Proxy access acceptance an ‘inevitability’

Momentum grows among shareholders

IOff the Record ssuers, at least those that are part of the S&P/TSX 60 index, be prepared: proxy access is coming to Canada and it’s all part of the growing momentum of shareholders, in demanding a say in how the board and management carry out their responsibilities.

At least that’s the opinion of Global Governance Advisers, a firm that focuses on “executive compensation, board effectiveness, CEO succession planning, and corporate governance.” It’s also the opinion of Oslers, a major national law firm and Kingsdale Advisors, the country’s largest proxy advisory firm.

“It will continue to show up on proxy ballots, perhaps not next year but a higher probability by 2019, ” said Paul Gryglewicz at Global Governance, about a week after shareholders at Royal Bank of Canada narrowly turned down a proxy access proposal at this year’s annual meeting.

A similar proposal — whereby certain large shareholders can nominate a board member outside of the slate nominated by the company — got over the line the previous week at TorontoDominion Bank. Proxy access has been part of the arsenal of U.S. companies for the past few years — though it has not been used that extensively. In both cases, Lowell Weir, a Nova Scotia accountant, initiated the proposals.

In a recent note, Oslers said, “the level of support for the proposal at both of these meetings suggests a degree of interest among shareholders that will ensure that proxy access remains on the board agenda in Canada.”

In a note prior to TD’s and Royal’s annual meetings, Victor Li at Kingsdale Advisors wrote that “given the established presence and recognition of proxy access in the U.S. we may see Canadian companies which are duallisted in both Canadian and U.S. exchanges be the first pioneers adopting such bylaws.”

Gryglewicz predicts “There will be voluntary acceptance and the banks will be the early adopters,” a view shared by Kingsdale’s Li, who noted the banks, with the appropriate pressure from large shareholders and the Canadian Coalition for Good Governance, signed on for the separation of chair and CEO positions, majority voting and say-on-pay. Lin argues there is a proxy access “inevitability” in the near future.

But despite that inevitability, Gryglewicz, doesn’t feel that proxy access is a particular problem for the banks, provided of course that they continue with a healthy dose of shareholder engagement, the practice of reaching out to the large shareholders on a regular basis and certainly more than when they release their quarterly financial statements.

He argues there’s not a “high risk” of a management sponsored director getting beaten in a run-off between a candidate nominated by management and a different candidate nominated by a large shareholder. He cites the case of CIBC’s 2015 annual meeting where all nominated directors were returned — despite the substantial ($25-million) payments made to two departing executives for “post-employment arrangements.”

Instead he feels in a proxy access world, that attention will focus on the nominating committee of the board, the group charged with finding suitable board nominees. (Until a few years back, the nominating committee used to be part of the governance committee. Now it is a standalone committee, whose mandate includes an annual evaluation of each director and their skills, board succession and board tenure.)

“The onus will be on ensuring that the board has the proper level of oversight. Proxy access creates a level of democracy,” meaning that large shareholders can act if they feel the current board is not doing its job properly, added Gryglewicz.

PROXY ACCESS CREATES A LEVEL OF DEMOCRACY.