Not so long ago, holders of shares in U.S. and Canadian companies dropped their proxy ballots into a black hole. Companies in both countries were under no obligation to report the results of the votes on issues that they put to their shareholders.
Only recently, regulators in the U.S. (2002) and Canada (2004) decided that shareholders had a right to know how issues they voted on were decided.
As is so often the case, however, the Securities and Exchange Commission (SEC) and the Canadian Securities Administrators (CSA) established very different rules for corporate reporting of shareholder vote results.
In the U.S., companies must report proxy vote results, but there can be significant lag time between the vote and the report. Companies must include vote results in the first quarterly report prepared following a shareholder meeting. Depending upon the size of the company, it must file a quarterly report within 40 or 45 days of the end of each quarter. What this means is that a company holding a shareholder meeting in mid-May would not have to file its next quarterly report, and therefore its vote results, for more than two and one half months (early August).
Under the SEC proposal, all companies will have just four business days to file the results of shareholder votes with the SEC, which makes these filing available online.
The CSA rules, by contrast, do not mandate a specific timeframe for vote reporting by companies. Part 11 of National Instrument 51-102 only requires that the company must file a voting report “promptly” following a shareholder meeting.
Interestingly, companies in the Canadian S&P/TSX Composite Index that have held their 2009 shareholder meetings and reported vote results have done so in an average of four days, the SEC’s preferred time frame. The range of days to report in Canada was wide in 2009, however: 0 days to 33 days. A solid majority (62%) did report results within four days of their annual shareholder meeting. At the other extreme, there are a few senior issuers have not filed any report for meetings that took place in April, May and June of this year.
The requirements for reporting the votes cast are also very different in under the U.S. and Canadian rules.
In the U.S., companies are required to report numerical vote results: the number of shares voted for, against or withheld must be set out with respect to each issue that was voted.
The situation is very different in Canada. Under our corporate law and securities rules, ‘results’ need not necessarily involve numbers of votes. Companies may instead report that an issue was approved by ‘a show of hands’ if no vote count was undertaken by management or requested by a shareholder at the meeting. Approximately 40% of S&P/TSX Composite Index issuers report vote results in this manner.
The lack of reporting by companies of actual share tallies means that holders of shares in Canadian companies often do not know precisely how much opposition there was to a management proposal. They also cannot add up all of the votes cast in order to determine how many shares were voted of all shares outstanding.
Although many Canadian companies that produce their vote results ‘promptly’ do in fact report on the actual number of votes cast, it is little wonder that many Canadian issuers can promptly produce a report that simply indicates that issues were either carried or defeated.
As with many disclosure and other issues, it is easy for investors in Canadian equities to be envious of the current flurry of SEC activity, even as they are relieved that our market has not experienced the deep troubles that have prompted it.