The Canadian Securities Administrators (the CSA) have announced that, after reviewing the comments received on Consultation Paper 25-401 Potential Regulation of Proxy Advisory Firms, they have concluded that they should address the concerns raised about services provided by proxy advisory firms.

In June 2012, the CSA published for comment Consultation Paper 25-401 Potential Regulation of Proxy Advisory Firms. The purpose of the consultation was to provide a forum for discussion of concerns raised about the services provided by proxy advisory firms and the potential impact on Canadian capital markets and to determine if, and how, these concerns should be addressed by the CSA. For details, please access our June 2012 Blakes Bulletin here. Proxy advisory firms review and analyze matters which will be the subject of a vote at shareholders meetings and make voting recommendations on such matters to their clients, which are usually institutional investors. The Consultation Paper indicated that proxy advisory services in Canada are dominated by two firms, being Institutional Shareholders Services Inc. and Glass, Lewis & Company.

As a result of such consultation, the CSA have announced in CSA Notice 25-301 Update on CSA Consultation Paper 25-401 dated September 19, 2013, that, in their view, a policy-based approach that would provide guidance on recommended practices and disclosure for proxy advisory firms will promote transparency and understanding of the services provided and is an appropriate response under the circumstances.

The CSA disclosed that over 60 comment letters were received from various market participants. The CSA Notice stated that most issuers agreed with each of the concerns regarding proxy advisory firms identified in the Consultation Paper, being potential conflicts of interest, perceived lack of transparency, potential inaccuracies and limited dialogue between proxy advisory firms and issuers, potential governance implications and the extent of reliance by institutional investors on the recommendations provided by proxy advisory firms.

On the other hand, the CSA stated that institutional investors noted that proxy advisory firms provided useful and cost-effective services when exercising their voting rights. The CSA noted that institutional investors were generally satisfied with the services provided by proxy advisory firms.

Views of the commenters on the appropriate CSA approach differed. Some institutional investors suggested a CSA response was not warranted. Some commenters suggested a rules-based approach and others suggested the CSA adopt a recommended set of best practices.

As noted, the CSA concluded that a policy-based approach is an appropriate response in the circumstances and that they intend to publish for comment their proposed approach in the first quarter of 2014.