Peter Power/The Globe and Mail
The Ontario Securities Commission is reviewing reforms that could make the province the first jurisdiction in Canada to require companies to give shareholders an annual "say on pay" on executive compensation
The OSC is calling for public comment on issues of shareholder democracy, including the way directors are elected at annual meetings and the mechanics of vote counting.
"They are important issues in the world we live in," Leslie Byberg, the OSC's director of corporate finance, said on Monday.
Shareholder groups have pushed hard for reforms, especially on director voting. The Canadian Coalition for Good Governance (CCGG), which represents most of the country's largest institutional investors, has lobbied the OSC to introduce regulations on shareholder democracy issues.
"These are key fundamental issues the coalition has been focused on since we were founded," said CCGG executive director Stephen Griggs. He said the CCGG knows some other provinces don't support the reforms, but the measures are "the key blocks to good governance" and should be adopted nationally.
The OSC has not detailed its reform proposals, but instead is asking for public comment by March 31 on the issues broadly, including say-on-pay voting. That practice already been adopted voluntarily by 45 large public companies in Canada, which hold annual non-binding votes on pay practices.
The OSC noted that a number of European countries, including Britain, require say-on-pay votes, and the United States is moving to impose a similar obligation under the Dodd-Frank Act.
Monday's call for comments is a first step in the reform process. The OSC will draft new regulations once it reviews the public responses and will seek further comment later on specific proposals.
Ontario could also become the first province in Canada to require companies to let shareholders vote for each director on a board individually, rather than as an entire slate. The practice has long been endorsed by shareholder groups because it allows investors to target individual directors they do not support without having to vote against the entire board.
The OSC also is considering going further, to champion a practice known as "majority voting," which requires directors to resign if they fail to win a majority of votes in annual shareholder voting. (Under the existing proxy voting system, shareholders can only vote "yes" or withhold their votes for a director, but cannot vote "no" to oppose a nominee.)
Laura O'Neill, director of law and policy at Vancouver-based shareholder rights group SHARE (Shareholder Association for Research and Education), said individual director voting and majority voting are "bare minimum" requirements for public companies and should become mandatory across Canada.
While some large companies already comply voluntarily, Ms. O'Neill said regulators need to compel holdouts to conform - including companies with dual-class shares.
"You really have roadblocks you can't get over, so we have a bifurcated market place," she said. "That's something the regulators can clear away."
The OSC is also seeking comments on other reforms to the proxy voting system relating to the mechanics of voting, including ensuring that shareholder votes are counted properly.
A group of lawyers from Toronto law firm Davies Ward Phillips & Vineberg LLP released a lengthy report last fall criticizing flaws in the voting system, arguing that there are too many instances of votes being counted twice and others missed entirely.
Davies lawyer Carol Hansell said she hopes reforms to the mechanics of voting are not overshadowed by other issues, because the fixes are "very, very necessary," adding: "What difference does it make if you've got majority voting or say-on-pay if you can't tell how the votes are being counted?"
Ms. Hansell said a task force of experts should be created to understand the issues and design solutions.