Investigative paper reveals chronic flaws in shareholder voting system

Davies Ward Phillips & Vineberg highlights specific issues and potential solutions to proxy voting system in Canada

TORONTO, Oct. 21 /CNW/ - A groundbreaking discussion paper now being released uncloaks the mystery surrounding the proxy voting system in Canada. It reveals a number of serious issues that must be addressed in order for Canadian issuers and investors to have confidence that shareholder votes are properly captured and counted at public company meetings.

These issues are highlighted in a discussion paper titled The Quality of the Shareholder Vote in Canada, just released by the law firm Davies Ward Phillips & Vineberg LLP.  Carol Hansell, the paper's lead author notes, "There is widespread concern, not just about the integrity of the Canadian shareholder voting system, but of the shareholder voting systems in the United States and around the world. Shareholder votes matter  - we just have to get a handle on the problems that plague our systems and get them fixed."

Kevin Thomson, senior M&A partner at Davies, agrees. "Major transactions, proxy contests  - many of the most important decisions that shareholders make - can go sideways because the system just doesn't work. It needs to be fixed."

After 16 months of consultation, research and writing, Ms. Hansell notes, "Our goal is to improve the system. To do that, all stakeholders need to be working from a common base of knowledge. We hope this paper will provide that common base and allow us all to move through the next steps and ultimately to an improved system." Shawn McReynolds, Managing Partner in Davies' Toronto office stated, "We decided to devote our firm's talents and resources to this project, because the issues addressed in the paper are important to our clients and the capital markets."

Comments on the paper from other members of the capital markets community are set out at the conclusion of this press release.

Ms. Hansell presented an early draft of the paper to the Securities and Exchange Commission in Washington, D.C. earlier this month and made a formal submission yesterday in response to the SEC's request for comments on its Concept Release on the Proxy Voting System. The Canadian Securities Administrators have requested a copy of the Davies paper. The paper is available at www.shareholdervoting.com.

Davies Ward Phillips & Vineberg LLP is an integrated firm of more than 240 lawyers with offices in Toronto, Montréal and New York. The firm is focused on business law and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its clients, regardless of borders.

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Comments on the Paper

David Dennison, Chair of the Canadian Coalition for Good Governance, has recommended that Canadian regulators carefully consider the analysis and recommendations in the report. In recent submissions to the U.S. Securities and Exchange Commission (the "SEC") and to the Canadian Securities Administrators (the "CSA"), Mr. Dennison noted: "We have had an opportunity to review a draft of that report and believe that it is the most comprehensive analysis of the proxy system in Canada that has been done to date."  CCGG Executive Director Stephen Griggs applauded the firm's effort saying, "This paper provides a much needed deep dive into waters that very few independent parties have been willing to navigate.  The tremendous amount of work done by Davies on this paper will be a tremendous benefit to our members."

Ms Hansell notes that it would not have been possible to produce the paper without the considerable assistance of virtually all of the organizations responsible for operating the proxy voting system.  "Almost without exception, those most integral to the system have been anxious to work with us on this project. We simply could not have done this without them."  Davies expects that this paper will work to promote a better understanding of the operation of the shareholder voting system and of the weaknesses and deficiencies inherent in that system.

The paper examines the circuitous requirements of the proxy voting system itself, that result in complicated communications between issuers and investors that lack transparency and accountability.

Issuers also welcome a clear line of sight into the plumbing of the proxy voting system and the prospect that it can be made less mysterious and more reliable.  Sylvia Groves dealt with these issues for issuer Nexen for more than 20 years. "As Chief Governance Advisor, I was very closely involved in trying to get materials out to our shareholders and their votes back to the meeting. All shareholders in Canada believe they have a voice, but they don't. Voting at a company meeting is so complicated that no one can say for sure whose votes counted and whose didn't."

David Masse, Chairman of the Canadian Society of Corporate Secretaries (the "CSCS"), remarked that the CSCS will act as a catalyst to promote significant changes in the laws that govern how Canadian shareholders vote their shares.  He added that Davies' paper on the quality of the shareholder vote in Canada "is a critical, comprehensive study that will guide all stakeholders on the path to improve the voting process." Mr. Masse said that "the publication of this paper marks the beginning of our agenda with all the stakeholders, including market participants and regulatory agencies.  CSCS will be working closely with Carol Hansell and others who recognize the importance of this problem so that everyone comes to understand what needs to be fixed, and how best to fix it.  If you are a shareholder, regulator, or market participant, we are asking you to study this paper and to work with us to design and implement the reforms that Canadian shareholders deserve."

For further information:

Robyn Breslow
APEX Public Relations
416 924 4442 ext. 256
[email protected]

Kaley Green
Davies Ward Phillips & Vineberg LLP
416 367 6902
[email protected]m