Bank investors to vote on giving bigger voice to smaller shareholders

TORONTO — Investors at two of Canada’s biggest banks will vote soon on whether shareholders with smaller holdings should have a bigger voice when choosing directors for the board — a move that investor advocates say would, if successful, be a big step towards “shareholder democracy.”

The proposal, included in the proxy circulars of both Royal Bank of Canada and Toronto Dominion Bank after being submitted by a shareholder of both banks, asks the banks’ boards to adopt a resolution enabling investors holding a three per cent stake (and meeting some other requirements) to nominate a director to the board and to include nominees on the banks’ proxy voting form.

That’s lower than the five per cent threshold, by an individual or a group, required under current Canadian law.

While there are existing mechanisms for shareholders holding five per cent of a bank’s outstanding shares to have their say on director nominations — such as requisitioning a meeting or submitting a shareholder proposal — those avenues can be costly and difficult to pursue, said Stephen Erlichman, executive director of the Canadian Coalition for Good Governance. His organization put forth a proxy access proposal back in 2015 similar to the one before TD and RBC, he said.

“There are various issues about how the system works today, and our proposal ... tried to make it a fairer system and a system that would work better for shareholders.” RBC said in a release on Wednesday that the board is recommending that shareholders vote against the proposal for several reasons, “including that it would not be aligned with the statutory proxy access rules set out in the Bank Act.”

In its proxy circular, TD also recommended against the proposal, saying the measure “mirrors the evolving approach to proxy access in the U.S. without taking into account rights already available to the bank’s shareholders in Canada.”

“The board of directors believes that the action proposed is not necessary or in the best interests of the bank and does not support this proposal and recommends that shareholders vote against it,” TD said.

The proposal will be put forth at TD’s annual shareholder meeting at the end of the month, while RBC’s will be voted on in early April.

Andrew MacDougall, a lawyer specializing in corporate governance at Oslers law firm, says it’s notable that this is the first shareholder proposal to introduce a proxy access mechanism similar to what has been proposed in the U.S. He said it has the potential to be a “forerunner of future legislative changes in Canada.”

“Because it’s the first, it will be very interesting to see how investors react to it .... That may drive the degree of support that this initiative gets in Canada compared to the U.S.”

However, MacDougall says, there are existing provisions in the statute that are less complicated than what has been proposed. Because of those existing options, he doesn’t see any “meaningful benefit” to this proposal for significant investors in an organization.

Anita Anand, law professor at the University of Toronto and the special adviser to the Canadian Federation for the Advancement of Investor Rights (FAIR Canada), said she is disappointed that RBC is recommending against the proposal, but says it is significant that the bank is allowing it to go before shareholders for a vote (as the board has discretion and the option to reject it).

“I am optimistic, and I very much hope that other (public) corporations will follow suit, put these proposals in front of their shareholders, lessen the threshold percentage, and ... the baby steps will hopefully lead to larger scale reform,” she said.