PROXY ACCESS PROS
Canada isn’t keeping up with some of the investor protections being adopted in other countries,
Macy’s, Inc. FedEx Corp. Amazon.com, Inc.
In the current proxy season it’s rare for a day to pass without a mighty American company announcing that it has adopted proxy access rules allowing for greater shareholder say in the composition of corporate boards of directors.
Little wonder that Institutional Shareholder Services, the U.S. firm that has for years been at the forefront of corporate governance, uses the term “light speed” to describe the uptake of proxy access in the U.S. — virtually unprecedented, ISS says.
Just three years ago, fewer than one half of one per cent of companies in the S&P 500 index had adopted proxy access provisions. By the end of last year, more than 20 per cent had done so. Last month, the California Public Employees’ Retirement System placed proxy access at the top-of its to-do list for shareholder engagement for 2016. “Proxy Access helps to ensure that corporate boards are independent, competent, diverse, and accountable by allowing shareowners to nominate candidates for the board,” Calpers said in a release.
Canadian shareholders should look upon this state of affairs and weep. “If (Canadian) shareholders are really serious about effecting or using their influence to be more effective with respect to their posi- tions then they need proxy access first.”
That’s Gar Emerson speaking — Toronto lawyer, company director in his own right (he spent 13 years as chairman of the board at Rogers, bless him) and all round corporate governance expert. Emerson has been studying the ways in which Canadian regulators have lost ground vis-à-vis other jurisdictions when it comes to shareholder engagement. We used to be a leader. Now? “Canada has been left in a backwater.”
Take a look at say on pay. Since October 2013, listed companies in the U.K. have been compelled to hold binding shareholder votes on the remuneration of executive and non-executive directors. In Canada, say on pay votes are still voluntary and remain non-binding. “The Ontario Securities Commission has taken a backstage position on the contrary to what the U.K. has done, where it’s in legislation,” Emerson says. “We’re not keeping up with some of the investor protections that are being adopted in other countries.” (Say on pay votes in the U.S. were enacted under the DoddFrank legislation in 2011.)
Perhaps even more germane, proxy access strikes right at the heart of shareholder democracy. In the absence of that, says Emerson, “it’s really the board nominating the board.”
Or listen to the Canadian Coalition for Good Governance (CCGG): “A key underpinning of our corporate laws and our capital markets is the concept that shareholders elect directors, but CCGG believes this principle of shareholder democracy needs to have substance if it is to be meaningful,” the coalition wrote in a paper last spring. “A slate of nominee directors in non-contested director elections, where the number of nominees is equal to the number of director openings and all such nominees have been selected by the existing board, often with the input of the CEO, is not true shareholder democracy.”
It is true, as Emerson points out, that Canadian shareholders aren’t completely neutered in this regard. All they have to do is a start a proxy contest and fight the good fight. Practically speaking, the chances of that happening are wafer thin.
It should be stated that the current law does provide some out-of-reach access. Shareholders with 5 per cent of a company’s outstanding shares can submit a nomination proposal to be including in the proxy circular. But the restrictions and hurdles built in to the process are all but insurmountable.
There has been a modest cultural shift in Canadian governance. As Emerson points out, board nominees were commonly chosen from a narrow group of friends and acquaintances, with the influence, participation and approval of the CEO being paramount. The process is “a little more democratic and meritorious today.”
Contrast that with General Motors. Earlier this month, the car company disclosed in a securities filing that it will allow shareholders to nominate up to two directors, provided that those shareholders hold at least 3 per cent of GM’s shares, and have held the shares for a minimum of three years. A Reuters story pointed out that GM’s move was similar to that taken recently by Time Warner, and Microsoft and General Electric.
Canadian shareholders tend to be a somnolent bunch. Maybe it’s time to make some noise. jenwells@thestar.ca