Risk & Governance Weekly
August 8, 2008
Proxy Season Review: Canada
By L. Reed Walton
Canadian shareholders submitted a record
number of proposals this year, and there was unprecedented support for
several resolutions seeking an advisory vote on executive pay.
“Say on pay” proposals--submitted for the
first time by domestic investors at Canadian firms this year--earned more
than 40 percent support at three financial companies, a remarkable showing
given the historically low support received by most shareholder proposals in
According to the Shareholder
Association for Research and Education (SHARE), investors submitted
174 proposals--the most since the group started tracking Canadian
shareholder proposal filings in 2000. Thirty of those proposals related to
executive compensation, about the same as last year. SHARE Executive
Director Peter Chapman told Risk & Governance Weekly that the
volume of shareholder proposals fluctuates each year because the right to
file is governed by the laws of Canada's 13 provinces and territories. For
instance, Chapman said, the province of Alberta has just
instituted laws that make it much more difficult to file resolutions at
The number of resolutions is still notable,
said Paul Schneider, director of research at another key Canadian investor
group, the Canadian Coalition for Good Governance (CCGG).
“If the quantity [of investor proposals] is up, it means … shareholders are
becoming more interested and active in the process,” Schneider told R&GW.
Of the 174 proposals filed, 29 were withdrawn
by their proponents. As in the U.S., proponents often will withdraw a
proposal after reaching an agreement by the company to adopt specific
reforms or continue to discuss the topic. Fewer than 10 proposals were not
included by the company on the proxy circular. Canada does not have a formal
process for companies to seek permission from regulators to omit proposals.
Shareholders’ only recourse if a proposal is left off the ballot is to take
the company to court, though this is costly and therefore unlikely.
“Say on pay” resolutions submitted by
Ontario-based social investor Meritas Mutual Funds averaged
40.5 percent support at five meetings this year. Like most shareholder
proposals in Canada, the pay vote resolutions were submitted at major
banking firms, which are the country’s largest companies and receive the
most scrutiny. All of the proposals were opposed by company management.
Before this year, only five management-opposed proposals have won over 40
percent support in Canada since 2004, according to SHARE.
The best showing for “say on pay” was 45
percent support at the Canadian Imperial Bank of Commerce (CIBC).
Board Chairman William Etherington said after the bank’s Feb. 28 meeting
that the board would continue a dialogue with pay vote advocates, though no
Canadian company has thus far agreed to hold a yearly vote on compensation.
In 2006, the first year that pay vote
resolutions were filed in the U.S., no companies adopted “say on pay,”
though insurance firm Aflac committed to holding a vote
shortly after receiving a pay vote proposal for 2007. Since then, eight
other American companies have committed to holding annual non-binding votes
on executive compensation. Legislation to require U.S. firms to hold
advisory votes passed the House of Representatives last
year, but its sister bill is stalled in the Senate while
lead sponsor Senator Barack Obama of Illinois campaigns for the presidency.
The Toronto-based CCGG announced early this
year that it would not press Canadian lawmakers to pursue a nationwide pay
vote law. The CCGG declined to support “say on pay” in 2008 in part to study
the effects of new compensation disclosure rules by the Canadian
Securities Administrators (CSA). The CSA hopes to have the rules,
for which a comment period ended in April, take effect by Dec. 31. The board
of the CCGG will re-examine its stance on pay policies, including “say on
pay,” for 2009, Schneider told R&GW, but he said that he could not
estimate when the coalition’s revised governance guidelines would be
Another pay vote resolution--one that would
require prior shareholder approval of pay packages for a company’s top five
executives and directors--fared less well this year. The resolution,
sponsored by Montréal investor group MEDAC (Mouvement
d’Education et de Défense des Actionnaires), averaged 3.8 percent support
over 10 meetings. MEDAC submitted the proposal at all of the firms that
received the Meritas pay proposal as well as two additional banks and two
companies in other sectors.
Telecom firm BCE, which also
received the MEDAC “say on pay” proposal, is in the process of completing a
$52 billion going-private transaction and has not held a shareholder meeting
this year. The BCE buyout also was the subject of a landmark Canadian
Supreme Court case over the rights of investors and bondholders. (For more
details, see the June 27 edition of R&GW.)
Other Pay Proposals
MEDAC and individual shareholder Robert
Verdun submitted most of the other pay-related proposals at Canadian firms
this year. Several new resolutions went to a vote, but none received close
to the average support won by the Meritas “say on pay” measures. Support for
governance proposals is typically much higher in the United States than in
Canada, where it is common for resolutions to receive less than 10 percent
support, especially in their first year.
