Universal Proxies Coming to Canada? The CCGG Makes Its Case

In a recent policy statement, the Canadian Coalition for Good Governance (“CCGG”) endorsed the use of “universal proxies” whenever there is a contested director election at a Canadian public company. A “universal proxy” is a proxy voting form which lists all nominees for election regardless of who nominated them (whether management or dissident shareholder). Although there is nothing under corporate or securities laws which prohibits a company or a dissident from using a universal proxy,[1] it is common practice for Canadian issuers and dissident shareholders to solicit votes with the use of proxies which only list their own nominees.

The CCGG’s rationale for the policy is that the proxy voting system should re-create as closely as possible the rights and abilities shareholders have if they attend the shareholder meeting in person.[2] At a shareholder meeting, shareholders are entitled to vote for any combination of nominees (whether nominated by management or a dissident shareholder). On the other hand, if there is a contested election and a universal proxy is not employed, shareholders who do not attend the meeting and instead vote by proxy may feel compelled to select directors from either management’s slate of nominees or from the dissident’s slate of nominees, but not from a combination of the two, thereby limiting their choice.

In its policy, the CCGG advocates for legislative change that would make the use of universal proxies in contested director elections mandatory. Until that time, it urges companies and dissident shareholders to use universal proxies voluntarily.

McCarthy Tétrault Notes

  1. Universal proxies do not actually provide shareholders with more choice. A shareholder is not limited by the form(s) of proxy received as to how it can instruct its proxyholder to vote on matters considered at the meeting. If it does not like the options provided in the forms received, it could prepare its own form of proxy (which could include a combination of management and dissident shareholder nominees). This would take time and effort, however. A universal proxy would make it more convenient and practical for a shareholder to truly choose among all nominees.
  2. Many Canadian issuers have adopted advance notice requirements into their by-laws establishing a deadline by which a nominating shareholder must notify the issuer of its intention to nominate directors from the floor of the meeting and requiring that certain information be provided in respect of the nominating shareholder and the nominees. For issuers that decide to adopt the use of universal proxies in the context of contested elections, these requirements could serve to establish a helpful baseline for entitling a dissident shareholder to have its nominees listed on the proxy.
  3. The CCGG, an organization representing the interests of institutional investors, may hold more sway over the actions of issuers than those of dissidents. An issuer could be left at a disadvantage if it uses a universal proxy and the dissident does not. As a condition to using a universal proxy in the context of a contested election, an issuer may consider negotiating with the dissident to ensure that the dissident will use its own universal proxy or that the two parties use a common universal proxy.

[1] There have been notable uses of the universal proxy in Canadian proxy contests, including by Canadian Pacific Railway Ltd. in the context of the proxy contest involving dissident shareholder Pershing Square Capital Management in 2012 and by Aberdeen International Inc. in the context of a recent proxy contest involving dissident shareholder Meson Capital Partners, LLC.

[2] This was also an important rationale for CCGG’s recent policy advocating the enhancement of proxy access in Canada. See our discussion of that policy here. As part of that policy, the CCGG encouraged issuers to use a universal proxy for nominations made through the proxy access procedure. The universal proxy policy goes further in encouraging the use of universal proxies for any contested direction, not only those resulting from nominations made in accordance with the proxy access procedure.

corporate governance Shareholder Activism universal proxies universal proxy

Authors

Subscribe

Stay Connected

Get the latest posts from this blog

Please enter a valid email address