Canada's provincial securities regulators are banding together to reform the way that shareholders record their votes.
As it stands, Canadian investors are capable of voting by proxy, which means they can make their voice heard without attending a shareholder meeting.
Such a system is common in many countries, but Canada has needed changes for some time – so much so that pension plans such as Ontario Teachers' Pension Plan, Alberta Investment Management Corp., British Columbia Investment Management Corp. and the federal Public Sector Pension Investment Board recently urged the Ontario Securities Commission to make it a priority.
Because these institutions invest in so many different companies and are active voters, they worry their votes aren't always counted and that final vote counts are inaccurate.
The OSC promised in June to make proxy reforms a priority for the coming year, and the new announcement proves the Commission is living up to its word.
There are a number of reasons that major institutions worry the current system cannot properly track votes, but share lending is one of the major issues. Because major pension plans hold many securities for the long-term, they are prone to lend these securities to another investor for a fee. (The borrower can then do things like sell the shares short.)
In these transactions, the borrower becomes the new owner of the shares and is entitled to vote them. That can create problems, namely double counting. "Without mechanisms in place to properly track lending activity and prevent investors who have lent shares from voting," the regulators noted, "there is a risk that a lent share may be voted by both the lender and whoever is the owner of that share on the record date."
Shareholder privacy is another major issue. In Canada, investors have the right to keep their identity private. That can limit companies from sending these shareholders the necessary voting materials. After canvassing different stakeholders, the regulators found that "some participants have suggested that eliminating the [privacy] concept and permitting direct communication and solicitation in all cases can make the proxy voting system more reliable."
Instead of implementing reforms up front, the regulators are first turning to the public for feedback. A request for comment has now been released and can be found here.
A sample question: How often do over-reporting and over-voting occur (including pending over-votes that are ultimately resolved)?
Another: Would temporarily allowing issuers and official tabulators access to the identity of [private shareholders] for purposes of tabulation improve the reliability and accuracy of proxy voting?
(Tim Kiladze is a Globe and Mail Capital Markets Reporter.)
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