Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/50885
There's different tools and assumptions you can make, and in the end it's a mat- ter of understanding how the different tools you apply in a system work to actu- ally create the incentives for the right behaviours in the company. It varies company by company and industry by industry and shareholders aren't always in the best position to understand all of that and then create decisions or create the pressure for certain decisions." Magna's notoriously generous execu- tive pay packets have, at times, raised eyebrows, but Shakeel says the com- pany's atypical compensation plan, with its emphasis on direct profit sharing, has been a critical component of its success. "It has worked very well in terms of incenting the right behaviours towards profitability, which is ultimately what drives long-term value for shareholders." Chornous says he was once a mem- ber of the director-knows-best camp, but his views have evolved over time. He says where companies have engaged in voluntary say-on-pay votes, it has improved the level and clarity of the company's compensation disclosure to shareholders. "We establish minimum expectations as owners of the firm for disclosure and transparency, and say on pay lets us say to what degree we think you've achieved that minimum stan- dard," he says. The entire shareholder democracy argument could be rendered moot, according to Sylvia Groves, unless some- thing is done about the effectiveness of the proxy voting system itself, the third strand of the OSC's review. "People think they're walking into a federal election and putting a check mark on the ballot, and you get to count one vote. That's not what happens. It goes into a huge black hole," she says. "I think it's important for shareholders to understand about asking for things like say on pay, and major- ity voting, but regardless of that, unless your vote is really counting, then having those things really doesn't mean a lot." Groves, a former chairwoman of the Canadian Society of Corporate Secretar- ies, has firsthand experience with the dysfunctional nature of the process from her time at Nexen Inc., a major Cana- dian issuer. One tally came in with 20 million more votes than the total num- ber of shares issued. The issue came to the fore late last year when Davies Ward Phillips & Vine- berg LLP partner Carol Hansell released her report, The Quality of the Sharehold- er Vote in Canada. The 200-page tome identified common problems such as over-voting, empty voting, and a general lack of transparency, in a system largely shrouded in mystery, even for those closely involved. "It's an issue that's poorly understood. It seems to be too big for people to get their arms around, because it's been around for so long, it's so pervasive, and there's so many prob- lems," Hansell says. The complexity of the system and the sheer number of steps and parties involved increases the chance of technological or administrative error, and can make iden- tifying the source of the error difficult. Hansell's report details numerous instanc- es of faulty votes, but she says they only tend to come to light when a large share- holder becomes suspicious about whether their own vote was counted, making it difficult to establish how many votes have been affected, and whether they could have changed decisions. The CSCS has scheduled a Sharehold- er Democracy Summit for October 2011, at which it hopes to bring together repre- sentatives from all of the players in share- holder votes, including issuers, investors, proxy advisory firms, and voting admin- istrators. Groves says it is essential regula- tors are involved, too, and that they take action to improve. "It does impact how well our markets work," she says. "Share- holders are not going to invest here if they think they can't trust the results of our shareholder votes." She predicts investor engagement is only going to increase in the coming years, so calls for improved shareholder democracy are not going to get any quieter. The most recent trend has seen web sites like moxyvote.com attempt- ing to mobilize and band together dis- parate retail investors into a cohesive voting bloc, exerting greater influence on the companies in which they invest. Although she's a little uncomfortable with the activist language used by some of the sites, Groves says she's happy to see people taking an active interest in their investments. "Overall I think it's a really good thing that people are engaged. You really do want your views represented and if you're not getting a voice, either because you're not speaking or taking the time, or the companies aren't doing a good job of communicating with you, I think that's a loss for companies and for sharehold- ers broadly," she says. IH ... from the wild west all the way to the far east. Plug into Bennett Jones. CALGARY | TORONTO | EDMONTON | OT TAWA | BEIJING | DUBAI | ABU DHABI Your lawyer. Your law firm. Your business advisor. Your lawyer. Your law firm. Your business ad BennettJones-3_IH_Aug_11.indd 1 INHOUSE OCTOBER 2011 • 6/27/11 9:20:47 AM 23