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OSC beefs up priorities list, adds review of proxy voting

The screens at the TMX Broadcast Centre in Toronto show the closing numbers of the TSX on July 3, 2012. The Ontario Securities Commission has revised its to-do list of priorities for the year ahead to include a review of the mechanics of the proxy voting system after a group of large institutional shareholders launched a campaign to get the issue back on the regulator’s agenda.

Matthew Sherwood/The Globe and Mail

The Ontario Securities Commission has revised its list of priorities for the year ahead to include a review of the mechanics of the proxy voting system after a group of large institutional shareholders launched a campaign to get the issue back on the regulator's agenda.

The OSC issued its final statement of priorities Thursday for the coming year, revising an earlier draft that had made no mention of reforming proxy issues.

The new proposal to address so-called "shareholder democracy" issues says the OSC will support the Toronto Stock Exchange in its plans to introduce majority voting rules, and will identify key issues with the proxy voting infrastructure and publish a consultation paper on the issue later this summer.

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The statement also says the OSC will address new evolving issues that aren't listed as priorities for the coming year, specifically mentioning a request from the Ontario government to consider developing a new rule to get more women on boards of directors.

The shareholder democracy revisions come just weeks after a group of Canada's largest investors submitted letters to the OSC complaining that the regulator had included proxy reforms on its statement of priorities last year, but did not introduce any changes, and then dropped the topic from its statement of priorities this year.

Pension plans such as the Ontario Teachers' Pension Plan, Alberta Investment Management Corp., British Columbia Investment Management Corp. and the federal Public Sector Pension Investment Board urged the commission to make proxy voting reform a priority.

Many of the shareholders complained about flaws in the "plumbing" of the voting system that lead to inaccurate vote counts. Investors complain there is no good system to confirm votes are accurately counted by the time they go through a host of intermediaries such as brokerage firms, transfer agents and proxy advisory firms.

"We're very happy to see them make this revision to their priorities," said Wayne Kozun, senior vice-president of public equities at Teachers.

Mr. Kozun said there are numerous issues he hopes to see included in a review of the proxy voting system, including the lack of confirmation for investors that their votes have been properly recorded, and an examination of other voting practices such a "empty" voting when investors have structured financial instruments to give them voting rights without an economic interest in shares.

Stephen Erlichman, executive-director of the Canadian Coalition for Good Governance, which represents Canada's largest shareholders, said Thursday the amended statement of priorities is "very good news" but said "the devil is in the details" in terms of what will specifically be addressed. The CCGG also wrote to the OSC this spring to urge it to add shareholder issues to its priorities.

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"I'm very happy to see that the OSC has added both majority voting and fixing the plumbing of the proxy system to their statement of priorities, now we'll just see what's there," he said.

He said the group is waiting for the details of the proxy voting consultation paper to see which issues the OSC plans to tackle. The CCGG wants the commission to examine ways to give shareholders more power to nominate directors to boards, for example, which goes beyond a review of the basic mechanics of how votes are recorded.

Mr. Erlichman said the OSC's pledge to support the TSX's introduction of majority-voting rules for listed companies doesn't reveal whether the reforms will extend to smaller companies listed on the TSX Venture Exchange. The CCGG wants to see majority voting rules extended to companies of all sizes, requiring them to adopt a policy that they will accept the resignation of any directors who don't receive a majority of "yes" votes in annual shareholder elections, except under "extraordinary circumstances."

The OSC's priority statement Thursday did not outline its anticipated time frame for the review of new rules to encourage companies to add more women on their boards.

Ontario Finance Minister Charles Sousa and Laurel Broten, who remains minister responsible for women's issues until her resignation takes effect July 2, officially sent the OSC a letter on June 14 asking the commission to launch a review of gender diversity on boards. The government had publicly announced the initiative in May.

The letter requests the OSC "to undertake a review and public consultation process" over the summer and to provide recommendations regarding specific disclosure requirements by the fall.

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