Canadian corporations and their large institutional shareholders are calling for an "end-to-end" confirmation system that will allow them to verify that voting results are properly recorded at annual meetings.
David Masse, deputy corporate secretary at CGI Group Inc., told a roundtable conference Wednesday at the Ontario Securities Commission that errors in voting results are too common, often leaving companies or their agents scrambling to sort out problems during the 48 hours before an annual meeting is scheduled to be held.
Mr. Masse, who is chairman of the Canadian Society of Corporate Secretaries, said a major institutional investor contacted his company to complain that it had discovered 14 million shares had not been counted in the company's voting results, but the error didn't become clear until the vote was over. CGI could not discover where the system broke down and how the voting error occurred.
"A lot of effort went into tracking what happened to that vote, and it was impossible.... Those votes never came through. That's a very serious problem."
Canada's securities regulators have launched a review of Canada's proxy voting system amid numerous complaints for years that proxy voting results are too often recorded improperly as they move through tiers of intermediaries, including clearing agencies and brokerage firms. Companies have also complained that they have received more votes on an issue than they have shares outstanding – an error known as "over-voting."
Transfer agent Computershare has reported finding unresolved cases of over-voting occurred at 26 per cent of annual meetings in Canada during the 2013 spring proxy season.
Stéphanie Lachance, vice-president of the Public Sector Pension Investment Board, which manages $76-billion for large federal employee pension plans, told Wednesday's conference that investors need confirmation that their votes were counted properly, and need it to be easily accessible so they don't have to go through numerous steps to verify each vote individually.
Ms. Lachance said it is "very worrisome" that so many companies reported finding some form of voting error when their proxies were returned last year, even if some of the problems are sorted out before the final tally is recorded.
"There's a lot of effort, time, energy and resources allocated to casting votes at most institutional investors in Canada," Ms. Lachance said. "We are getting worried about whether the full weight of our votes are cast and carried in Canada."
Hooman Tabesh, executive vice-president of proxy solicitation firm Kingsdale Shareholder Services Inc., said his firm worked on a vote where 3.5 million shares were over-voted when the proxies were returned, requiring a last-minute scramble to sort out what had gone wrong before the annual meeting.
He said firms like Kingsdale can try sort out voting problems, but not every company hires a proxy firm for every vote.
"When we're involved we go back to try to reconcile it, but when we're not involved I could imagine there is a tremendous amount of over-voting," he said.
Wednesday's forum heard that voting errors often result when shares are lent from retail investors' margin accounts for short-selling or other strategies. The shares from the accounts are difficult to track, and can end up being voted by both the lender and the borrower, causing voting errors.
OSC commissioner Deborah Leckman said one solution could be to prohibit the lending of shares from margin accounts if they are causing too many voting problems.
But Narry Teemal from Canadian Imperial Bank of Commerce replied that securities lending is "the business we're in – everybody on the Street does this."