As we discussed in a previous bulletin, on June 21, 2012, the Canadian Securities Administrators (the “CSA”) published Consultation Paper 25-401: Potential Regulation of Proxy Advisory Firms (the “Consultation Paper”) to provide a forum for discussion of certain concerns raised about the services provided by proxy advisory firms and their potential impact on Canadian capital markets and to determine if, and how, these concerns should be addressed by the CSA.

On September 19, 2013, the CSA published an update to market participants on the Consultation Paper. After a review of the comments received, the CSA concluded that a response is warranted. The CSA believes that a policy-based approach that would give guidance on recommended practices and disclosure for proxy advisory firms will promote transparency and understanding in the services provided and is an appropriate response under the circumstances.


The Consultation Paper identified specific concerns with the lack of regulation of proxy advisory firms which could have an impact on the voting process and the integrity of Canada's capital markets. The concerns set out in the Consultation Paper were as follows:

  • potential conflicts of interest;
  • perceived lack of transparency;
  • potential inaccuracies and limited dialogue between proxy advisory firms and issuers;
  • potential corporate governance allegations; and
  • the extent of reliance by institutional investors on the recommendations provided by proxy advisory firms.

Summary of Comments

The CSA received 62 comments on the Consultation Paper from various market participants including issuers, institutional investors, industry associations, proxy advisory firms and law firms.

Highlights of the CSA summary of the comments it received are as follows:

  • Issuers generally acknowledged the importance of proxy advisory firms but were concerned with the influence of proxy advisory firms on institutional investors’ voting decisions.

  • Institutional investors stated that proxy advisory firms’ research reports inform their voting decisions, but that these decisions are based on the institutional investors’ own assessments and they do not necessarily follow the vote recommendations of proxy advisory firms.
  • Commentators generally agreed that the business model and ownership structure of proxy advisory firms may lead to conflicts of interest. The CSA reports that a majority of issuers believe that conflicts of interest are not appropriately mitigated, while a majority of institutional investors took the position that conflicts are properly managed.
  • While issuers thought that disclosure of proxy advisory firms’ underlying methodologies would benefit market participants, institutional investors argued against requiring disclosure of proprietary analytical models.
  • Issuers were concerned with a perceived limit on dialogue between proxy advisory firms and issuers, while the majority of institutional investors were of the view that adequate dialogue processes are already in place to avoid factual errors.
  • In regard to CSA response, some commentators suggested recommended best practices, while others viewed a rule-based approach including registration of proxy advisory firms as advisors as necessary. Some institutional investors did not believe that a CSA response is warranted.

Next Steps

The CSA is in the process of developing its proposed approach and expects to publish a proposal for comment in the first quarter of 2014.