Staff of the Canadian Securities Administrators yesterday released a progress report on the CSA's review of the proxy voting infrastructure.

As we previously discussed, the CSA published a consultation paper setting out a proposed approach for addressing concerns in respect of proxy voting in August 2013. At the time, the CSA focused on two main issues, namely vote reconciliation and end-to-end vote confirmation. The Ontario Securities Commission and other provincial regulators also subsequently held roundtable discussions on the issues and ultimately identified two key themes emanating from the roundtable discussions and comment letters received in response to the consultation paper namely that securities regulators need to take a leadership role in reviewing the accuracy of vote reconciliation and that over-voting (as re-defined by them) is occurring although there is no consensus as to the cause or a solution.

Subsequent to the consultation period and roundtable discussions, the CSA reviewed six uncontested shareholder meetings, engaged a technical working group to consider the issues and consulted certain stakeholders. This further work led to five key findings, including that while over-reporting and over-voting did occur, it did not appear to be material and that it was mainly due to meeting tabulators missing or having incorrect vote entitlement information when calculating official vote entitlement. They also found that a significant factor appearing to increase the risk of over-reporting and over-voting is the lack of intermediary access to their official vote entitlement, that meeting tabulators employed different methods to reconcile proxy votes from intermediaries to official vote entitlements and that some meeting tabulators made errors resulting in valid proxy votes being rejected or not counted.

It is crucial that the proxy voting infrastructure support accurate, reliable and accountable vote reconciliation. The current infrastructure is antiquated and fragmented and needs improvement. Yesterday’s progress report ultimately sets out the need for five key improvements:

  • modernizing how meeting tabulators receive omnibus proxies;
  • ensuring the accuracy and completeness of vote entitlement information in omnibus proxies;
  • enabling intermediaries to find out their official vote entitlement for a meeting;
  • increasing consistency in how tabulators reconcile proxy votes to official vote entitlements; and
  • establishing communication between meeting tabulators and intermediaries about whether proxy votes are accepted, rejected or pro-rated.

The CSA also suggest that for the 2015 proxy season all entities that play key roles in vote reconciliation should assess their meeting vote reconciliation process, particularly by having intermediaries take appropriate steps to ensure vote entitlement information is provided to meeting tabulators in a timely and accurate manner. Meanwhile, the CSA suggest that the Securities Transfer Association of Canada work with its members to develop consistent and transparent standards for how meeting tabulators use the newly-developed document linking the various numeric identifiers for intermediaries with the relevant intermediary names, developed by Broadridge, to reconcile intermediary proxy votes to official vote entitlements. CSA staff also intend to review one or more contested meetings this year to determine if there are vote reconciliation issues specific to proxy contests.

For the 2016 proxy season, the CSA intend to direct the relevant industry players to develop appropriate industry protocols for vote reconciliation that would, among other things, specify the roles and responsibilities of depositories, intermediaries, Broadridge and the meeting tabulator, and outline the specific operational processes that each of these participants is expected to implement in vote reconciliation. The CSA will oversee development of these protocols.

The CSA intend to continue to gather information on the intermediary practices used in client account vote reconciliation, including in respect of investment dealer securities lending programs, and provide updates should further steps be needed.

For more information, see CSA Staff Notice 54-303.