Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/50885
resemble a third-world dictatorship than a shareholder democracy. As elec- tion time rolls around, incumbent direc- tors can relax, safe in the knowledge theirs is the only name on the ballot. Large chunks of votes can inexplicably disappear, many more arrive mysteri- ously out of nowhere, and protest votes are easily ignored. And the plurality standard that dominates North Ameri- can corporations gives nominated direc- tors an advantage that the likes of Zim- babwe President Robert Mugabe could only dream of. Shareholder voters have only two options in uncontested elections for directors. They can either vote for the nominee presented by management, or they can withhold their vote. When it comes to tallying the scores, the with- held votes don't count against the nomi- nee, but are treated like abstentions. "Any votes that aren't in support of management basically end up in the trash bin," says Dan Chornous, chair- man of the CCGG's board. That means directors can win an election without the support of a majority of sharehold- ers. Taken to the extreme, directors need just one positive vote to secure their spot on the board, and since they are usu- ally shareholders themselves, that single vote could be their own. And at many companies, the board is presented to voters for approval as a slate of nominees, rather than individu- ally, allowing potentially objectionable directors to slip through in the crowd. Almost half of Canadian companies use slate voting, according to Institutional Shareholder Services Inc., a U.S.-based proxy advisory firm, putting it in league with countries such as Jordan, Kuwait, Indonesia, and a number of African countries, where slate voting is still prev- alent. According to Chornous, the stage is set perfectly for regulators to step in and reform the system to make it more democratic, with the Canada Business Corporations Act currently undergoing aged companies to sign up to its own voluntary majority policy. Since 2006, the CCGG has encour- voting According to a report it issued earlier this year, as recently as 2003, none of the companies listed on the S&P/TSX composite index utilized majority vot- ing. Now about 57 per cent of the issuers on the index have embraced it. But the Any votes that aren't in support of management basically end up in the trash bin. DAN CHORNOUS, Canadian Coalition for Good Governance a five-year parliamentary review and the possibility of a national securities regulator still firmly on the horizon. "There is an opportunity for Canada to really get it right. You have this unique alignment, and if it doesn't happen here, it could be a long time before all those elements line up in a way that you can make effective change," he says. The Ontario Securities Commission has answered this call. Earlier this year, it began taking soundings on share- holder democracy issues, including pro- posals on whether to ban slate voting and mandate majority voting, which would ensure all directors are elected by a majority of voting shareholders, advi- sory votes on compensation, and the effectiveness of the proxy voting system. policy gives boards the discretion to retain board members with more with- held votes than for votes, albeit "only in extreme circumstances, and only really temporarily," according to Judy Cotte, the CCGG's general counsel and direc- tor of policy development. Should the OSC incorporate majority voting into new rules, she wants to see that discre- tion removed to give full effect to the shareholder vote. "Ultimately, when the law is changed, we want to ensure that a director who does not get majority votes for, does not get elected, as a matter of law," Cotte says. "If you get more votes against than for, you're not wanted, and you should leave." She has the backing of the OSC's investor advisory panel, which is When you need a law firm that's plugged into your business... Untitled-1 1 INHOUSE OCTOBER 2011 • 6/27/11 9:02:19 AM 19