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Investors should be able to pick and choose directors in proxy fights, group says

Stephen Erlichman, the head of the Canadian Coalition for Good Governance is seen in his office at Fasken Martineau in Toronto on November 25, 2011.


Canada's largest shareholder coalition is calling for voting reforms during contested proxy battles so investors can pick and choose which directors they want to elect from both sides' slates.

The Canadian Coalition for Good Governance, which represents most of Canada's largest institutional shareholders with over $3-trillion in total assets under management, says its members want to choose directors from each ballot in some proxy contests, but they currently have to vote entirely for one side or the other in board battles.

The result is that shareholders can't easily opt to add a few dissident directors to shake up the mix on an existing board, but instead have to entirely overhaul the board or must keep all current directors in place.

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"Shareholders want to have some choice, and this is a way for shareholders to have the ability to choose which of the directors they want and then let those directors run the company," said CCGG executive director Stephen Erlichman.

The CCGG released a new "universal proxy" policy Thursday, saying it is illogical that shareholders can pick any combination of directors for election if they attend a shareholder meeting in person to cast their votes by hand, but cannot vote similarly if they submit written ballots in advance of the meeting, which is the voting system almost always used by institutional investors.

Shareholders also can't pick a few directors from each side's proxy and send in both ballots, because voting rules require the first ballot to be discarded if an investor casts a second ballot, Mr. Erlichman said.

As a solution, the CCGG ideally would like both sides to agree to send a single proxy ballot listing all directors nominated for election from both sides. If the two parties will not agree to combine ballots, the CCGG says its second choice is for each side to offer proxy ballots with all the names listed on each.

Mr. Erlichman said some combatants may not agree to a single ballot because they want to put their nominees first on the list or indicate on the ballot which group they want shareholders to support, but at least all the names should be listed on each form.

The CCGG is also calling for regulators to make universal proxies mandatory in Canada, but says they should be offered voluntarily by companies and dissidents as long as the rules are not changed.

While universal proxies have been rare in Canada, a combined ballot was used in the 2012 proxy battle between Canadian Pacific Railway Ltd. and activist shareholder Pershing Square Capital Management, which proposed seven new directors to join the 16-member board.

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Each side in the CP battle sent out its own form of proxy and enclosed biographical information to promote its own nominees, but both included all directors on their lists.

Mr. Erlichman said the CCGG's universal proxy policy is the next step in a broader campaign launched in May urging companies to give shareholders an easy way to nominate new directors for boards, allowing more names to appear on a proxy voting ballot than the number of available positions. The CCGG said such a power would create a more democratic voting system for shareholders so they aren't forced to elect all the nominees proposed by the board.

The U.S. Securities and Exchange Commission is examining whether to mandate universal proxies in contested battles to ensure all director nominees are included on the ballot. In a speech in June, SEC chair Mary Jo White said she has asked her staff to prepare a draft of "appropriate rule-making recommendations" on the issue.

Ms. White said companies don't have to wait for the SEC to act, urging them to voluntarily consider using some form of universal proxy in contested votes in the meantime.

"I realize that putting this into practice may have its challenges and that companies could choose different ways of making it work. But it could be beneficial for your shareholders," she told a gathering of corporate secretaries and governance professionals.

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