Further to our July 2013 bulletin, we have completed a detailed study examining, in an empirical manner, the evolution of advance notice provisions ("ANPs") for director nominations in Canada. Our Study also reviews the history of how we developed our forms of ANPs and what we expect for ANPs in the ensuing years. We hope that our analysis will assist others as they seek to improve upon our efforts.
A full copy of our Study is available on our website and the highlights are set out below.
- Significant rate of adoption: The rate of adoption of ANPs has been more significant than we originally thought. With more than 560 issuers1 having adopted, implemented or announced ANPs by June 28, 2013, there can be no doubt that ANPs are now commonplace in Canada.
- McMillan form remains largely unchanged: The core provisions of the form of ANPs that McMillan introduced to Canada in 2011 remain largely unchanged and are widely used by issuers in Canada.
- ANPs implemented mainly by bylaws: The majority of ANPs have been implemented by bylaws (mainly by corporations incorporated under the Canada Business Corporations Act ("CBCA") and the Business Corporations Act (Ontario) ("OBCA")). In contrast, due to the manner in which constating documents are amended for a company incorporated under the Business Corporations Act (British Columbia), the trend in British Columbia has been to implement ANPs by policies of boards of directors. The majority of British Columbia companies with ANPs (53.7%) adopted policies and subsequently sought shareholder approval of the policies. A minority of British Columbia companies (9.1%) adopted policies as an interim step, subsequently seeking shareholder approval for amendments to their articles.
- British Columbia leading the way: More British Columbia companies (42.8%) adopted ANPs than issuers in any other jurisdiction in Canada. A significant portion of ANPs were also adopted by issuers incorporated under the CBCA and the OBCA (21.2% and 18.4%, respectively).
- Prominence of TSX Venture Exchange-listed and small-cap issuers: As would be expected, a majority of the issuers that adopted ANPs were listed on the TSX Venture Exchange (59.6%) and had a market capitalization of below $100 million (75.2%). This is consistent with the fact that the primary reason for using ANPs is to provide advance notice of director nominations and that, generally, the larger the issuer, the more difficult it would be for a dissident to proceed with a proxy fight without alerting the market and the issuer.
- Leading proxy advisory firms support ANPs: The 2013 proxy voting guidelines published in November 2012 by Institutional Shareholder Services Inc. ("ISS") and Glass Lewis & Co., LLC ("Glass Lewis") supported ANPs – clearing the final hurdle for broad adoption of ANPs.
- Consistent approach to timing provisions, while other provisions continue to evolve: ISS and Glass Lewis support ANPs that provide for notice provisions of no less than 30, nor more than 65, days prior to the date of the annual meeting. There is significant uniformity in the timing provisions with respect to the delivery of notices in ANPs, which is consistent with our initial form of ANPs. However, more unique provisions (including provisions requiring the delivery of representations and agreements) have begun to appear in ANPs.
- Overwhelming shareholder approval: Shareholders have overwhelmingly voted in favour of ANPs put to them for approval. Specifically, of the issuers that have reported voting results for shareholders' meetings at which approval was sought for ANPs, 98.2% received shareholder approval. Only five issuers have had their ANPs rejected by shareholders.
ANPs are an important tool for issuers in order to ensure that all shareholders are treated fairly and are provided with timely information in connection with the nomination of directors. Notwithstanding court decisions supporting ANPs,2 we expect that we will be entering a phase of increased litigation in Canada relating not only to the validity of ANPs (particularly ANPs adopted by policy) but also the interpretation of ANPs. We expect that the oppression remedy will be the tool most often used by dissidents to attack ANPs. Nevertheless, we believe that properly drafted ANPs will be effective and enforced by courts. Accordingly, we will continue to focus on preparing ANPs that are limited in their application, leave little doubt as to the disclosure required, and are clear as to the timing requirements.
Co-authored by summer law students Xijun (Cicie) Deng, Vlad Duta, Jonathan Rajzman, Prithviraj Shankar.