On April 30, 2015, the Canadian Securities Administrators (CSA) adopted National Policy 25-201 Guidance for Proxy Advisory Firms (Policy), effective on that date. A draft Policy was published for comment in April 2014. For further details, please access our May 2014 Blakes Bulletin: CSA’s Light Touch Proxy Advisory Firm Proposal May Disappoint Issuers.

During the comment period, the CSA received 58 comment letters on the Policy from various market participants, including individuals, investors, law firms, companies and proxy advisory firms such as Institutional Shareholders Services Inc. (often referred to as ISS) and Glass, Lewis & Co. For market participants’ comments on the draft Policy, please access our July 2014 Blakes Bulletin: Horns Locked Between Investors and Issuers Over Proxy Advisory Firm Regulation.

Notably, despite critical reactions from a number of market participants—particularly from issuers and director and issuer-related associations—the CSA made limited changes to the draft Policy and declined to redefine the Policy’s content as being mandatory. Instead, the CSA confirmed that while the Policy applies to all proxy advisory firms, the guidance contained in the Policy is not intended to be prescriptive. Rather, the CSA encourages proxy advisory firms to consider the Policy in developing their own practices and disclosure.

In its Notice of Publication of the Policy (Notice), the CSA acknowledged that proxy advisory firms have already implemented most of the recommendations contained in the Policy. The CSA also stated that it views the Policy as having the potential to promote further transparency in the processes that lead to such firms’ vote recommendations and the development of their proxy voting guidelines. The Policy will set minimum standards for existing firms and potential new entrants in the proxy advisory industry, according to the Notice.

Finally, the Notice outlined the CSA’s intention to continue monitoring both domestic market developments and international initiatives in the proxy advisory industry to evaluate whether the Policy effectively addresses the Canadian marketplace’s underlying concerns.

As the changes were not material, the CSA declined to republish an updated draft Policy for a further comment period.


Conflicts of Interest

Under the revised Policy, a proxy advisory firm’s board of directors (or in the absence of a board of directors, the executive management team or a designated committee) is generally responsible for:

  • Overseeing the development of policies and procedures and code of conduct
  • Implementing internal safeguards and controls
  • Ensuring the effectiveness of measures instituted to address actual or potential conflicts of interest

The revised Policy also recommends that proxy advisory firms provide sufficient information for clients to assess the independence or objectivity of the proxy advisory firms and the services that they provide, including any steps taken to address actual or potential conflicts of interest.

Despite comments received, the CSA declined to prohibit proxy advisory firms from providing vote recommendations to an investor client on corporate governance matters of an issuer to whom the firm has previously provided consulting services, on the basis of an actual or potential conflict of interest. The CSA’s rationale was that it is not its responsibility to recommend a specific business model for proxy advisory firms and that the guidance ultimately adopted is in line with the approach for designated rating agencies in Canada.

Transparency and Accuracy of Vote Recommendations

The revised Policy recommends that proxy advisory firms’ websites generally describe their hiring, training and retention practices to ensure they have the proper experience, competencies, skills and knowledge to prepare vote recommendations and develop proxy voting guidelines. The CSA states that the revision will serve to assist market participants with evaluating the quality of the research and analysis that underlie proxy advisory firms’ voting recommendations.

Notwithstanding comments received, the CSA declined to set out minimal qualifications, experience or training standards for analysts preparing vote recommendations, noting that it is not the responsibility of the CSA to recommend specific standards in this area.

Development of Proxy Voting Guidelines

The revised Policy also recommends that proxy advisory firms consider relevant characteristics of individual issuers, such as size, industry and governance structure, when developing proxy voting guidelines. In that regard, the Canadian Coalition for Good Governance (an association that represents Canadian institutional investors) has published policies that recognize the differing characteristics of dual class share companies and controlled companies and suggests that it can be appropriate to modify voting guidelines to reflect such differences in specified circumstances.

It will be interesting to see if ISS and Glass Lewis, which are recognized as the dominant proxy advisory firms in the Canadian market, will also begin to reflect this approach in preparing future vote recommendations. 

Communications with Clients, Market Participants, Other Stakeholders, the Media and the Public

The revised Policy also recommends that proxy advisory firms communicate to clients in their reports how relevant approaches or methodologies were applied and how the sources of information were used in preparing voting recommendations. 

Disregarding issuers’ comments received, the CSA declined to require proxy advisory firms to provide draft research reports to issuers to avoid inaccuracies and ensure that issuers’ comments could be incorporated in final reports prior to circulation to clients. The CSA found this requirement unnecessary because proxy advisory firms are expected to disclose their policies and procedures regarding dialogue with issuers, shareholder proponents and other stakeholders when preparing their vote recommendations and include the nature and outcome of such dialogue in their reports.