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CSA Publishes for Comment Guidance for Proxy Advisory Firms

Posted by: Axium Law · June 12th, 2014

On April 24, 2014, the Canadian Securities Administrators (“CSA”) published for comment Proposed National Policy 25-201 – Guidance for Proxy Advisory Firms (the “Proposed Policy”). To read the notice for comment in full, visit the BC Securities Commission link: here. The CSA is seeking comments up to July 23, 2014 (the Consultation Period was extended by way of CSA Staff Notice 11-327 issued June 12, 2014).

In June 2012, the CSA published consultation paper 25-401 Potential Regulation of Proxy Advisory Firms (the “Consultation Paper”), raising concerns about the services provided by proxy advisory firms and the potential impact these firms may have on Canadian capital markets. The CSA received comments from various market participants as a result of the Consultation Paper and published the Proposed Policy to address these various areas of concern. The CSA intends for the Proposed Policy to promote transparency in the processes leading to a vote recommendation and the development of proxy voting guidelines; and foster understanding among market participants about the activities of proxy advisory firms.

The CSA cites the increased demand for, and importance of, services offered by proxy advisory firms are a result of factors including enhanced continuous disclosure requirements, the number of complexity of matters to be voted upon by shareholders, and the time constraints imposed by the concentrated proxy season in Canada.

The Proposed Policy will apply to all proxy advisory firms however the CSA does not intend the guidance to be prescriptive. The CSA instead encourages proxy advisory firms to consider the Proposed Policy in developing and implementing their own practices. The Proposed Policy addresses the following:

Conflicts of Interest

Market participants have expressed concern for the potential for conflicts of interest of proxy advisory firms. Specifically, the business model or ownership structure of proxy advisory firms can impact a proxy advisory firm’s independence and its ability to provide services and advice to institutional investors. The Proposed Policy suggests certain steps that proxy advisory firms can consider adopting to mitigate against actual or potential conflicts of interests.

Transparency and accuracy of vote recommendations

The concern for transparency arises from lack of disclosure of processes leading to a vote recommendation. Another source of concern expressed by market participants are the errors or inaccuracies in proxy advisory firm’s reports which could lead to misinformed voting decisions. The Proposed Policy expects proxy advisory firms to implement practices to promote transparency and accuracy of vote recommendations and ensure disclosure policies are in place to increase reliability of information used in preparing vote recommendations.

Development of proxy voting guidelines

Market participants have expressed concern for, and discourage, proxy advisory firms’ use of “one-size-fits-all” approaches in establishing proxy voting guidelines. The Proposed Policy encourages proxy advisory firms to establish tailored voting guidelines to the Canadian context. Further, in developing proxy voting guidelines, it is expected that proxy advisory firms disclose policies and procedures describing the processes followed, explain relevant methodology and rationale, and engage with their clients, market participants and the public.

Communications with clients, market participants, the media and the public

The services provided by proxy advisory firms to their clients may have an impact on investors, issuers and the public when their statements are reported publicly. Consequently the Proposed Policy expects proxy advisory firms to communicate and engage with issuers when preparing vote recommendations and publicly disclose policies and procedures governing their communications with clients, market participants and media.


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