Wednesday, March 2, 2011

Ashley Hamilton's Proxy Preview

Last week I participated in the 2011 Proxy Preview webinar hosted by As You Sow and the Sustainable Investments Institute (SI2). There are some interesting topics on the agenda this year, so I thought I'd give you a preview of the proxy voting trends for 2011.

Canada's proxy season is shaping up to be fairly quiet. To date there are 60 recorded shareholder proposals filed at Canadian companies. The vast majority of the proposals (40) were filed by MEDAC on issues such as gender parity on Canadian boards, tax havens and executive compensation. There is no doubt that following the financial crisis, executive compensation is the big issue this year. No fewer than thirty-one proposals were filed asking companies to review executive compensation practices, which means this will be the issue to watch over the next few months. Some others will be interesting to watch as well.

IA Clarington Inhance filed proposals on the issue of free, prior and informed consent (FPIC) of indigenous peoples at four companies (Teck Resources, Bank of Nova Scotia, Toronto Dominion Bank, and Royal Bank of Canada). In 2009, B√Ętirente and RRSE filed a shareholder proposal asking Talisman Energy to prepare a report outlining the benefits and costs of adopting an FPIC policy. This led to Talisman agreeing to prepare a groundbreaking report, which was published in mid-2010. IA Clarington appears to be following this lead with two of its FPIC proposals this year. In addition, it has also filed proposals with Encana on hydraulic fracturing, and with Enbridge regarding the controversial Northern Gateway Pipeline Project, which faces numerous challenges as it snakes its way through dozens of separate indigenous territories.

Meritas Mutual Funds has filed six proposals on the 'say on pay' issue, asking companies to give shareholders an annual vote to approve executive compensation. Meritas has been leading the say on pay issue in Canada since 2008. The team at NEI Investments has filed only four proposals this season, focusing on executive compensation (Bank of Nova Scotia, Toronto Dominion Bank and Laurentian Bank) and climate change (Great West Lifeco). Finally, for the first time, a prominent US shareholder advocate, Trillium Asset Management, filed a shareholder proposal north of the border with Royal Bank of Canada. The proposal asked the bank to disclose the risks associated with financing oil sands expansion in the Alberta boreal forest. Trillium withdrew the proposal prior to the company's annual general meeting on March 3rd after reaching an agreement with the bank.

Overall, the proxy season in Canada will be quiet compared with past years. Many of the active investors in Canada, such as NEI Investments and Meritas Mutual Funds, have filed fewer proposals this year, opting for constructive dialogue with companies instead. This is a welcome sign, likely an indication that progress is being made behind the scenes. Increasingly, companies are open to considering changes proposed by shareholders, and are willingly participating in discussions and dialogue addressing challenging issues. This openness to constructive engagement can be a win for responsible investors, demonstrating that even minority shareholders can exert influence without resorting to public proxy confrontations.

Ashley Hamilton is a shareholder engagement specialist and the Principal of Ashley Hamilton Consulting. Contact her at ashley@ashleyhamilton.ca

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