Under notice and access, security holders are provided with a notice containing details of the date, time and place of the shareholder meeting, a brief description of the matters to be voted on, and instructions regarding how to access an electronic copy or request a paper copy of the proxy materials. Electronic delivery of proxy materials via notice and access under Canadian securities legislation was introduced in time for the 2013 proxy season.
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Now in its second year, the number of Canadian issuers using notice and access has jumped 62% from 257 issuers in 2013 to 415 issuers in 2014. After holding back for a year, Canadian issuers have leapt at the chance to send proxy materials to their security holders electronically without obtaining prior consent to do so from such security holders.
Notice and access offers the promise of significant costs savings by reducing printing and mailing costs for proxy materials, although there are concerns that the absence of physical materials could lead to a decline in voting response levels. Introduction of notice and access in the United States led to a marked drop in response levels from retail and institutional shareholders in its initial years, Canadian issuers did not share that experience. Based on feedback and results from Osler’s large and small clients who implemented notice and access, no decline in the voting response levels was experienced. Issuers were initially concerned about the challenges of responding to shareholder requests for paper copies of proxy materials; however, the number of these requests for Canadian issuers has generally been insignificant. Nevertheless, in the case of smaller issuers, implementation of notice and access did not result in a significant cost savings. Such issuers reported that reductions in their printing and mailing costs were largely offset by the cost of implementing notice and access. The lack of substantial realized cost savings may explain why 31 issuers that used notice and access in 2013 discontinued using it in 2014 (all were smaller issuers with market capitalizations below $500 million).
While the use of notice and access is growing, not all Canadian issuers are able to implement it. Under Canadian securities legislation, notice and access is not available to investment funds and those issuers with restrictions precluding electronic delivery via notice and access in their constating documents. In addition, the Canada Business Corporations Act (CBCA), federal financial institution legislation, and business corporation legislation in Saskatchewan, contain consent requirements for electronic delivery that can preclude such companies from taking advantage of notice and access.
In the case of CBCA companies, it is possible to obtain an exemption from applicable statutory requirements in order to use notice and access for the distribution of proxy materials to registered shareholders. In February 2013, Corporations Canada issued a notice stating that it was prepared to grant exemptions to permit CBCA corporations to distribute proxy materials each year to registered shareholders using notice and access, although the exemption would only apply to the distribution of materials for the next meeting. However, use of notice and access for the distribution of materials to beneficial owners of the shares of CBCA corporations is not available and Corporations Canada noted that it does not have authority to grant exemptions to permit such materials to be distributed to beneficial owners.
Surprisingly, our research shows that 46 CBCA corporations used notice and access for delivery of proxy materials. We noted that a few CBCA corporations decided to use notice and access for distribution of materials only to those registered or beneficial owners who had consented to electronic delivery. For purposes of that number and our analysis, we did not include CBCA corporations which limited their use of notice and access in such manner. Corporations have for some time been able to send proxy materials electronically to consenting security holders without having to use notice and access.
Three CBCA corporations used notice and access for delivery of proxy materials solely to registered holders, but only one of them actually obtained exemptive relief from Corporations Canada in order to do so. A total of 34 CBCA corporations sent materials to their registered shareholders using notice and access either as a distribution solely to registered shareholders or to both registered and beneficial owners, but only 19 (or 56%) of them were granted exemptive relief from Corporations Canada to permit them to use notice and access for delivery of materials to registered shareholders. A total of 43 CBCA corporations used notice and access for delivery of proxy materials to beneficial owners, of which 12 used notice and access for distribution of proxy materials solely to beneficial owners. Of the 27 CBCA corporations which used notice and access for delivery of materials either (i) to beneficial owners or (ii) to registered shareholders without having obtained exemptive relief from Corporations Canada, all had market capitalizations below $500 million, except Finning International Inc., Intertape Polymer Group Inc., Premium Brands Holdings Corporation and SunOpta Inc.
What is clear in 2014 is that Canadian corporations have chosen to embrace the flexibility afforded under notice and access and as further kinks are ironed out, enthusiasm should continue.
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