The Canadian Securities Administrators today released a consultation paper considering concerns raised by market participants regarding the services provided by proxy advisory firms. The concerns identified in the paper include those with respect to: (i) potential conflicts of interest; (ii) perceived lack of transparency; (iii) potential inaccuracies and limited engagement with issuers; (iv) potential corporate governance implications; and (v) the extent of reliance by institutional investors on recommendations.
Ultimately, the objectives of the consultation are to obtain information and views regarding the concerns raised, as well as to outline potential regulatory responses. The consultation paper specifically requests feedback on a number of possible regulatory responses to the concerns identified, including requiring that proxy advisory firms: (i) separate proxy voting services from advisory or consulting services in order to address potential conflicts; (ii) disclose the analysis concerning vote recommendations, as well as internal procedures, guidelines, assumptions and sources of information supporting recommendations; and (iii) implement fair and transparent procedures for developing corporate governance standards, and ensure that these procedures and standards are publicly disclosed, in light of the potential impact on issuers of the policies recommended by proxy advisory firms.
The paper also considers existing regulatory frameworks, such as those respecting adviser registration and proxy solicitation, and finds these existing regimes inappropriate for the regulation of proxy advisory firms. As such, the paper recommends that any proposed regulatory framework include the adoption of a new, stand-alone securities regulatory instrument.
Comments on the consultation paper are being accepted until August 20, 2012. For more information, see Consultation Paper 25-401 Potential Regulation of Proxy Advisory Firms.