Guidance for Proxy Advisory Firms in Canada

Canada’s securities regulators have published National Policy 25-201 - Guidance for Proxy Advisory Firms. The policy addresses concerns expressed by public companies and other market participants about potential conflicts of interest and a perceived lack of transparency in the work of proxy advisory firms, whose advice may influence the outcome of shareholder votes.

What You Need To Know

• The policy is a set of recommendations for good practices by proxy advisory firms (PAFs). None of the practices are mandatory.
• Conflicts of Interest. A PAF’s board of directors or senior management should implement policies and procedures, including a code of conduct, to mitigate conflicts. Actual or potential conflicts should be communicated to clients in a timely manner.
• Voting Recommendations. These should be determined in a consistent, transparent manner. Research methods and data gathering practices should aim to reduce the risk of factual errors. Clients should be informed of (i) any deviations from the PAF’s proxy voting guidelines and (ii) the nature of any dialogue with the issuer or other stakeholders.
• Proxy Voting Guidelines. These should be developed in consultation with clients and other stakeholders, taking into account market conditions and issuers’ characteristics. Proxy voting guidelines and any updates should be publicly available, with an explanation of their rationale.
• Communication with Clients and the Market. Voting recommendations should be accompanied by an explanation of the PAF’s analysis and approach. PAFs should appoint contact persons to answer questions and receive complaints from stakeholders. PAFs should have comprehensive websites that describe their internal policies and procedures, including their hiring and employee training practices and their methods of engaging with issuers.
• The SEC has also declined to impose mandatory requirements on PAFs. Instead, SEC staff issued a bulletin last year (i) reminding investment advisors that they cannot delegate to PAFs their fiduciary duty to vote in clients’ best interests and (ii) reminding PAFs of their duty to inform clients of conflicts of interest.    

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