Corporate Governance Developments In The United States May Affect Canadian Companies
The Securities and Exchange Commission is proposing to give
shareholders of U.S. public companies the right to have their
nominees for election as directors included on the company's
proxy alongside the board's nominees. This development is
significant because it means that shareholders wishing to nominate
a director would no longer have to incur the expense of mailing
their own proxy circular. The proposal does not apply to foreign
private issuers, including Canadian MJDS1 issuers,
because they are not subject to the SEC's proxy rules. However,
this development in the United States could result in Canadian
lawmakers and securities regulators considering a similar proxy
access rule in Canada.
Under the SEC's proposal, shareholders would have to meet
certain eligibility requirements, including having held the
issuer's voting securities for at least one year, owning a
certain minimum percentage of shares and certifying that they do
not currently intend to change control of the company or gain more
than minority representation on the board (although they could
change their minds once their nominees are in place). One or more
candidates could be nominated, provided that, in the case of
multiple nominations, the total number of nominees would make up
less than 25% of the issuer's board. Nominees would have to
meet the independence criteria of the applicable stock exchange
(but would not need to be independent of their nominators).
The proposal is controversial. The issue of proxy access for
shareholders has been considered and debated repeatedly by the SEC,
U.S. courts and market participants over the past several years.
Most institutional shareholders are strongly in favour of proxy
access as a matter of shareholder democracy and board
accountability, particularly in light of current hot-button issues
like executive compensation and risk management. Others are
critical of proxy access on the basis that it could give
shareholders, especially small groups of them that may be promoting
a special interest, a means of disrupting the board nomination
process.
In addition to the proxy access proposal, broader shareholder
rights legislation has recently been introduced in the U.S. Senate.
The proposed legislation would, among other things, give
shareholders of U.S. companies a non-binding, advisory vote on
executive compensation (already required of companies receiving
federal bailout funds) and require listed companies to maintain
certain corporate...
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