"27 Goodmans partners among the leading Canadian lawyers." - Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada
Goodmans Publications

Canadian Securities Administrators to Regulate Proxy Advisory Firms


Lawyer Jonathan Feldman
Area Corporate Finance and Securities, Shareholder Rights and Activism


On September 19, 2013, the Canadian Securities Administrators (CSA) provided an update on the potential regulation of proxy advisory firms.  Based on feedback from market participants, the CSA advised that they will develop a policy-based approach to the regulation of proxy advisory firms.  The proposed regulatory approach is intended to promote transparency and understanding in proxy advisory services through recommended practices and disclosure.  The proposed approach is expected to be published for comment in the first quarter of 2014.

The CSA published, and sought feedback on, Consultation Paper 25-401 Potential Regulation of Proxy Advisory Firms in June, 2012.  The purpose of the consultation was to: (i) provide a forum for discussion of certain concerns about the services provided by proxy advisory firms and their impact on Canadian capital markets, and (ii) to determine if, and how, these concerns should be addressed by the CSA.  Refer to our June 25, 2012 Update, Canadian Securities Administrators Considering Regulation of Proxy Advisory Firms for a discussion on the Consultation Paper and the potential concerns raised by the expanding role of proxy advisory firms in Canada.

The CSA update provides a summary of the feedback received from market participants in response to the Consultation Paper.  The CSA note that although all market participants generally acknowledge the important role of proxy advisory firms, issuers and institutional investors are divided on whether the issues identified in the Consultation Paper represent pressing concerns, and whether a CSA response is required.  According to the CSA update, the responses received from market participants can be summarized as follows:

  • Potential conflicts of interest.  A majority of issuers believe that conflicts of interest exist within proxy advisory firms and are not generally mitigated. Institutional investors acknowledge potential conflicts of interest within the business model and ownership structure of proxy advisory firms but believe that they are properly identified, managed and disclosed.
  • Perceived lack of transparency.  Issuers believe that additional transparency and disclosure of underlying methodologies and analyses would enhance the quality of vote recommendations made by proxy advisory firms.  Institutional investors do not believe that such information would be beneficial to the market and do not believe that proxy advisors should be required to disclose their methodologies or reports.
  • Potential inaccuracies and limited dialogue between proxy advisory firms and issuers.  Issuers are concerned that the limited opportunity for dialogue with proxy advisory firms results in potential inaccuracies in research reports and vote recommendations. Institutional investors do not generally share this concern, and some believe that perceived inaccuracies may simply be due to differences of opinion or analysis.
  • Potential corporate governance implications.  Commentators agree that proxy advisory firms should consult with market participants when developing and updating voting guidelines. However, there is no consensus among respondents on the level of dialogue required.

Commentators have expressed different views on whether regulation of proxy advisory firms is appropriate and what form such regulation, if implemented, should take.  Proxy advisory firms indicated that they do not believe their activities should be regulated as they recently demonstrated a willingness to respond to concerns raised in Consultation Paper 25-401 by making voluntary changes to their services and procedures.  Similarly, some institutional investors have suggested that a CSA response is not warranted at this time.  Given the lack of consensus on this issue we expect there to be a continued and protracted debate before the CSA reach a final determination on the appropriate nature and scope of proxy advisory firm regulation.

For more information on the proposed regulation of proxy advisory firms, please contact any member of our Corporate Securities Group.