OSC Update on Shareholder Democracy Issues

May 4, 2011

On January 10, 2011, the Ontario Securities Commission (“OSC”) published OSC Staff Notice 54-701, which provided an update from OSC staff on the status of its work in the realm of shareholder democracy issues.  Three issues were identified as required additional review: (1) slate voting and majority voting for uncontested director elections; (2) shareholder advisory votes on executive compensation; and (3) the effectiveness of the proxy voting system.

Slate Voting and Majority Voting for Uncontested Director Elections

Slate voting is the practice whereby shareholders may only vote for a slate of directors put forth by management.  Individual director voting, in contrast, permits shareholders to vote in respect of individual director nominees.  Slate voting is not currently prohibited by Ontario securities laws.

Plurality voting is the dominant voting standard in Ontario, which allows directors to be elected without receiving a majority of votes in their favour, that is, without regard to the number of votes against or withheld.

OSC staff is assessing whether reforms to securities laws to allow for individual director voting and majority voting for director elections of reporting issuers are appropriate.

Mandated Shareholder Advisory Votes on Executive Compensation

OSC staff has also been monitoring international developments relating to whether shareholders should have a separate advisory vote on executive compensation and “golden parachute” payments (“Say-on-Pay”).

OSC staff noted that legislation in the United Kingdom, Australia and some European countries require companies to give shareholders Say-on-Pay.  The Dodd-Frank Act in the United States will require every public company to include a Say-on-Pay vote on executive compensation for shareholder meetings held on or after January 21, 2011 and a separate vote to determine whether subsequent Say-on-Pay votes will be held annual, or at intervals of two or three years. Several large public companies have voluntarily given their shareholders Say-on-Pay, but there is no current initiative to make this a mandatory requirement for all reporting issuers in Canada.

Effectiveness of Proxy Voting System

Finally, OSC staff are generally reviewing the proxy voting system to determine whether there is a need for additional reforms to allow shareholders to make informed voting decisions and to ensure that their votes are counted at shareholder meetings.  This review is in addition to the issued considered by the Canadian Securities Administrators in relation to its proposed amendments to National Instrument 54-101 Communications with Beneficial Owners of Securities of a Reporting Issuer.

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