As shareholder activism continues to rise in Canada, the role and influence of proxy advisory firms, particularly Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co., has become increasingly important. To address concerns raised by market participants, the CSA published Consultation Paper 25-401 Potential Regulation of Proxy Advisory Firms on June 21, 2012. Based on the over 60 comments received, the CSA announced on September 19, 2013, that it would develop a policy based approach to regulate such firms.

On April 24, 2014, the CSA published for 60-  day comment proposed National Policy 25-201 Guidance for Proxy Advisory Firms (the Proposed Policy) to address the regulation of proxy advisory firms — a copy of the report can be accessed  here1. For the most part, the Proposed Policy merely provides guidance in the form of suggestions that proxy firms “may consider” rather than rules that must be followed, and as such, may not be the regulatory regime that many issuers were expecting or hoping for. If the rules are adopted as proposed, time will tell whether proxy advisory firms will adhere to the suggestions, and whether the policy will have an effect on the role and significant influence that proxy advisory firms have in Canada.

The guidance contained in the Proposed Policy addresses the following topics:

Conflicts of Interest

To address conflicts of interest, the CSA suggests that proxy advisory firms may consider taking  steps such as establishing policies and procedures, internal safeguards and controls and a code of conduct. The CSA notes that it expects such firms will disclose conflicts of interests to their clients and will publicly disclose the policies and procedures they set up though does not actually require that either of such disclosures be made.

Transparency and Accuracy of Vote Recommendations

As the recommendations of proxy advisory firms can, and often do, significantly affect the outcome of a shareholder vote, many feel that it is critical that such recommendations be based on accurate information and that market participants know what information the recommendations are based on. While the CSA states that it expects that proxy advisory firms will implement appropriate practices to promote transparency and accuracy of recommendations, it merely suggests that such firms “may consider” establishing and disclosing policies and procedures that describe the approach used in its analysis, as well as safeguards to increase the accuracy and reliability of information relied on when making recommendations. The CSA does not require, or even recommend or encourage, that such firms consult with issuers before making recommendations to ensure that information relied upon is accurate.

Development of Proxy Voting Guidelines

Both ISS and Glass Lewis publish guidelines that  if not met often lead to them recommending that shareholders vote against (or withhold from) certain matters or the election of certain directors. As a result, issuers may feel forced to follow such guidelines even if they do not believe they are well suited to the issuer. In the Proposed Policy, the CSA “encourages” proxy advisory firms to consult with market participants when setting voting guidelines and to explain the rationale for such guidelines, however, the Proposed Policy does not require any such consultation.

Corporate Governance Practices

Some market participants have raised concerns that given the influence that proxy advisory firms have, they may have become de facto corporate governance standard setters with the result that issuers often feel compelled to adopt certain “one size fits all” standards in the same manner that they must adhere to the proxy voting guidelines. While the CSA recognized such concerns, it did not mandate or even make any suggestions as to how proxy advisory firms could or should address such concerns, but rather reminded issuers that they may engage with their own shareholders to explain why the issuer has or has not adopted certain policies.

Communications with Clients, Market Participants, the Media and the Public

While nothing is mandated or required with respect to reports to clients, the CSA does state that when a proxy advisory firm issues its vote recommendations, it expects such firms to also communicate the following information in their reports to clients:

  • any actual or potential conflicts of interest
  • approach or methodology used, and factors  considered
  • identification of factual information as well as information flowing from analytical models and assumptions
  • a description of the extent to which proxy voting guidelines are used and reasons for any deviation
  • the nature and outcome of any dialogue or contact with an issuer
  • limitations or conditions in the research and analysis used
  • a statement that any vote recommendation and underlying research and analysis is intended solely as guidance

The CSA also stated that proxy advisory firms are expected to post their policies and procedures regarding dialogue with issuers on their website and to correct any factual errors found in reports.

Please contact the author of this Bulletin or your usual lawyer in BLG’s Securities & Capital Markets Group if you would like further information regarding the Proposed Policy or if you would like to make a submission.

1 http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20140424_25-201_rfc-proxy-advisory-firms.htm


Jason Saltzman 


Securities, Capital Markets and Public Companies