David Denison, chairman of the Canadian Coalition for Good GovernanceMARK BLINCH/Reuters
Canada's largest shareholder coalition has a message for smaller companies: You're next.
The Canadian Coalition for Good Governance, which represents most of the country's largest institutional investors, plans to start focusing on the tier of Canadian companies below the biggest companies in the S&P/TSX 60 index.
And the coalition says its activism will go beyond its current practice of holding private meetings with boards to urge better governance practices. Its members will also step up publicly to file shareholder proxy resolutions calling on hold-out companies to adopt new practices for director elections.
CCGG chairman David Denison, who is chief executive officer of the Canada Pension Plan Investment Board, said coalition members are willing to file proxy proposals next year "where we come to an impasse" and companies won't budge on key issues.
The giant pension fund tried a test case recently to gauge support, filing a proxy resolution asking mining company European Goldfields Ltd. to adopt a majority voting policy requiring directors to voluntarily submit their resignations if they don't get a majority of support in annual board elections.
The resolution passed last month with strong support, which Mr. Denison said signals that other investors will endorse such resolutions. The resolution was jointly submitted with British Columbia Investment Management Corp., which manages pension money and other assets of the B.C. government.
"That allows us, in the next go-around in next year's proxy season, to go to the next companies and say, 'This isn't just theoretical that we'll put in a shareholder resolution. We've done it. And we're prepared to do it,'" Mr. Denison said.
"We're very hopeful that having shown that we're prepared to do this ... we can get a whole bunch more companies to voluntarily adopt it," he said. "But for those who won't, we'll go this resolution route."
Since its inception in 2003, the CCGG has focused on the country's biggest companies in its push for governance reform, arguing that the big companies represent the largest investments for CCGG members and set "best practices" standards that other companies tend to follow.
But a number of smaller companies have yet to embrace practices such as majority voting, says a report on shareholder democracy trends, to be published Wednesday by the CCGG. According to the study, 97 companies representing 43 per cent of Canada's benchmark S&P/TSX composite index did not have a majority-voting policy in 2010.
Canadian proxy ballots only allow shareholders to vote "for" a candidate or "withhold" their votes, but do not allow investors to vote against a director nominee. The result is that directors are elected if even one vote is cast "for" the candidate, because "withheld" votes are not counted.
To make the process more democratic, some companies have voluntarily adopted a policy requiring directors to tender their resignations if they don't win a majority of "for" votes.
CCGG executive director Stephen Griggs said the coalition is pleased it has made so much progress in less than a decade, but has been surprised to find that important governance trends have not fully penetrated throughout the composite index.
"There are still a significant number of companies that are holding out," Mr. Griggs said.
The CCGG noted that 17 per cent of companies in the composite index don't allow shareholders to vote for each individual director, but require them to elect all directors as a slate. The practice is unpopular with shareholders because they cannot signal a lack of support for individual nominees.
Almost 40 per cent of companies do not report voting results for individual directors in annual board elections, the coalition said.
CCGG will send letters to the next group of companies in the composite index, urging them to consider making reforms, Mr. Griggs said. If there is no progress, "you'll see more shareholder [proxy]proposals coming from more coalition members," he said.