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General view of empty stands.AGUSTIN MARCARIAN/Reuters

Paul Finch is the treasurer and chief administrative and financial officer for the BC General Employees’ Union (BCGEU), and Emma Pullman is BCGEU’s head of shareholder engagement and ESG. Amandeep Sandhu is the principal of Sandhu ESG Law.

“Democratic process” rarely comes to mind as a foundational principle of corporate governance, but for the owners of public corporations, annual shareholder meetings are the single opportunity to exercise their democratic rights with respect to the governance of corporations. Shareholders who own stock are entitled to vote on key governance proposals and board of director nominations. The democratic process allows them to exercise influence in proportion to their ownership stake.

Throughout the COVID-19 pandemic, virtual-only shareholder meetings became the norm as companies adjusted their operations to the new realities imposed by the crisis. The first virtual meetings were fraught with challenges and failed to allow for a meaningful level of shareholder participation.

In the early days of the pandemic, we understood these challenges to be technical issues that could be fixed. But four years on, the same fundamental challenges persist. And that’s led us to a more concerning conclusion: the erosion of shareholder participation was by design.

A lack of regulation concerning how virtual shareholder meetings are run has created a deep deficit in the ability to enforce rules of order and process at a basic level. The current format of virtual meetings impedes shareholder participation in the affairs of Canadian public companies. The critical dialogue between issuers and investors that makes companies better is being stifled. Canadian securities regulators can fix this, but they need to act decisively.

In July of 2021, we submitted a letter to the Canadian Securities Administrators (CSA), the umbrella body of Canadian provincial and territorial securities law regulators, sharing our concerns with the virtual-only meeting model. Based on insights we gained through two proxy seasons, we highlighted concerns with virtual meeting registration requirements, and that these meeting platforms did not provide shareholders with the ability to fully exercise their rights to participate.

The CSA ultimately responded by issuing a press release in February of 2022 recognizing “the connection between securities law requirements for disclosure in respect of shareholder meetings and shareholders’ experience at such meetings.” Issuers were reminded that virtual-only meeting practices should be transparent and consistent with established practices for in-person meetings “to promote meaningful interaction between shareholders and management.”

Two proxy seasons later, the same major problems persist, and many of the concerns we raised in 2021 remain. And the BC General Employees’ Union is far from the only investor raising similar concerns.

After continuing to face the same issues in virtual-only meetings during the 2023 AGM season, BCGEU submitted another letter to the CSA concerning their use. Using data collected by Amandeep Sandhu of Sandhu ESG Law, we note the following about the 2023 proxy season:

• 34 (or 54 per cent) of the S&P/SX 60 constituent companies held virtual-only shareholder meetings;

• 84 per cent of these companies required shareholders to undergo an onerous “double registration” process to attend and vote at a virtual shareholder meeting. This entailed registering through both shareholder communications provider Broadridge Financial Solutions, as well as through an issuer’s transfer agent. The remaining companies required registration through one of these entities, and one issuer required no advanced registration at all;

• only 12 issuers permitted shareholders to submit questions by e-mail in advance of the meeting, and just four permitted shareholders to ask questions via telephone.

Our analysis demonstrates the urgent need for the CSA to set minimum standards for virtual meetings. First, requiring advanced registration, especially double registration, should be scrapped. It is an unnecessary hurdle to shareholder participation.

Second, procedures for asking questions must be addressed. Issuers currently can cherry-pick which questions they want to answer, and can group, summarize and even edit questions. Shareholders have absolutely no recourse if an issuer refuses to answer a question. To overcome this power imbalance, we recommend having issuers publish and answer all questions received through the virtual meeting platform, and giving shareholders the option to ask their questions via video link.

At the core of the shareholder meeting process is the fundamental right to discussion and debate, and Canadian public companies and the CSA need to put in place the basic rules of process that allow for this. The late Prof. Bruce Welling of the University of Western Ontario stated that “[t]he critical reason for allowing shareholders to attend general meetings must be to permit the discussion of issues related to the corporation’s business.” The Canada Business Corporations Act enshrines this right in Section 137(1)(b).

Shareholders currently have no way to participate in meaningful discussion at a virtual-only meeting. They can’t raise their hand, nor do they have a way to speak up and comment on motions. And they can’t raise points of order if they believe proper meeting procedure is not being followed.

The CSA should require that virtual-meeting platforms be modified to allow shareholders to request to speak, make motions, or raise points of information or order, all on a real-time basis.

Shareholder engagement makes companies better by reducing risk, optimizing returns and generating positive spinoffs for society and the environment. Given virtual shareholder meetings likely aren’t going anywhere, we need action from Canadian securities regulators to safeguard shareholder rights. Without decisive action, issuers will continue to silence shareholders and rewrite the rule book – and corporate law – as they see fit. And that doesn’t just hurt investors, it hurts us all.

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