Activist shareholders, board powers and the need for a policy on proxy access
Proxy Access Roundtable raised questions, discussed merits about the Canadian Coalition for Good Governance’s draft policy
By Alison Hines, Centre for the Legal Profession
The Canadian Coalition for Good Governance (CCGG) is in the process of drafting policy on proxy access, that is, the ability of shareholders to not only elect directors, but also exercise a right to nominate directors and have those nominees placed on the same ballot as management nominees. The CCGG’s intended goal of this new nominee structure is to increase the levels of independence and quality of boards of directors among companies, while providing shareholders a meaningful say in who become directors.
The draft policy, and its merits, was the focus of the Jan. 29th “Proxy Access Roundtable,” co-hosted by the Faculty of Law’s Centre for the Legal Profession (CLP) and the CCGG.
After Dean Ed Iacobucci opened the conference, Prof. Anita Anand, CLP academic director, asked some key questions, including: What principles should guide our decisions about enhancing shareholder rights?
"The tension is as between the existing rights in the corporate statute versus adding to the set of rights,” said Anand. “Who benefits under proxy access? What are the costs and benefits of amending the legislative regime?"
Anand said broader questions persist, given that corporate governance is in a state of flux now. With shareholders becoming increasingly active (proxy contests for example), the continuing question is what is the proper role of the board? Are board powers being whittled down by activist shareholders? If so, what are the implications for duties of the board?
Stephen Erlichman, CCGG executive director, outlined that proxy access is “the right thing to do” and has the potential to enhance board performance and improve markets.
“Canada has been called the 'Promised Land' for shareholder activism because it already has proxy access,” said Stan Magidson, Institute of Corporate Directors. He warned adopting the CCGG’s proposal would bring a more adversarial model into Canada, which would not benefit the market.
The proposal would increase proxy access through several methods, which include: allowing for reasonable solicitation costs of nominating shareholders to be paid for by the company; capping the number of nominees, which will likely be the lesser of two directors or 20 per cent of the board; eliminating holding periods, because holding periods are “unnecessary to restrict access to shareholders who have a long-term perspective of the company”; and allowing representation by the nominating shareholders, such that their economic ownership interest is equal to their voting interest of at least three per cent or five per cent, as the case may be, so there is no empty voting.
“The goal is to have Canadian companies adopt proxy access voluntarily without legislation,” said Erlichman.
However, Stan Magidson, president, CEO and director of the Institute of Corporate Directors, argued “the CCGG’s proposal would undermine the basic performance and structure of corporate law.” He said the cost-benefit analysis for the policy falls far short of providing a convincing economic underpinning for reform. Magidson added the proposal does not enhance proxy access in any meaningful or necessary way, as Canada already has proxy access.
“Canada has been called the 'Promised Land' for shareholder activism because it already has proxy access,” said Magidson. He warned adopting the CCGG’s proposal would bring a more adversarial model into Canada, which would not benefit the market. He cautioned against importing fads from other jurisdictions where we already have a superior proxy access model in Canada and added chairs and committee chairs of Canadian boards already meet with CCGG and are willing to engage with shareholders.
“The onus is on the board to establish performance management systems to inform them of efficiencies around the board table,” said Magidson, “and to create performance cultures to drive long-term effectiveness.”
Naizam Kanji, deputy director, corporate finance, mergers and acquisitions of the Ontario Securities Commission, said we must think about enhancing proxy access from the government’s framework under Canadian securities law. Proxy access is necessary, but asked us to focus simply on what kind of enhancement is required. Kanji suggested the best approach would be for the CCGG to put forth this proposal and see what comes out of the discussion. The proposal could lead to something better than what we have today, even if it is not exactly what the CCGG is currently proposing.
Alumnus and law school benefactor Hal Jackman offered closing remarks on the topic. “The CCGG proposal waives a red flag in front of the board,” said Jackman. “If you want to make an incremental change to a company, whether you are a big or small shareholder, there are lots of other ways you can get the board to change.”
