Good afternoon.
Institutional investors and their advocates—and SHARE is in the latter group—have recommendations for substantive amendments to the CBCA. The changes to the act that we seek indicate that it's been in force for eight or nine years now and over that time expectations and requirements of investors in our public companies, on which we're focused, have continued to evolve. The CBCA can and should keep pace with changes in our investment marketplace.
SHARE speaks primarily on behalf of socially responsible institutional investors. While these investors form no monolith, they have in common the view that the selection, retention, and realization of investments cannot be carried out in a fully informed manner without considering the environmental, social, and governance profiles—or ESG profiles—of those investments.
Socially responsible investors aren't alone in this anymore. Around the world and here at home so-called mainstream investors are learning that with respect to realities such as climate change they need to know if companies are paying attention and preparing their operations to minimize risk exposure. Investors need to be able to compare the ESG risks of various investments to determine which ones will best help them protect and grow the assets with which they've been entrusted.
What they need is relevant and detailed information, and they aren't getting enough right now under either Canadian securities or stock exchange disclosure requirements. This is a huge topic and we're going to deal with it at length. We are trying to find out what can be done within the CBCA to help with this. We will treat this matter in our written submission, which we'll provide in the coming days.
There are other aspects of the CBCA that we think warrant broad consultation. I want to start by saying that I've had the opportunity to speak with Judy Cotte about the CCGG's position on the issues. With respect to the issues she will raise with you, I'd like to say that SHARE is supportive of the CCGG's views.
I'll move on to the matter of how shareholder votes are conducted under the requirements of the CBCA and its provincial counterparts.
By virtue of section 141 of the CBCA, shareholder votes on proposals may be carried out by a show of hands rather than a ballot. You look out to the shareholders that have gathered. Everybody in favour, up with the hands. Those hands all represent different numbers of shares, sometimes very different numbers of shares. But it's just a look-around: if it looks like enough, great, it's passed. We want to see actual votes recorded on a ballot. It's a public company we're dealing with here.
A public company's report on the results of the votes on resolutions considered at its annual meeting often reads like this: “All of the resolutions we presented at the meeting were passed by a show of hands”. Then they list the resolutions. There's less information there than on the ballot in the first place. When a company holds votes by a show of hands, it makes the report spectacularly uninformative.
The most frustrating thing about show-of-hands voting is that the overwhelming majority of shareholders vote by proxy, so the numbers are readily available to the company. They've tabulated them. All they need to do is keep track of the shares held and votes cast by the much smaller percentage of shareholders who actually attend the meeting.
In the U.S. and the U.K., public corporations must provide numerical tallies of their vote results, and that information helps us as we analyze the vote outcomes in those jurisdictions. We can get a much clearer sense of shareholder sentiment. The CBCA should be amended to require that votes at a shareholder meeting be by ballot so we all know on each issue how many shares were voted for and how many against.
I want to address the issue of electronic or virtual shareholder meetings as permitted under subsection 132(5) of the CBCA. This option makes sense for private companies but not for public ones, in which the owners and the managers of the company are typically not the same people.
Recently Intel, which is a large U.S. corporation, announced that it was going to do a web-only annual meeting in 2010. In a letter to Intel, U.S. investment firm Walden Asset Management, which would fit firmly within the socially responsible investor category, noted that
There is no substitute for the personal and sometimes subtle interactions that can take place at in-person meetings. These “look you in the eye” moments between shareholders, management, and directors at an official business meeting are available just one time a year.
I've attended quite a few shareholder meetings and I agree with that statement. It can be powerful and constructive to put management directly in touch with the owners of the company and the shareholders. Subsection 132(5) of the CBCA should be amended to exclude public companies from its application.
Finally, let's consider the shareholder proposal mechanism. There was much ado about this in 2000, the last time the CBCA consultation was held.
SHARE supports the right of shareholders to file proposals. Indeed, we assist our clients as they exercise this right in Canada, most recently to ask the shareholders of a number of large public companies if they want a say on executive pay. The CBCA framework on shareholder proposals clearly works pretty well, because all of the companies where our client, Meritas Mutual Funds, filed “say on pay” proposals in 2006 and 2009 will in fact be polling their shareholders on pay in 2010.
There is one amendment to section 137, however, that we think is worth considering. It actually echoes something that Wayne mentioned.
As you likely know, Quebec has recently completed its public consultations. Bill 63 is now before the National Assembly, as Wayne indicated. Clause 199 of that bill contains a very useful provision that isn't in the CBCA or any of its provincial counterparts:
The presiding officer at a shareholders meeting must allow the person presenting a shareholder proposal to speak in respect of the proposal for a reasonable period of time.
I've attended annual meetings where the chair of the meeting treated shareholders as if that provision already existed, but I've certainly seen situations where it was sorely needed.
We have a few other recommendations involving the regulations to do with shareholder proposals. We still have some niggling concerns about subsection 137(5), which outlines the reasons why a company can reject a proposal, but they don't have to do with, and our solutions don't have to do with, the act itself, so I won't take up your time with them now.
Like Wayne, I was going to go through the effect of the CBCA over the years, and over the various years when the other provinces followed suit, but he's covered that, so I don't need to.
The CBCA is the corporate law bellwether for the Canadian marketplace, and it's certainly time for a broad consultation on how it can continue to fill that important role.