CSCS Shareholder Democracy Summit CIRI Submission Issuers Panel - Executive Summary Oct 24 &

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1 CSCS Shareholder Democracy Summit CIRI Submission Issuers Panel - Executive Summary Oct 24 & Introduction The Canadian Investor Relations Institute (CIRI) is a not-for-profit association of executives responsible for communication between public corporations, investors and the financial community. As such, there are several issues under the umbrella of Shareholder Democracy that are important to our members, including those that impact the transparency, integrity, fairness and efficiency of the capital markets. In general, CIRI supports the adoption of voting practices and mechanisms that enhance shareholders ability to effectively communicate their wishes to management and boards of issuer companies in this country. Over the course of 2011, CIRI started advocating on various shareholder democracy issues. We (1) made a recommendation to the CSA regarding share ownership disclosure in Canada, (2) commented on the Davies Paper titled The Quality of the Shareholder Vote in Canada and (3) made a submission to the OSC regarding Staff Notice and to the TSX on proposed amendments to Part IV of the Company Manual. Summaries of these efforts are contained in this document and copies of the full submissions can be obtained from For more information about CIRI please refer to Appendix Summary of Recommendation to CSA to Improve Share Ownership Disclosure in Canada Currently, the ownership threshold under the Early Warning System (EWS) in Canada is reached when a shareholder acquires beneficial ownership of, or the power to exercise control or direction over, voting or equity securities of any class of a reporting issuer or securities convertible into voting or equity securities of any class of a reporting issuer that would constitute 10 percent or more of the outstanding securities of that class. The current ownership threshold (i.e. the 10 percent rule ) under the EWS is set out in subsections 5.2(1) of Regulation respecting Take-over Bids and Issuer Bids (Quebec) and in Ontario, subsection 102.1(1) of the Securities Act (Ontario). In addition, under subsection 102.1(2) of the Securities Act (Ontario), a

2 shareholder is further required to make disclosure each time a shareholder or any person or company acting jointly or in concert with a shareholder acquires beneficial ownership of, or the power to exercise control or direction over, (i) an additional 2 percent or more of the outstanding securities of the class to which the disclosure required under subsection (1) relates, or (ii) securities convertible into an additional 2 per cent or more of the outstanding securities (i.e. the further 2 percent rule ). CIRI strongly believes that the current 10 percent rule threshold under the EWS and subsequent incremental further 2 percent rule for disclosure are too high and are out of step with requirements in other major marketplaces. As a result, the transparency and efficiency of Canada s marketplace may be negatively impacted. CIRI asked that the Canadian Securities Administrators: A. lower the beneficial ownership threshold under the EWS to 5% from 10% for a class of voting or equity securities, including convertible securities. Reducing the threshold to this level will place Canada at the same level as other major capital markets. B. require beneficial owners to disclose if there are subsequent 1% incremental increases or decreases in the shareholder s holding, from the current requirement to report subsequent purchases of 2% or more. For the complete copy of this paper please visit 91dccf-b1c3-40e2-9fe1-455ece4feb Summary Comments on the Davies Paper titled The Quality of the Shareholder Vote in Canada CIRI strongly commends the initiative represented by the discussion in the Davies Paper and agrees that there are several issues of specific concern to the investor relations community. In general, CIRI agrees that the system in place today is too complex, particularly for the limited size and scope of the Canadian capital markets compared to other jurisdictions and that this complexity contributes to market inefficiency. CIRI is also concerned about the general lack of transparency and disclosure throughout the system, especially given the significant degree of disclosure demanded of its issuer members by both regulators and institutional investors. Transparency of share ownership is negatively impacted by an increasing proportion of OBO investors electing to shield their ownership positions from the very companies from whom they demand more information, in the name of

3 transparency. The existing system exhibits substantial inefficiencies in that issuers are required to spend significant time, dollars and other resources to achieve high levels of transparency only to have it needlessly diluted within a complex and non-transparent proxy voting process that delivers a low quality shareholder vote process. In summary, CIRI supports the recommendation in the Davies Paper that a task force be struck to consider the key issues raised in the paper and to seek means of addressing those issues. CIRI would strongly recommend that the following points be included in the issues to be considered: OBO/NOBO Concept: The entire NOBO (Non-Objecting Beneficial Owner) and OBO (Objecting Beneficial Owner) practice should be reviewed. If continued, the NOBO status should be the default option when establishing brokerage customer accounts and a fee should be applied against those shareowners seeking OBO status. Proxy Advisory Firms: Conceptually CIRI believes the relationship between an Issuer and Proxy Advisory Firm should be similar to the relationship between an Issuer and a Research Analyst. Under a fair disclosure environment, any report/recommendation of a proxy advisory firm should be provided to the subject issuer prior to the report being issued to the proxy advisory firm s institutional clients, in a manner to provide sufficient time to provide a real and meaningful opportunity for issuers to correct factual research errors or engage in a dialogue with advisory firms if contentious issues arise. Investor Responsibility to Vote: Those who borrow shares and do not have an economic interest in the long-term welfare of the issuer, should be prohibited from voting the borrowed shares; the responsibility to vote should remain with the lending shareholder, despite shares being temporarily in the hands of the borrower. In addition, votes on securities of specific issuers should have some mandated input from the portfolio managers or traders directly responsible for the decision to purchase and own the securities. Replacing the Paper-Based System: Electronic delivery should be the default option, although shareholders can elect to receive paper copies when they open a brokerage account. Electronic voting should be implemented across the board. Regulations should be drafted to encourage an orderly but time-limited transition from hard-copy paper delivery of proxy materials to electronic delivery.

