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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