Notice and access is having a stuttering start while advance notice provisions have taken off
For centuries, the pottery shard was state-of-the-art technology among those responsible for the democratic process. Today, names are no longer scratched on a piece of clay: we use paper and, more recently, electrons as our media of information exchange, with corresponding efficiencies in delivery costs and timelines.
For Canadian corporate issuers, however, the voting process’s flip side – the solicitation – has heretofore remained a quaint and expensive exercise, with printed materials physically mailed to security holders. For the 2013 proxy season, Canadians got a taste of modernity with the introduction of notice-and-access procedures allowing issuers to offer shareholders the thrifty option of receiving proxy-related materials via the internet. Yet only around 160 companies took the bait.
The timing of the effective date, conflict with certain corporate statutes, and a wait-and-see attitude were among the reasons for the tepid corporate response, according to industry experts. Predictions for 2014 are mixed, with proxy season still under way, but exponential growth seems unlikely. That’s unfortunate, because indications are that many of those pioneering firms that did take the plunge in 2013 found it a refreshing experience.
‘Notice and access has been a very progressive development in how we communicate with our shareholders,’ says Paul Beauregard, chief corporate and strategy officer and corporate secretary at MTS Allstream. ‘It’s far simpler for us and more environmentally friendly, and shareholder feedback has been very supportive.’
Indeed, if any company can make notice and access work, MTS Allstream can. Leveraging its national broadband network to reach a large retail shareholder base, the telecoms firm is also governed by Province of Manitoba law, which allows it to bypass challenges faced by firms operating under the Canada Business Corporations Act (CBCA).
‘Many of our stakeholders now live in a digital world,’ comments Beauregard. ‘They simply don’t want paper anymore. Notice and access lets us engage them on their own terms.’
Good on paper
MTS shareholders seem pleased. ‘We saw no impact on the shareholder vote and got fewer than 100 requests for a paper copy of the circular,’ says Beauregard. ‘From an environmental perspective, notice and access allows us to save 500 trees and 17 million liters of water each year.’ (That fact is underlined in MTS’ smartly designed electronic circular.)
Even companies less ideally positioned to benefit from the paperless proxy describe a positive experience. ‘We saved a ton of money,’ says Gloria Trujillo, assistant secretary at Seabridge Gold, an exploration and development outfit largely held by institutions. ‘We got very few requests for annual reports and none for proxy materials. Votes came in a little later than usual, but turnout was in line with previous meetings.’
Though it’s incorporated under the CBCA, Seabridge received an exemption to use notice and access for proxy material delivery (but not financial statements and related management discussion and analysis) to registered shareholders. Trujillo warns of a steep learning curve. ‘The whole process can be overwhelming at first; there’s so much information to cover,’ she says. ‘But everything worked out perfectly in the end. Unless regulations change, we probably have a template for the next few years. We’ll never go back.’
Use with care
Still, notice and access may not be for everyone. For instance, it doesn’t promise big savings for many smaller companies. A report from law firm Shea Nerland Calnan pegs the break-even point for a standard AGM package at about 2,000 shareholders, with aggregate service provider fees nearing $7,500. Meanwhile, proxy solicitors caution that any potential savings may still come at the expense of vote return and shareholder relations.
‘You can’t extrapolate [from last year’s small sample of about 160 companies] and expect no impact,’ says Chris Makuch, vice president of national sales and marketing at Georgeson Canada. ‘Circumstances vary by issuer and meeting. Each company should sit down with its proxy solicitor or transfer agent before concluding that notice and access will be optimal for its particular situation.’
Glenn Keeling, executive vice president of CST Phoenix Advisors, recounts how one client, though tempted by enormous printing and postage savings, opted against notice and access following a shareowner survey that revealed strong opposition from small holders. Even with the possibility of ‘stratifying’ recipients according to whether they’d receive a full circular or just a notice, specific agenda items and a history of contentious meetings led to sensitivity about shareholder reaction, Keeling recalls.
‘There’s an awful lot of common sense to notice and access,’ he adds. ‘Most retail shareholders don’t even crack the [proxy material] envelope, but they still want it sent to them. This firm made its decision based on due diligence and armed with research.’
A key impediment to more widespread adoption of notice and access arises from its apparent position in legal limbo. Faced with modest guidance from regulators, few federally incorporated companies attempted it in 2013 (although some that did may have dared move forward even without a partial exemption). ‘It’s important to seek legal advice to work through these issues,’ says Paul Davis, a partner at law firm McMillan. ‘There are still some questions in terms of statute law.’
One governance tool that gets Davis’ unqualified endorsement, however, is the adoption of advance notice provisions for director nominations. Though they are commonplace in the US, many thought these provisions unsuited to Canada’s legal framework until McMillan designed an ironclad bylaw that proved the doubters wrong. Last year almost 600 companies, mostly small caps, jumped at the opportunity, gaining broad shareholder support.
‘Advance notice provisions are commonplace now and the adoption rate will continue to grow,’ says Davis. ‘They allow all shareholders to have ample notice of an important decision.’ But as he points out, that’s all they do: ‘Advance notice provisions won’t hinder activists. They’re not meant to.’
‘Advance notice provisions can give you time to react,’ concludes Makuch. ‘But if you haven’t put yourself in a position to be able to react, including better engagement with shareholders, even [a 120-day warning] will leave a corporate secretary behind the eight-ball. You can bet the activist will be coming into the game well prepared.’
Ultimately, then, forewarned is forearmed – or as the Romans put it, praemonitus, praemunitus.