The U.S. Securities and Exchange Commission (SEC) is continuing to invest time and resources into the review of the U.S. Proxy System. On February 6, 2019, Chairman Jay Clayton announced on a call with the SEC Investor Advisory Committee, that he has asked Commissioner Elad Roisman to take the lead on the proxy project, including both the overall process and proxy plumbing.
As we have discussed in past postings, Computershare Canada has been monitoring these developments in the United States. The proxy systems between Canada and the United States are inextricably intertwined due to the number of securities traded on both sides of the border, and as a result, we believe the discussions taking place at the SEC must be considered as Canada also continues the conversations about how to improve their proxy system. Computershare was fortunate to have a seat at the roundtable that was held by the SEC on November 15, 2018 and believe it was a valuable forum for discussion and reflection.
Recommendations and next steps
Since the roundtable, Computershare has submitted a letter to the SEC with recommendations on moving forward with their commitment to reform the proxy system. We believe, given the extent of reform required, that the approach should be an incremental one that will be implemented over the next three to five years and we have categorized the required changes into three broad policy categories: Integrity & Confidence; Enhanced Transparency & Efficiency; and Competition.
The reality is that the change required is vast, and the opinions on prioritization are varied. There are proposed changes that we believe are important, and should not lose focus, such as revisiting the intermediated holding system and reviewing the OBO/NOBO (Objecting Beneficial Owners/Non-Objecting Beneficial Owners) regime. These complicated changes, however, are forcing attention away from certain mechanical and administrative changes that can be implemented more easily and will start the process toward modifications that are more revolutionary and require a deeper review of the foundations of the proxy and clearing systems.
Potential reforms for the 2019–2020 proxy season
Areas where we believe reform could be accomplished for the 2019–2020 proxy season include the following:
- Allowing issuers to use NOBO data for proxy distribution. In Canada, issuers have been allowed to use NOBO data for this purpose since 2001. There have been difficulties with the process however, including the prohibitive cost of the data, the inability for issuers to implement electronic delivery as the consent does not flow through from the intermediary to the issuer, and the increase in OBO mailing costs.
- Transitioning the cost of mailing material to OBOs from the issuer to the intermediary. In Canada, issuers have had the ability to decline paying for the costs of mailing to their OBO holders since 2001. Issuers are still required to provide the requisite sets of material, however the cost of the mailing itself is not reimbursed. Intermediaries are required to distribute the material, but the management of the costs is at the intermediary’s option.
- The implementation of vote confirmation, allowing shareholders to receive verification that their vote has been counted as cast. Vote confirmation is a solution that is often proposed to ensure a level of confidence in the voting system, however, without ensuring that the votes being confirmed were cast by the holders who are truly entitled to vote, it is just checking a box that does not provide any true improvement to the actual system. For there to be value in a vote confirmation system, it is essential that there is an accurate reconciliation of shareholder data on record date. Registered shareholder data is always reconciled on record date to ensure proxies are sent to the correct shareholders. Beneficial shareholder accounts also need to be reconciled to the broker or custodian position prior to the mailing being completed, so there is assurance that voting instruction forms are only distributed to holders who are entitled to vote. This will then set the groundwork to allow for confidence in any vote confirmation process that is implemented.
The SEC has indicated that there will be further meetings held in the summer of 2019; however, specific details have not been released.
One assertion that we strongly believe, and was specifically referenced at the roundtable, is the fact that we need to ensure that the system delivers the fundamental purpose of voting: to have your vote counted. The central stakeholders in proxy voting are the investor and the issuer, and that fact cannot be forgotten as the SEC and stakeholders make recommendations and decisions.
The material contained herein is provided for general informational purposes only and does not constitute legal or other professional advice or opinion. Computershare does not warrant or guarantee the accuracy or completeness of the material contained herein and such material should not be relied upon. "Computershare" refers to Computershare Canada Inc. and its affiliates.
© 2019 Computershare Trust Company of Canada