The numbers are in and we’ve counted them. The notice-and-access system – under which public issuers may post proxy information circulars online rather than distribute them by mail – was adopted by a total of 319 companies this proxy season. This number, a small fraction of the approximately 3,500 companies currently listed on the Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV), indicates that issuers as a whole are proceeding cautiously with respect to electronic communication with shareholders, still preferring to distribute paper copies. Few CBCA issuers are seeking an exemption to use notice-and-access.
Notice-and-access, as provided for in National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101), permits a reporting issuer (that is not an investment fund) to distribute proxy-related materials relating to a meeting to beneficial owners by posting the information circular on a website in addition to SEDAR and sending – in most cases by mail – a voting instruction form and a notice package informing the shareholders how to access the posted materials. The reporting issuer must also satisfy other requirements in the instrument, such as provision of a toll-free telephone number by which shareholders can request a paper copy of the information circular.
National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) allows a reporting issuer to distribute proxy-related materials by notice-and-access to its registered shareholders so long as that delivery method is permitted under the reporting issuer’s corporate law statute. For instance, the Canada Business Corporations Act (CBCA) allows sending by notice-and-access for registered shareholders and beneficial owners only if the recipient has consented in writing.
WHO IS ADOPTING NOTICE-AND-ACCESS, AND HOW?
Notice-and-access was launched in February 2013, partway through the 2013 proxy season. Most issuers have a December 31 year-end and are required to hold annual meetings by June 30. While the notice-and-access procedures may increase set-up and handling costs, and its notice packages must be sent earlier (30 days before the meeting) than paper proxy materials (21 days), these disadvantages are expected to be offset by significant savings for issuers in printing and postage costs.
To determine the level of adoption of notice-and-access, we identified all notice packages filed between October 1, 2013 and July 15, 2014. We then dissected the search results to compare issuers based on a variety of characteristics.
We learned that:
- Notice-and-access was adopted most frequently by issuers incorporated in Ontario (134), followed by British Columbia (78) and Alberta (47)
- Only 34 CBCA issuers adopted it, representing less than 5 per cent of the over 700 distributing or publicly held CBCA corporations, even though according to Industry Canada, CBCA corporations make up approximately 50 per cent of Canada's largest business corporations
- 16 per cent (160 issuers) of TSX non-investment fund issuers and 6.5 per cent (133 issuers) of TSXV issuers have adopted notice-and-access
- Notice-and-access has been adopted by issuers across all asset sizes. Of the 319 adopters, 101 issuers had less than C$5 million in assets, while 57 issuers had greater than C$1 billion in assets. This suggests that the cost advantages of notice-and-access are being recognized by both large and small issuers.
- Issuers are adopting notice-and-access predominantly for annual meetings or annual meetings with some special business. Only one issuer used notice-and-access for a special meeting. Most significantly, none of the meetings involving proxy contests appeared to use notice-and-access. This suggests that issuers prefer to still use traditional proxy solicitation methods for those meetings with particularly important resolutions to be considered.
- Issuers employed a variety of stratification strategies in order to adopt notice-and-access only in respect of certain types of shareholders. For instance, some issuers chose to distribute materials by notice-and-access only to beneficial shareholders or only to shareholders who consented to electronic delivery. As explained below, strategic stratification policies can ensure that issuers stay on side of the corporate law statute under which they are incorporated.
HOW ARE ISSUERS USING NOTICE-AND-ACCESS UNDER CBCA?
Our review of the data also yielded some insight into how issuers incorporated under the CBCA are using notice-and-access. The CBCA poses a particular challenge because while its regulations expressly contemplate use of notice-and-access, it is a condition of that use that the addressee has consented in writing. Section 150 of the CBCA deals with sending proxy circulars to registered shareholders, while section 153 (unusually for corporate legislation) deals with intermediaries sending proxy circulars to beneficial owners. The Director under the CBCA can grant an exemption from section 150 pursuant to section 151, but has no power to grant exemptions from section 153.
Only 18 of the 34 CBCA notice-and-access adopters received a section 151 exemption for a specifically identified meeting. Under the terms of the exemptions that were granted, those issuers did not need to comply with the strict wording of the CBCA in the distribution of proxy materials to registered shareholders so long as the materials were distributed by notice-and-access in accordance with NI 54-101 and NI 51-102.
Of the 16 CBCA notice-and-access adopters that did not receive an exemption, many employed stratification strategies that allowed them to use notice-and-access while complying with the CBCA requirements. These issuers distributed proxy materials by notice-and-access either only to registered shareholders who had expressly consented to electronic delivery or only to beneficial shareholders. For this latter group, since there is no Director’s exemption and the consent requirement still applies, the issuers were presumably relying upon intermediaries having obtained the necessary consent from beneficial owners, such as having consent included in the terms of brokerage account agreements.