Proxy Advisory Firm Regulation – Canadian Securities Administrators Propose Guidance, not Rules  


May 2014

Securities Bulletin
The Canadian Securities Administrators (CSA) have released for comment proposed National Policy 25-201 Guidance for Proxy Advisory Firms (the Proposed Policy). The Proposed Policy follows a consultation paper published by the CSA which identified certain concerns raised about the services provided by proxy advisory firms and their potential impact on Canadian capital markets. There has been a similar focus in recent years on proxy advisory firms in the United States, where the U.S. Securities and Exchange Commission hosted a proxy advisory services roundtable in December 2013, and in Europe.

The Proposed Policy provides guidance and recommendations to proxy advisory firms, including the expectations of the CSA, with respect to four areas:

  • Conflicts of interest
  • Transparency and accuracy of vote recommendations
  • Development of proxy voting guidelines
  • Communications with clients, market participants, the media and the public.

The CSA have stated that a response was warranted based on their consultation and analysis. Rather than impose mandatory requirements on proxy advisory firms, they have determined that providing guidance on recommended practices and disclosure was a sufficient and meaningful response in light of the different perspectives of the market participant groups and the contractual relationship between proxy advisory firms and their clients.

The CSA also noted that concerns have been raised that proxy advisory firms may have become de facto corporate governance standard setters, with issuers being compelled to adopt "one-size-fits-all" standards which may not be suitable for an issuer's specific circumstances. The CSA reminds issuers that, among other things, they may engage with their shareholders to explain why they have adopted a given corporate governance practice and discuss corporate governance and proxy voting matters with institutional investors to address their concerns. Indeed, issuers have obtained shareholder approval for matters that received a negative voting recommendation from proxy advisory firms as a result of the issuers' efforts to discuss and explain the matters directly with shareholders.

The comment period for the Proposed Policy ends on June 23, 2014.

by David Mendicino

a cautionary note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2014