Canada's shareholder voting system is "antiquated and fragmented," causing numerous errors in vote counts at companies' meetings, securities regulators have concluded after a lengthy review of problems with counting shareholder votes.
The Canadian Securities Administrators, an umbrella group representing provincial securities commissions, on Thursday called on key players involved in gathering and counting votes to develop new protocols to try to prevent errors they say occur in multiple ways during the proxy process.
"The current proxy voting infrastructure is antiquated and fragmented and needs to be improved," the CSA report concludes.
The report offers dramatic support for long-standing complaints in Canada's business community that shareholder voting results at meetings often appear to be incorrect. Companies and their advisers have complained about frequent cases of over-voting, in which more votes are cast at a meeting than there are shares outstanding, as well as problems with votes that are submitted by an investor but not counted because of errors in the pipeline for passing votes down to tabulators at shareholder meetings.
A report says members of the Securities Transfer Association of Canada agreed to track instances of over-voting at meetings in 2013, and found that over-voting occurred in 51 per cent of cases. The statistics did not record whether the errors were significant enough to change the results of the meetings.
The CSA said it did its own detailed review of voting at six uncontested shareholder meetings in Canada last year, and found there was over-reporting and over-voting of shares at all of the meetings. The regulator said none of the errors would have changed the ultimate outcome of the votes.
The regulators have not proposed new rules to try to address the voting errors, and the report contains few specific recommendations for reform. Instead, it calls on a host of parties working in the proxy voting system to develop new systems or protocols to improve the accuracy of vote counting processes.
Susy Monteiro, senior vice-president at proxy solicitation firm D.F. King Canada, which helps companies manage shareholder votes, said her experience shows players in the voting system typically feel the problems are caused by other companies and not themselves. But she said it is nonetheless reasonable for regulators to start by asking industry players to put systems in place to fix the errors.
"Every time I'm involved in a meeting, there is over-voting," she said. "I can tell you it's happening in routine meetings, in non-contentious meetings. It's definitely an issue."
Securities lawyer Carol Hansell, who co-authored a 2010 report examining problems in the proxy voting system, said many of the conclusions in the report appear to stem from a review of just six proxy votes, so she worries securities regulators lacked the resources to do a thorough and independent review of the system.
She added she is uncertain the independent companies working in the proxy voting sector can come together as recommended to fix the problems because they have so far been unable to resolve all the issues through industry committees.
"I think the report is helpful and thoughtful, but I just don't know how much comfort you can draw from it," Ms. Hansell said.
The report highlighted both technological and human errors as causes of voting errors, and said some errors were also caused by the mailing of paper omnibus proxies that do not reach vote tabulators.
The CSA said its review showed vote tabulators at meetings used different methods to reconcile votes they received from intermediaries compared to their official voting entitlement lists. The result was that counting differed depending on the methods used, especially in cases where uncertainties arose.
The regulators also concluded that tabulators at meetings made errors by rejecting or not counting certain proxies, but the errors were not detected by anyone because there was no communication with the intermediaries who submitted the proxies. In those cases, they were never informed their votes hadn't been counted, and had no opportunity to resolve the problem.
For the 2015 proxy season, the CSA said all the key players in the voting system should assess their processes "and implement any immediate steps they can to improve the accuracy and reliability of vote reconciliation."
For 2016, the report says regulators will direct all the key players to work together to develop industry protocols that will specify roles and responsibilities of each party in the process. The protocols will "outline the specific operational processes" that each key participant will be expected to implement. The CSA said it will consider whether new rules may be needed to allow the new protocols to be implemented.
"We may recommend mandating aspects of the protocols and/or regulating entities in the proxy voting infrastructure if it appears to us that this would be necessary or appropriate," the report concludes.
The CSA said it will continue studying the proxy voting issue and will selected a contested proxy battle this year to review vote counting to see if there are different issues in cases of contested votes, such as difficulties counting dissident proxy ballots.