The Securities and Exchange Commission (SEC) hosted a Roundtable on the Proxy Process in the United States on November 15. SEC Chairman Jay Clayton released a statement in advance of the roundtable, including a list of topics staff were asked to consider when developing the agenda. An archive of the webcast is available, as are the opening remarks by Commissioner Kara M. Stein, the statement by Chairman Clayton, and the statement by Commissioner Elad L. Roisman. Although the U.S. proxy system works under its own rules and regulations, there are similarities to the Canadian proxy system, so we are watching these developments and following these conversations.
In addition, we are mindful of the impact of globalization; Canadian issuers no longer have only Canadian intermediaries and shareholders holding their securities. Rule changes impacting U.S. processes and intermediaries will have a secondary impact on Canadian issuers.
The roundtable topics are familiar as they have been reviewed and discussed previously, both in Canada and the United States:
- Voting Process – This is a broad topic that includes many of the "proxy-plumbing" issues that result from the lack of transparency in the system, and its causational impacts: lack of accuracy and efficiency. Sub-topics include the reasons why over and under voting occurs, investor concerns about the ability to confirm whether or not their vote was fully cast in accordance with their instructions (end-to-end vote confirmation), and challenges issuers face with distributing materials to their beneficial holders, including the inability to know who exactly their beneficial shareholders are (Non-Objecting Beneficial Owner / Objecting Beneficial Owner), and the costs associated with using third party mailing providers that are selected by the intermediary and not the issuer.
- Technology and Innovation – There has been a great deal of discussion about how new innovations in technology, such as Blockchain or distributed ledger technology, could be used to modernize the proxy system. The concept of a streamlined proxy process through the use of technology is a compelling one; however, given the speed of technological developments, a single solution may not be the answer and regulation should remain technology-neutral. The key regulatory focus should be on ensuring that the records of all shareholders who have a right to vote are reconciled prior to the mailing of proxies.
- Retail Shareholder Participation – The low vote return from retail shareholders and reasons why they may not be participating.
- Shareholder Proposals – The ability for shareholders to submit proposals to U.S. public companies, and the manner in which that occurs, including current thresholds for minimum ownership, and whether long-term investors should have a greater ability to include a proposal. Canadian regulations have different requirements for shareholder proposal, causing the discussion around proxy access to be less heated in Canada.
- Proxy Advisory Firms – The role they play in proxy processes, how they interact with issuers who have concerns about their recommendations, transparency of their voting policies, potential conflicts of interest with consulting services, and the appropriate regulatory regime.
- Proposed Mandatory Use of a Universal Proxy in Contested Director Elections – In Canada we have seen the use of a universal proxy several times; it successfully allows shareholders to vote in favour of nominees from each slate being presented to them. In the United States, there is a requirement for the nominee to consent to having their name included on a universal proxy.
On September 13, 2018, the Securities and Exchange Commission Investor Advisory Committee held a meeting, with two of the sub-panels focused on the U.S. Proxy Voting Infrastructure. Many of the topics addressed at the roundtable were also discussed at this meeting. The proxy roundtable and the Investor Advisory Committee were both animated discussions on these topics. We are hopeful that these discussions will lead to changes, and words like "broken", "antiquated", and "Byzantine" will no longer be required to describe the proxy system that issuers and investors rely on to have votes counted in corporate elections.
