Lack of transparency in the voting system continues to erode confidence.
The Canadian Society of Corporate Secretaries (CSCS) held its first Shareholder Democracy Summit in Toronto on October 24 and 25, providing a forum to discuss the problems with the proxy voting process in Canada and to develop action steps that can be taken to ensure an efficient and transparent shareholder rights process.
‘The simple act of getting the stakeholders in each other’s presence and sharing information that is presently trapped in silos affords insights that will allow all the stakeholders to learn how they are able to contribute to improving the existing processes,’ says CSCS chairman David Masse, who is also senior legal counsel and assistant corporate secretary at CGI Group. CSCS is spearheading the efforts to reform the proxy voting process in Canada, and the summit process ‘presents an opportunity for the participants, as Canadians, to develop an efficient modern shareholder democracy process that will be a significant competitive advantage for Canadian capital markets and serve as an example to US, European and Asian markets,’ Masse adds.
Key summit presenters included Winnie Sanjoto, senior legal counsel, Ontario Securities Commission; Lucie Roy, senior policy adviser, Autorité des Marchés Financiers; Sarah Wilson, chief executive officer, Manifest Information Services; Laurens Vis, managing director, KAS Bank UK; Jean-Paul Valuet, secretary general, Association Nationale des Sociétés par Actions; Ken Bertsch, president and chief executive officer, Society of Corporate Secretaries and Governance Professionals; Robert McCormick, chief policy officer, Glass Lewis; Michael Jennings, proxy voting specialist, Institutional Shareholder Services; Tom Enright, president and chief executive officer, Canadian Investor Relations Institute; and Daniel Chornous, chief investment officer, RBC Global Asset Management, and chair of the Canadian Coalition for Good Governance board of directors.
Lack of transparency dominates
The majority of the discussion revolved around the lack of voting accuracy and transparency. Paul Schneider, senior investment associate, corporate governance for the Ontario Teachers’ Pension Plan, noted that voting accuracy is more important than ever before since more is riding on the votes with say on pay, and with majority voting initiatives being pushed. He said the lack of transparency in the system erodes all confidence in the voting, adding, ‘We only see the vote going to Broadridge, then we see the voting results – we have no way to know if the vote actually counted. We always have a nagging question whether the vote counted, and we shouldn’t have to rely only on hope.’
Helen Stratigeas, vice president of client services for Equity Financial Trust, stunned regulators by suggesting that the potential for over-voting or incorrect vote tallies was considerable. When asked how often problems or potential problems occur in the voting process, Stratigeas revealed that about 90 percent of the jobs her company handles require some type of reconciliation process. That means there is a regularly high possibility that people’s votes aren’t being counted, or that votes are being attributed to people who should not be voting.
While proxy service providers argued that they could and were providing ‘end-to-end voting confirmation’, many at the summit disagreed.
Share lending received a great deal of attention at the summit as well. Panelists complained about the failure to build a proxy system that would adequately address the practice. With so much difficulty in determining the identity of voters, how can companies expect to make sure that votes can be tracked so that if there is a lending agreement in place, they will know the identity of the person casting the vote and be able to confirm that this person has the right to actually cast the vote based on the provisions of the lending agreement?
There was a lot of discussion around doing away with objecting beneficial owner/non-objecting beneficial owner (OBO/NOBO) status for shareholders. Bill Brolly, senior market development manager for Computershare’s Global Capital Markets Group, admitted there was a need to improve business processes and data interchange among participants in the shareholder voting system. He noted that faxes are still in use to send data related to voting and also joined a number of summit participants who questioned the continued existence of the OBO/NOBO distinction, explaining that it was inconsistent with resolving the business process issues that are plaguing the system.
GG Consulting principal Sylvia Groves, who moderated one of the summit panels, says that regulators in attendance ‘all indicated that they are interested in creating a system that is working better.’ However, the Alberta, Ontario and Quebec securities commissions said they were going to need more information such as hard data about voting processes.
‘For example, from the transfer agent’s perspective, how many times does reconciliation occur? How many times is it successful and how many times is it unsuccessful?’ asks Groves. ‘Regulators are looking for statistics and numbers that can support a push forward on changing the system.’
Steps toward another summit
CSCS is now preparing for next year’s summit, which Masse says will likely focus on the issues from a process perspective. This year’s summit materials, including the rapporteur’s notes and transcripts of the sessions, will be posted online. Topics to be explored next year may include:
• A complete revamp of the business processes for sharing information among transfer agents, the depository, the proxy agent, custodians, brokers, institutions, voting agents and ultimately retail shareholders, coupled with information processing standards to permit the flow of information in a consistent way among the players.
• Creation of a unified shareholder information and voting dashboard allowing all shareholders to vote in the same way, with the same ability to drill down into the supporting documentation.
• Creating processes that lend themselves to reconciliation and verification to support third-party audit and quality assurance so that the voting process is transparent and effective.
• Changes to the corporation laws to allow issuers to treat registered and beneficial shareholders equally.
• Changes to securities regulations and corporation laws that allow the gap between the record date and the meeting date to be all but eliminated, as well as adjusting the proxy cutoff and voting record date, possibly to the same day.
• Changes to securities laws and regulations to provide higher standards and structure for the role of the proxy agent.
