Computershare continues to monitor and stay actively involved with the industry dialogue around Canadian Proxy Reform. As we’ve shared in past communications, Canadian regulators and other securities industry participants have continued their active discussions and reviews of the issues that were identified within the Canadian proxy system by the Canadian Securities Administrator (CSA), and included in the January 29, 2015 publication CSA Staff Notice 54-303 Progress Report on Review of the Proxy Voting Infrastructure (the “Notice”).
What’s new?
On January 26, 2017, the CSA published CSA Staff Notice 54-305 Meeting Vote Reconciliation Protocols, (the “Protocols”) which focus on the processes used to tabulate votes for shares held through intermediaries, and set out CSA staff:
- Expectations on the roles and responsibilities of the key entities that implement meeting vote reconciliation.
- Guidance on the kinds of operational processes that they should implement to support accurate, reliable and accountable meeting vote information.
The Protocols, which are voluntary, are effective immediately.
In November of 2016, the Ontario Securities Commission (OSC) held a roundtable on the Review of the Proxy Voting Infrastructure (the “Roundtable”). Participants in the Roundtable included representatives from Broadridge, the Governance Professionals of Canada, the Securities Transfer Association of Canada (STAC), financial intermediaries, and institutional investors. The OSC opened the Roundtable with a discussion of their reviews, and the draft form of the Protocols that were created in 2016 and what they are intended to do. The panel discussion covered various topics, including:
- How and when the final Protocols would be implemented;
- What the expected impact of the Protocols would be, and how any impact or progress would be measured over the 2017 and 2018 proxy seasons;
- What would potentially be required, and who would bear the costs, to move to a system that is paperless, contains real time end-to-end vote confirmation, and starts the material distribution process with fully reconciled lists of beneficial owners;
- What corporate or securities law changes would be required to move to a paperless system;
- How system changes may impact Canadian issuers who are cross-border listed.
One aspect of the roundtable that was very enlightening included information provided by a financial intermediary regarding an unofficial pilot project they took on over the summer of 2016 to reconcile their beneficial shareholder records prior to proxy material being distributed. The concept of pre-reconciliation is one that the Securities Transfer Association of Canada (“STAC”) has been advocating for several years. We strongly believe that the reconciliation of the beneficial vote entitlement records prior to the material distribution and voting process will improve integrity of the voting files and alleviate many of the problems that currently exist.
The insights that were provided at the roundtable indicated that the pre-reconciliation process brought various issues to light for this particular intermediary. These included stock lending, failed trades, and margin accounts, which caused imbalances in the vote entitlement records. The intermediary identified the need for standardized protocols to manage through the various situations and also stated that the work they did, although in many ways successful, was not a scalable process. Given the manual nature of the work it would not be maintainable through the volumes and tight timelines experienced in proxy season.
This intermediary also reached the conclusion that the only reason there were sufficient entitlements for the beneficial owners who wanted to vote was because all shareholders did not wish to cast a vote. Computershare and STAC believe this is evidence of the wide-spread, systemic issues that exist in the proxy system. The incidents of over-voting that tabulators have identified, and all parties have agreed are unacceptable, are only the situations that can be detected by the tabulator; there is currently no way to quantify the voting problems that occur behind the intermediary accounts.
Where we’ve been
Throughout 2016, work was done to create the Protocols for reconciliation of votes at securityholder meetings. The Protocols are intended to address the five improvements that were identified in CSA Staff Notice 54-303 Progress Report on Review of the Proxy Voting Infrastructure, which was published in January of 2015. Computershare, through our membership with STAC, took an active role in the drafting of the Protocols, which were released for comment on March 31, 2016, in CSA Multilateral Staff Notice 54-304, Final Report on Review of the Proxy Voting Infrastructure and Request for Comments on Proposed Meeting Vote Reconciliation Protocols.
What’s next?
In 54-305, the CSA has indicated that they intend to monitor the voluntary implementation of the Protocols over the 2017 and 2018 proxy seasons in order to determine if there is any need for further enhancements. There will also be continued focus on other industry initiatives, such as end-to-end vote confirmation and potential solutions for paperless meeting vote reconciliation.
Computershare and STAC are continuing to work with the CSA on this important initiative. We believe that the transfer agents, as tabulator, have a role to play in improving the existing processes. However, we continue to believe that there is a responsibility on all parties, including the depositories, intermediaries, and service providers such as Broadridge, to ensure that their systems and processes are accurate, reliable and accountable. Ultimately, the proxy system needs to work for investors, who should have confidence that their vote has been transmitted, received and tabulated as instructed, and issuers, who require correct voting information in order to ensure that they have heard an accurate reflection of the voices of their securityholders. The entities supporting transactions between the issuer and investor have a responsibility to ensure that their systems and processes support these important pillars of the Canadian capital markets.