledge. We hope this paper will provide that common base and allow us all to move through the next steps and ultimately to an improved system.” Ms. Hansell presented an early draft of the paper to the Securities and Exchange Commission in Washington, D.C. earlier this month and made a formal submission yesterday in response to the SEC’s request for comments on its Concept Release on the Proxy Voting System. The Canadian Securities Administrators have requested a copy of the Davies paper.