In our recent post on June 24, 2014, we reported that the Canadian Securities Administrator (CSA) published for comment proposed National Policy 25-201 Guidance for Proxy Advisory Firms (NP 25-201). At its core, the purpose of NP 25-201 is to set out non-prescriptive guidelines for proxy advising firms to address issues relating to conflicts of interest, transparency, reporting standards and public consultation. Some issuers are concerned that NP 25-201 lacks the regulatory teeth to ensure compliance while certain institutional investors feel the policy is unnecessary and inefficient, suggesting that issuers take it up with their investors instead.

Some issuers contend that the profound effect proxy advising reports can have on public company decision-making places the onus on proxy advisors to ensure they are factually accurate. They also take issue with the homogeneous approach taken by proxy advisors in producing recommendations that do not take into account the unique considerations of each company. To that end, issuers are recommending professional accountability, minimum training standards for analysts, and consultation prior to releasing voting recommendations. Institutional advisors and their associations, meanwhile, argue that this issue is better left for companies to deal with via information circulars and direct engagement with the public.

An additional point of contention resides in the policy’s transparency guidelines, proposing that proxy advisors disclose methodologies used to develop guidelines. Issuers support these transparency guidelines and believe it is necessary to stamp out arbitrarily chosen numbers by showing a clear link to demonstrable baselines. Proxy advisory firms claim these concerns are without merit and that their methodologies are already available online.

NP 25-201 also addresses the conflicts of interest inherent in proxy advisors both providing recommendations to institutional clients while also selling consultancy services to issuers. Proxy advisors and institutional investors alike claim they already abide by the policy through internal guidelines and firewalls, while issuers call for absolute prohibitions on acting for both sides.

While the impact of National Policy 25-201 is not yet known, it is being welcome by issuers as a positive step in the direction of regulation over a highly controversial area of proxy shareholder law.