Proxy reforms and shareholder democracy make the Ontario Securities Commission’s priorities lists

August 2013 | EXPERT BRIEFING | CAPITAL MARKETS

financierworldwide.com

Advocates of shareholder democracy in Ontario have long argued for reforms. On 27 June 2013 the Ontario Securities Commission (OSC), Canada’s largest capital markets regulator, appears to have heeded their demands in its OSC Notice 11-768 – Notice of Statement of Priorities for Financial Year to End March 31, 2014.

Statement of priorities: a background

The Securities Act (Ontario) requires the OSC to deliver to the Minister of Finance (Ontario) by 30 June each year a statement of the OSC setting out its priorities for its current financial year in connection with the administration of the Act, the regulations and rules, together with a summary of the reasons for the adoption of the priorities.

In the notice published by the OSC on 4 April 2013 (36 OSCB 3424), the OSC presented its draft Statement of Priorities, seeking public input prior to the publication of the final version. The draft document set out 13 key priorities that the OSC believed will address the key market issues and challenges and measurably benefit investors and other market participants. After reviewing the 26 comments it received, the OSC revised the draft Statement of Priorities by adding a fourteenth priority relating to shareholder democracy.

Shareholder democracy

Shareholder democracy is the ability of shareholders to influence a board of directors through the exercise of voting rights associated with share ownership, such as the election of directors and voting on governance matters (for example, say-on-pay). The scope of shareholder voting rights and how they can be exercised has a significant impact on confidence in the capital markets.

The issue of shareholder democracy – important to both retail and institutional investors – has grown in importance in recent years as a result of increased shareholder engagement and the importance of institutional investors, who owe a fiduciary duty to their members. Recent reports suggest that the addition of shareholder democracy to the recent Statement of Priorities came at the urging of The Canadian Coalition for Good Governance, an investor rights group backed by some of Canada's biggest pension funds and money managers.

To facilitate improvements in shareholder democracy, the OSC will publish a consultation paper on key proxy voting infrastructure issues along with its Canadian counterparts. It also expressed support for recent initiatives by the Toronto Stock Exchange (TSX). The TSX initiatives allow shareholders to have an effective voice in electing individual directors directly as oppose to ‘slate’ voting, where shareholders are required to vote for a group of directors (a slate) on an all or nothing basis. The initiatives also introduce the adoption of majority voting for elections of directors by issuers listed on the TSX. Related TSX amendments include the requirement to hold annual elections for all directors and make specified disclosures concerning the issuer’s majority voting policies relating to the election of directors.

The moves, taken in support of upholding investors’ interests and the integrity and reputation of the Canadian capital markets, are aimed at responding to stakeholder concerns and at increasing director accountability to shareholders; improving corporate governance standards through alignment with international practices; and improving disclosure for all TSX listed issuers.

Dr Aviv Pichhadze is an independent consultant specialising in corporate governance located in Toronto, Canada. He can be contacted on +1 (647) 295 7834 or by email: aviv@pichhadze.com.

Dr Aviv Pichhadze