The US Chamber of Commerce recently released a white paper authored by Harvey Pitt, former Chairman of the US Securities and Exchange Commission (SEC). The white paper, “Public Company Initiatives in Response to the SEC Staff’s Guidance on Proxy Advisory Firms” (the Paper), provides public companies with suggested focus areas for dealing with proxy voting in light of the SEC Staff Bulletin released in June 2014.
On the date that the Paper was released, Pitt addressed the US Chamber of Commerce at a conference on corporate governance and the 2015 proxy season. As reported here, Pitt told the conference that “[i]t is absolutely essential to know what is on the mind of your investors” and emphasized the importance of communication with both proxy firms and institutional investors.
The Paper recommends three areas that public companies can focus on to enhance shareholder value throughout the proxy voting process:
1 Communication with proxy firms – public companies should maintain continuous communication with proxy advisory firms – not only before the proxy firm finalizes its recommendations, but also after – “to correct erroneous or stale information, or to address any troublesome recommendations that do not advance the best interests of the shareholders.”
2 Conflicts of interest – public companies should keep an eye out for any conflicts of interest by: (a) verifying how the proxy firm identifies, manages and responds to conflicts; and (b) aiding institutional investors in assessing the worthiness of the proxy firm’s policies and procedures on conflicts. Upon discovering any conflict, a public company should notify the proxy firm, and if necessary, the SEC.
3 Institutional investors – public companies should foster regular contact with institutional investors in order to build trust and relay concerns about proxy firms to investors in a timely manner. Regular communications may focus on apprising investors of any prospective plans or issues facing the company, understanding how the investor assesses the company’s management and performance, or “developing strategic positions vis-à-vis likely institutional investor changes to voting policies and practices.”
All in all, these suggestions show that the best approach to dealing with proxy firms is to recognize that, despite their considerable influence, they are fallible agents whose recommendations should be carefully scrutinized and not just taken at face value.
In Canada, as previously reported, the CSA released the proposed National Policy 25-201 Guidance for Proxy Advisory Firms (the Guidance) in April for comment. The deadline for comments was June 23, 2014. Although the Guidance has not yet been finalized, the Paper’s suggestions may prove to be useful for Canadian public companies.