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Lawyer Carol Hansell says that despite the CSA proposal, there is no quick fix for a system that has serious problems.

J.P. MOCZULSKI/The Globe and Mail

After a year of high-profile corporate proxy battles, securities regulators are taking steps toward fixing Canada's flawed and complicated system for recording shareholder votes – a system that many say produces inaccurate results.

Naizam Kanji, deputy director of mergers and acquisitions at the Ontario Securities Commission, says there is a growing consensus about the need to simplify the complex process, which involves a web of institutions and intermediaries. The idea is to create a new "end-to-end reconciliation system" to verify that shareholder votes are correctly received and recorded at company meetings.

The concept will be at the centre of an OSC roundtable next week on improving the system that will include representatives from proxy and intermediary firms, as well as from major companies and large shareholders.

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The discussions come after the Canadian Securities Administrators, an umbrella group for all provincial securities commissions, issued a consultation paper last year calling for public input on fixing the proxy voting system.

"At the end of the day, we want Canadian investors to know their vote counts, and that it is only counted once," Mr. Kanji said.

He said reforms may not require formal securities rule changes if improvements can be done co-operatively by various intermediaries such as clearing agencies and investor communications firms.

Both companies and large shareholders have complained for years about cases in which voting results are recorded improperly as they move through tiers of intermediaries, including clearing agencies and brokerage firms. Many companies have also complained they have received voting results that show votes exceeding the number of shares that are outstanding – a problem known as "over-voting."

Carol Hansell, a Toronto lawyer and an expert on corporate governance, said the CSA proposal is a good start, but that fixing the problems that have built up over the years will not be a quick process.

However, addressing the integrity of shareholders' votes is now increasingly important to many of the biggest players in Canada's capital markets, who have grown concerned that votes are often cast but not counted in the current system, she said.

"Imagine for a second that people understood that the political voting system was as bad," said Ms. Hansell, who advised a group of seven of the country's largest pension funds on their submission on the issue to the CSA. "It's staggering. [Imagine] if you said to people, 'There's a by-election, go and vote – not entirely sure your votes will get through, but give it a shot.'"

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Yvette Lokker, chief executive officer of the Canadian Investor Relations Institute, whose members represent 270 publicly listed companies, said a survey of CIRI's members found one-third of them have encountered cases where they felt voting numbers were incorrect, while one-quarter have seen cases of over-voting.

"From what we hear from issuers, the votes aren't as reliable as they may seem to be," she said.

One objection to calls for greater transparency is the desire of some investors to remain anonymous, or to keep their voting decisions from being disclosed. Ms. Lokker said it should be possible to design a system in which companies get tallies and confirmations without being told the identities or voting decisions of each shareholder.

Companies and other market participants who submitted comments to securities regulators as part of a consultation process largely support the CSA's proposals for creating a better reconciliation system as a first step, but many say other reforms are needed.

The submission from Canada's biggest pension funds urges regulators to do more to stop over-voting, which they say is estimated to take place in as many as 17 per cent of shareholder meetings, according to a study by transfer agent Computershare.

"These findings are alarming and suggest that over-voting is a systemic problem," the submission reads.

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Among the companies that submitted comments is Vancouver-based Telus Corp., which faced a proxy battle last year with New York hedge fund Mason Capital. Telus said it saw over-voting at its 2012 and 2013 meetings, and needed its proxy solicitation firm to sort it out.

Telus also urges securities regulators to address the problem of "empty voting," where a shareholder uses derivatives or other trading strategies to decouple its economic interest in a company from the shares they can vote.

Calgary-based fertilizer provider Agrium Inc., which fought a lengthy proxy battle with New York hedge fund Jana Partners LLC last year, calls the current system "archaic."

Agrium's submission says the voting system has become so tangled that proxy solicitation firms are "indispensable if you want even a hope of understanding votes submitted" and their accuracy.

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