MEDAC put forward a new proposal this year
asking companies to disclose the ratio of compensation earned by the
highest-paid executive to the average employee salary at the company. The
resolution averaged 5.6 percent support over nine meetings. Last year, MEDAC
submitted a similar proposal, but instead of disclosure, it asked for a link
between executive compensation and average worker pay. The resolution
received an average of 3.2 percent support over eight meetings.
Another new MEDAC proposal, which requested
that companies prohibit executives from exercising stock options until the
end of their tenure with the company, averaged 3.6 percent support over nine
meetings. Verdun submitted a proposal asking companies to award most of the
compensation to their executives in the form of gift “credits” to charity
organizations. The executives would then give these funds to the charities
after their retirement. The measure received only 1.8 percent support over
five meetings. Another Verdun proposal asking firms to re-examine their pay
disclosures for adherence to compensation disclosure rules averaged 3.5
percent support at three meetings.
The United Brotherhood of Carpenters
and Joiners of America’s Ontario-based Local 27 pension fund again
submitted a proposal calling for limits on supplemental executive retirement
plans (SERPs). The resolution, asking that companies exclude bonuses and
additional years of service from supplemental plan calculations, averaged
11.3 percent support over four meetings this year. The highest vote was 25.3
percent support at British Columbia-based paper and pulp company
Catalyst. Last year, Carpenters filed the proposal at three firms,
withdrawing from one. The proposal garnered more than 40 percent at
Manulife Financial and Finning International in
Shareholder concerns over hedge fund
involvement and the possible effects of short-term investors on companies
spurred a number of proposals this year. The Carpenters filed six proposals
asking that voting rights for investors holding stock for three years or
more be doubled. However, the union pension fund withdrew the resolution at
five companies (it was not included on the ballot at aircraft manufacturer
Bombardier), suggesting an agreement with the firms. The
Carpenters could not be reached by press time to confirm that they had
reached settlements on this issue with the companies.
MEDAC sponsored two enhanced voting-rights
proposals this year, one asking that voting rights be given only to those
who hold stock for a year or more, and another requesting increased
dividends for longer-term investors. Both proposals averaged 1.4 percent
support over 10 meetings. Even if the measures had won support, the large
banks would not be permitted to adopt either, under Canada's Bank Act.
Canadian shareholders have asked companies
for the past two years to disclose their participation in hedge fund
investments. Last year, the resolution--sponsored by MEDAC--won a notable
12.5 percent support across six meetings. This year, MEDAC also asked
companies to disclose participation in financial instruments backed by
subprime or high risk mortgages. These proposals averaged 12.6 percent
support at nine meetings, consistent with the 2007 results.
Just as in the U.S., the push toward majority
voting in director elections continues in Canada. Since 2005, when the CCGG
endorsed majority voting, about 78 Canadian firms have announced voluntary
adoption of a “majority vote” policy that complies with the CCGG
recommendations. The policies are not majority-vote bylaws, but director
resignation policies combined with plurality voting--like the approach
pioneered by U.S. drug company Pfizer in 2005.
Some companies, like fertilizer manufacturer
Agrium and energy company Nexen, have
codified their director resignation policies. Nortel, a
communications firm, requires that directors receive three-quarters of the
votes cast. This is the first year in Canada that investors have submitted
proposals requesting an article amendment or bylaw change to require
majority voting. These measures, by the Carpenters, averaged 10.1 percent
support, including a 16.3 percent vote at Nexen.
Canadian companies present a number of
unusual circumstances, however. Of the 231 companies in the S&P/TSX (Toronto
Stock Exchange) Composite Index covered by RiskMetrics, 100 still
have slate ballots, meaning that investors cannot vote for directors
individually. No individual-election proposals were submitted this year,
though one was withdrawn in 2007 by proponents who reached an agreement with
Power Corporation of Canada. Some Canadian companies also
have controlling shareholders, but a few firms have changed their bylaws to
take this into account. ING Canada, whose parent company
owns 70 percent of the common stock, requires directors to win greater than
85 percent support.
Cumulative voting resolutions filed by MEDAC
averaged 7.5 percent support at nine companies this year. Before this year,
the last cumulative voting proposal was filed in 2006 at Merrill
Lynch Canada. It received a 43.5 percent vote, but the proponent
was American and most of those voting were U.S. investors as well, according
There were several proposals submitted again
this year asking for greater gender parity on the board of directors. The
resolutions, sponsored by MEDAC, averaged 6 percent support at nine
meetings--about the same support as last year.
RiskMetrics Group’s Canadian Corporate
Governance Team contributed to this report. All vote results are according
to SHARE, unless stated otherwise.