Amid the hubbub of the Canadian Pacific Railway Ltd. proxy fight, something significant got overshadowed.
The battle was the first time that a so-called universal proxy ballot was successfully used in a contested meeting in Canada.
In the past, investors in a company facing a proxy fight would usually get two totally different ballots. The company would send out one listing only the directors that management recommends. The dissident would send out a separate one with only its nominees. Shareholders would have to figure out which one to vote.
Imagine going to a political polling booth and being handed two separate ballots from two different parties, listing different names, for the same election. That’s what has long happened in Canadian boardroom battles.
In CP, both sides sent out universal ballots listing all the possible nominees, both from the management and dissident slates. It’s a significant enhancement to shareholder democracy. There are still two ballots, but because they list the same names it’s much less confusing for shareholders.
CP’s opponent, activist shareholder Bill Ackman of Pershing Square, has long advocated for universal ballots and is said to have pushed hard to use one, which meant a costly re-engineering of the way the votes are counted. CP chose for its own reasons to go with one too. The result was a significant benefit for shareholders.
But don’t mistake this simply for a case of unadulterated altruism. There are plenty of more tactical reasons for those involved in a proxy fight in Canada to want a universal ballot.
One of the quirks of Canada’s proxy voting system is that the sides in a fight only see the votes that come in on their own ballots. If you vote on management’s proxy ballot, only management sees it. If you vote on the dissident’s ballot, only the dissident sees it. The result is that the company and the dissidents have no idea how many votes the other side’s slate is getting, because they only see their own until right before the meeting.
That’s still true with a universal ballot, but there’s a chance by using one that people who vote for the other side will choose to do so on your ballot. That arguably provides a slightly better picture of the total outcome, as you start to see a bit of the total picture. That’s especially true if you can make a compelling case to shareholders that they should vote on your ballot.
And that’s crucial when it comes to the pre-meeting negotiations. If the dissident knows it’s got a strong chance of winning the vote at the meeting, because of the early returns, it can stand much firmer in talks when the company tries to cut a deal.
In CP, because the returns were so strong in favour of Pershing Square, Mr. Ackman would have known he had no reason to listen to any entreaties from CP.