4 For a complete copy of this paper please visit fa99-1ed2-4f88-a69e-8450a85351b3 3. Summary Comments on OSC Staff Notice and to TSX on Proposed Amendments to Part IV of Company Manual CIRI believes that transparency and appropriate disclosure in capital markets is a fundamental element of shareholder democracy. Toward that end, CIRI provided comments on March 31, 2011 to the Ontario Securities Commission ( OSC ) regarding various shareholder democracy issues identified in the OSC s Staff Notice In summary, CIRI s letter to the OSC in response to Staff Notice , which was guided by a recent limited poll of its members, recommended the following: Reforms to securities laws are appropriate, to facilitate individual director voting as well as both binding majority voting for uncontested director elections and a non-binding (modified plurality) majority voting standard consistent with recommendations, at that time, by the Canadian Centre for Good Governance (CCGG). The OSC may wish to consider replacing withhold votes, which are currently an option in director elections, with either abstain or against. CIRI believes that advisory Say-on-Pay votes should not be made mandatory for Canadian reporting issuers. For a complete copy of the CIRI submission regarding OSC Staff Notice please visit aspx CIRI commented to the TSX on their proposed changes to Part IV of the Manual (the Proposed Amendments ). In summary, CIRI submitted the following comments to the TSX: 1. CIRI believes individual director voting is an appropriate method for electing directors and it is appropriate to develop reforms that would prohibit or restrict the use of slate voting for directors. 2. CIRI supports the requirement to hold annual elections for all directors.

5 3. CIRI supports the TSX reforms that would require issuers to disclose either (a) the adoption of a majority voting policy for directors for uncontested meetings; or (b) if such a policy is not adopted, their practice for director elections and why a majority voting policy has not been adopted. Such reforms should at this time take into account the recommendations and modifications proposed by the Canadian Coalition for Good Governance (CCGG) for a non-binding (modified plurality) voting standard. 4. CIRI supports the initiative to require issuers that have adopted individual director voting but have not adopted a majority voting policy to advise the TSX if one or more directors receive a majority of withhold votes. 5. CIRI believes the TSX should consider a requirement for issuers to disclose individual director voting results, including issuing a news release following the vote. CIRI encourages the TSX to coordinate its review and development of regulatory proposals regarding the Proposed Amendments and other shareholder democracy initiatives with those of the Canadian Securities Administrators to minimize the burden on issuers to implement policies and procedures in compliance with multiple regulatory agency requirements. For a complete copy of this paper please visit dcb-584c-47e6-8c9f-2ae6a53c1636

6 APPENDIX 1 The Canadian Investor Relations Institute 560, 20 Toronto St. Toronto, ON M5C 2B8 ylokker@ciri.org Telephone: (416) Fax: (416) The Canadian Investor Relations Institute (CIRI) is a professional, not-for-profit association of executives responsible for communication between public corporations, investors and the financial community. CIRI contributes to the transparency and integrity of the Canadian capital markets by advancing the practice of investor relations, the professional competency of its members and the stature of the profession. Investor Relations Defined Investor relations is the strategic management responsibility that integrates the disciplines of finance, communications and marketing to achieve an effective two-way flow of information between a public company and the investment community, in order to enable fair and efficient capital markets. The practice of investor relations involves identifying, as accurately and completely as possible, current shareholders as well as potential investors and key stakeholders and providing them with publicly available information that facilitates knowledgeable investment decisions. The foundation of effective investor relations is built on the highest degree of transparency in order to enable reporting issuers to achieve prices in the marketplace that accurately and fully reflect the fundamental value of their securities. CIRI is led by an elected Board of Directors of senior IR practitioners, supported by a staff of experienced professionals. The senior staff person, the President and CEO, serves as a continuing member of the Board. Reporting directly to the Board are the Nominating, Audit, Membership, Issues, Editorial Board, Resources and Education, and Certification Committees. CIRI chapters are located across Canada in Ontario, Quebec, Alberta and British Columbia. Membership as of October 2011 consisted of 643 professionals serving as corporate investor relations officers for reporting issuers, consultants to issuers, or service providers to the investor relations profession. CIRI is also a

7 member of the Global Investor Relations Network (GIRN) which provides an international perspective on the issues and concerns of investors and shareholders in capital markets outside of North America. In addition, a number of members, including the President and CEO of CIRI, are members of the National Investor Relations Institute (NIRI), the corresponding professional organization in the United States.