Proxy advisory services in Canada will be expected to outline potential conflicts of interest, release policies for reaching voting recommendations and disclose their guidelines for contact with issuers under a proposed new national guidance.
The Canadian Securities Administrators (CSA) stopped short of recommending fixed rules for proxy advisory firms but issued a series of recommendations designed to increase transparency and accountability in a proxy advisory sector dominated by two firms: Glass Lewis and ISS.
‘There is general agreement among all market participants regarding the potential for conflicts of interest that may compromise the independence of services provided by proxy advisory firms,’ the CSA writes in its proposal for proxy voting firm guidelines. ‘The guidance is not intended to be prescriptive. Instead, we encourage proxy advisory firms to consider this guidance in developing and implementing their own practices.’
The guidance, which is open to public comment until late June, states that proxy advisory firms are expected to ‘identify, manage and mitigate actual or potential conflicts of interest.’ The CSA says the firms should demonstrate they have established a code of conduct and internal controls and they should regularly review their processes to make sure they’re effective.
Proxy advisory firms should also avoid a ‘one-size-fits-all approach’ to developing proxy voting guidelines and instead tailor recommendations to ‘the Canadian context,’ the CSA says. ‘We expect proxy advisory firms to publicly disclose their proxy voting guidelines and updates, and encourage proxy advisory firms to explain the rationale for their proxy voting guidelines.’
Proxy advisory firms should also discuss any concerns about governance issues with issuers, ‘where appropriate’, for further explanation of the practices in question. Such discussion, the CSA adds, could prevent the firms from making recommendations out of context.
‘Some issuers, issuer associations and law firms have raised concerns that proxy advisers may have become de facto corporate governance standard setters and that, as a result, issuers are compelled to adopt certain one-size-fits-all standards – which may not be entirely suitable for their specific circumstances,’ the regulator says.
The firms should also publicly disclose their internal rules regarding contact with issuers, clients, market participants, the media and the public, according to the organization.
