Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/50879
PROXY VOTING ISSUES ADDRESSED through the jointly owned Canpotex Ltd. marketing and distribution compa- ny, would cost the provincial and fed- eral governments billions in lost royal- ties and tax revenues. He also suggested jobs would be lost if the Australian company took control of PotashCorp. Perhaps most threatening to Clement as he surveyed the takeover bid, how- ever, was the Saskatchewan premier's insinuation that a court battle over provinces' constitutionally enshrined control of resources could ensue if the transaction was backed. Observers say Wall's aggressive cam- paign against the acquisition likely had a significant impact on the failed take- over. Polls indicated the premier's elec- torate was firmly behind him, and their voices were magnified in the context of a minority government in Ottawa holding 13 of the province's 14 elec- toral districts. Meanwhile, many in the business community were surprised to learn that, while it was up to Clement to issue a final decision on the bid, pro- vincial sentiments could play a big role in his final determination. The invest- ment act specifically opens the door for such a role; s. 20(e) asserts that in determining whether a foreign takeover will be of net benefit to Canada, the minister must consider the compat- ibility of the investment with national industrial, economic, and cultural poli- cies, but also take into consideration counterpart policy objectives set by the government or legislature of "any prov- ince likely to be significantly affected by the investment." Several provinces aligned against BHP's bid for PotashCorp, but this aspect of the test could prove difficult if several provinces, or the federal gov- ernment, take opposing positions to a (available online at shareholdervoting.com) that outlines a laundry list of issues that need to be addressed to help issuers and investors rest assured that their voices are being heard in major transactions and proxy contests. "Shareholder votes matter — we just have to get a handle on the problems that plague W our systems and get them fixed," notes the study's lead author, Davies senior partner Carol Hansell. The paper, which was the product of 16 months of consultation, aimed to educate stake- holders on just how the proxy voting system operates, in hopes of moving to the next step of finding solutions to the problems Hansell has identified. One of the top issues is the fact that the U.S.' Broadridge Financial Solutions Inc. handles proxy-voting services for nearly all Canadian intermediaries, which carry out shareholders' wishes. Unfortunately, Broadridge is not regulated in Canada, and it is impossible to know how many shareholder votes have experienced technical problems or other irregularities, although the paper includes various examples of votes where errors did take place. Hansell's research included consultations with proxy solicitation firms, which are playing a bigger role in Canadian shareholder votes than ever before. Many of the firms agree that changes to the system are in order. Chris Makuch, vice president of national sales and marketing at Georgeson Canada, believes all shareholder votes are reliable. But at the same time, because the process is not fully transparent, it's difficult to say any are wrong. "It's not really a question of are they good or bad; you can't prove that they aren't right," says Makuch, adding that unfortunately, it will likely take a crisis to prompt action on the issue. "The only way this is going to get fixed, in my mind, is if there is a series of wrong votes, or one big, dramatically wrong vote," he says. "That'll force people to look at the process." Riyaz Lalani, chief operating officer at Kingsdale Shareholder Services Inc., points out that proxy voting takes place within a hybrid system. Much of the process is handled electroni- cally, while the overall system remains predicated on individuals with share certificates in a safe deposit box. He adds that the presence of objecting beneficial owners makes it difficult to communicate with investors who exercise their right to hold that anonymous status. "That lack of transparency hurts everybody," says Lalani. Brad Allen, senior vice president of Laurel Hill Advisory Group LLC, was recently on a mandate that involved allegations of voting discrepancies. His firm took the matter to court based on concerns over the interpretation of the vote by the firm that tabulated the votes in the proxy contest. The judge eventually overturned the results in his client's favour. At the end of the day, Allen says the shareholder voting system should be viewed no dif- ferent than political balloting. "You're trying to determine what the constituency wants to do, and tabulate their will," he says. Susy Monteiro, senior vice president of Phoenix Advisory Partners, says concerns over the proxy voting system make the role of proxy solicitation firms essential. "We work on this on a daily basis," she says. "We deal with the plumbing aspects of proxy solicitation, we know what the hurdles are, we know what the pitfalls are, and we're always watching for those issues." — RT INHOUSE FEBRUARY 2011 • 21 ith expectations that Canadian companies will increasingly be pursued by for- eign investors in 2011, concerns over the soundness of the country's proxy vot- ing system are top of mind. Davies Ward Phillips & Vineberg LLP in late 2010 issued a 200-page report