The Canadian Securities Administrators (the CSA) published Consultation Paper 54-401 Review of the Proxy Voting Infrastructure1 on August 15, 2013.
The CSA is soliciting comments regarding the adequacy of the Canada’s current proxy voting infrastructure in the context of the continuing increase in shareholder engagement and activism. In particular, the Consultation Paper focusses on the integrity and reliability of vote reconciliation under the current system and the need for an end-to-end vote confirmation system. The Consultation Paper is a response to recent criticisms regarding the lack of confidence in the reliability of proxy voting resulting from absence of sufficient access to information to assess its reliability.
The Consultation Paper includes a detailed description of the current voting infrastructure and the factors that contribute to the complexity and perceived shortcoming of the current system, including:
- beneficial owners holding of securities through potentially several layers of intermediaries;
- the impact of securities lending and the resulting multiplication of interests in the same securities;
- delegation of voting authority to agents; and
- the ability of beneficial owners not to disclose their identity as “objecting beneficial owners”, which limits the transparency of voting.
The CSA are seeking comments on specific questions on issues for further review, including
- vote reconciliation and confirmation;
- the impact of securities lending on generating voting lists;
- omnibus proxies and restricted proxies;
- over-reporting and over-voting; and
- service provider accountability.
The breadth of the consultation questions makes it clear that this is beginning of potentially long process of regulatory reform. However, since the focus of corporate law on registered ownership of securities is clearly out of step with the current reality, a thorough reconsideration of the voting infrastructure by the securities regulators is a welcome development. Empty voting, over-voting and a general lack of comprehension of the mechanics on the part of ordinary investors are symptoms of a system which requires reform.
The comment period for the Consultation Paper is open until November 13, 2013.