ICD Submits Comment to CSA Regarding Potential Regulation of Proxy Advisory Firms

Aug 21, 2012

The Institute of Corporate Directors (the “ICD”) today announced that it has submitted a comment letter to the Canadian Securities Administrators (CSA) regarding Consultation Paper 25-401: Potential Regulation of Proxy Advisory Firms (the “CSA Paper”).

The CSA Paper was published to obtain information about the concerns of market participants regarding proxy solicitation firms and to further inform the CSA’s analysis before it concludes if there is a need to implement new regulations.

“The ICD believes that the exercise of voting rights by shareholders is a critical component of effective corporate governance,” said ICD President and CEO Stan Magidson. “Proxy advisory firms play an important and influential role in this process. For that reason, and to enhance the integrity of the overall proxy voting system, we believe they should be subject to greater transparency and accountability.”

In its letter, the ICD recommends proxy advisory firms be required to:

  • Expressly disclose their conflicts on any matter in respect of which they are issuing a voting recommendation;
  • Set up “walls” and adopt other structural solutions to eliminate bias in the advice they provide;
  • Refrain from issuing a voting recommendation on a particular matter where they have provided consulting services to the issuer, or their investor client or owner has a material interest;
  • Where the proxy advisory firm intends to issue a contrary voting recommendation, it be required to discuss this with the issuer and share its report with the issuer before its completion to ensure fairness and accuracy and enable the advisory firm to present a more fully considered view;
  • If the outcome of this process is still an intended contrary recommendation, the issuer be provided with sufficient time and opportunity, if it wishes to do so, to include a response in the materials that are ultimately provided to the proxy advisory firm’s clients ;
  • Consult with issuers and directors in the development of proxy voting guidelines along with other stakeholders and develop guidelines that are not cast in stone.

“We commend the CSA for the high quality of their consultation paper and appreciate the opportunity to provide input on this important topic,” added Mr. Magidson.

Read the complete Comment Letter.