An organization backed by the country\’s biggest pension funds and cash managers is looking on Canada to adopt U.S.-style rules to make it easier for large shareholders to appoint directors for election to company boards.
The Canadian Coalition permanently Governance, whose members include the Canada Type of pension Investment Board and CIBC Asset Management Inc., is urging Industry Canada to amend the Canada Business Corporations Act to give shareholders owning as little as three per cent of a company\’s shares the right to name up to three nominees who\’d be contained in documents circulated to any or all shareholders who would vote on the nominees at the company\’s annual general meeting.
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\”We\’re trying to build inside a system that isn\’t going to be expensive or onerous,\” says Stephen Erlichman, executive director of the CCGG. \”This is not radical – this is going on all over the world.\”
The coalition suggests the measure – referred to as proxy access – could be immediately put in place voluntarily, as companies based in the United States for example General Electric Co. have done.
But Richard Leblanc, an affiliate professor at York University, says voluntary adoption is \”never competitive with regulation\” to enhance shareholder democracy.
\”In one fell swoop, Industry Canada could mandate proxy access,\” Leblanc said, adding that while shareholders can already submit their own director nominees, \”that costs a lot and – is prohibitive.\”
Mark Wiseman, CPPIB’s chief executive, says his organization supports the push like a large Canadian and global investor.
\”We are hopeful that Canadian regulators, Canadian legislators, and even Canadian corporations take the views of owners seriously,\” said Wiseman, who\’s also on the board of the governance coalition.
\”At no more the day, shareholders own the businesses in which they invest, and shareholders ought to have significant rights in determining how those corporations are governed,\” he said.
The movement to give significant shareholders of public companies a simple and inexpensive way to get their views expressed on the board of directors is gaining popularity in the United States.
In February, the board of Whirlpool amended the business\’s bylaws to allow large, longstanding shareholders to appoint candidates for up to 20 percent of the company\’s board positions.
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That followed approval of the similar \”shareholder proxy access\” resolution in January by shareholders of Monsanto Co., that was approved even though directors had recommended voting against it.
Erlichman says he expects the CCGG\’s policy is just the beginning of a procedure in Canada, based on early feedback, largely negative, from directors.
Officials at the Institute of Corporate Directors, for example, say Canadians should be wary about importing a “fad” from other jurisdictions if this country already has mechanisms in place that allow entire boards to become replaced by activists and categories of shareholders.
“My biggest point on proxy access is before all of us jump off and say there exists a problem in Canada because we don’t have proxy access, I think people need to go back to the fundamentals and ask themselves, could it be really a problem?” said Stan Magidson, leader of the ICD, which speaks for directors on governance issues.
What\’s more, opponents say such policies will enable short-term investors to influence companies in ways that aren\’t within their long-term interests, and make up a more adversarial climate.
\”This will work for companies, but I don\’t think this is the way it\’s being perceived,\” the CCGG’s Erlichman said within an interview. \”Not everything has to be: When the shareholders win, the director loses.\”
He noted that institutional investors behind the coalition are pushing with this, and said their reason is very not the same as that of activist investors who seek to replace boards outright with a slate of directors introduced to pursue a narrow agenda.
\”We haven\’t created this insurance policy for activists,\” he explained.
The coalition\’s policy recommends shareholders with an aggregate economic and voting interest with a minimum of three per cent of outstanding voting shares nominate the lesser of three directors or 20% from the board.
For companies having a market capitalization of under $1 billion, the share ownership threshold would rise to five per cent.
Disclosure about the shareholder\’s nominees should appear in the company\’s proxy circular \”in exactly the same section\” and \”with exactly the same prominence\” as disclosure about the company\’s selected nominees.
We\’re attempting to build inside a system that is not going to be expensive or onerous
The coalition\’s policy doesn\’t specify some time the shares should be held – some of the U.S. policies require three years of ownership – however the shares must be held during the time of the meeting where directors are elected.
Erlichman says his group hasn\’t targeted any major companies to adopt the policy. But he said he is hopeful that companies indexed by both Canada and the U.S. might step up.
York University\’s Leblanc said large energy or financial services firms would be \”obvious candidates\” to embrace proxy access.
Anita Anand, a professor in the University of Toronto\’s faculty of law, said if even one Canadian company embraces proxy access because of its large shareholders, it might have a domino effect.
\”We may indeed visit a Canadian GE which may in turn place direct pressure on public companies within this country to follow suit,\” she said.
Greater proxy access \”in some form\” may be the next logical step now that the Toronto Stock market has adopted a majority voting policy to help shareholders to get rid of directors they do not want, Anand said.