Written by Brent Kraus and Jordan Primeau
On January 26, 2017, the Canadian Securities Administrators (CSA) released CSA Staff Notice 54-305 Meeting Vote Reconciliation Protocols (the Protocols) concerning the improvement of the procedures used for counting proxy votes for shares held by intermediaries and the accuracy, reliability and accountability of proxy vote reconciliation. The Protocols specifically target the key entities that implement shareholder-meeting vote reconciliation: the Canadian Depository for Securities Limited (CDS), intermediaries, Broadridge Investor Communication Solutions Canada (Broadridge), and transfer agents that act as tabulators (collectively, the Key Entities).
The CSA has divided the Protocols into the following four sections, which describe the roles and responsibilities of the Key Entities involved in process of meeting vote reconciliation:
- generating and sending accurate and complete vote entitlement information for each intermediary that will solicit voting instructions from beneficial owners and submit proxy votes;
- setting up vote entitlement accounts in a consistent manner;
- sending accurate and complete proxy vote information and tabulating and recording proxy votes in a consistent manner; and
- informing beneficial owners of rejected/pro-rated votes.
Beneficial shareholders typically vote at shareholder meetings through proxy. Proxy voting allows shareholders to authorize another person to vote on behalf of and with the instructions of such shareholders. To effect a proxy vote, beneficial shareholders need to provide instructions to the intermediaries through which their shares are held (usually banks or investment brokerages). The intermediaries then provide the beneficial shareholders instructions (sometimes through other intermediaries) to the registered shareholder — CDS. CDS then submits the proxy votes at the meeting of the corporate issuer.
The process of reconciling the CDS proxy votes and the voting instructions of the beneficial shareholders against the securities entitlements is called vote reconciliation. In 2013, the CSA released Consultation Paper 54-401 Review of the Proxy Voting Infrastructure which questioned the accuracy of vote reconciliation, noting that: (1) without accurate vote reconciliation, valid proxy votes submitted to tabulators risk being discarded because tabulators are unable to match the proxy votes to an omnibus proxy or registered position, and (2) share lending may lead to over-voting scenarios, where the same shares are voted multiple times.
The Protocols specify the importance of preventing over-voting and recommend steps for intermediaries to prevent this, such as implementing processes to ensure that tabulators have complete and accurate information, along with internal safeguards and controls to monitor these processes. The Protocols recommend that tabulators make reasonable efforts before a meeting occurs to address inadequacies in information that may lead to an over-vote.
Where an intermediary's proxy votes are rejected or pro-rated in the final tabulation at a shareholder meeting, the Protocols state that the issuer should instruct the tabulator to notify Broadridge within 10 business days. Broadridge and the relevant intermediaries should then implement processes to ensure that proxy votes are not rejected or pro-rated going forward.
The Protocols also "strongly encourage" the Key Entities to develop electronic transmission methods for communicating proxy vote information.