November 4, 2015

IGOPP’s Policy Paper on Proxy Access by Shareholders to the Director Nomination Process

The board of the Institute for Governance (IGOPP) unanimously approved a Policy paper on Proxy Access by Shareholders to the Director Nomination Process.

The prerogative to nominate the members of the board, which has historically been the sole responsibility of boards of directors, has now been challenged by institutional funds determined to acquire the right, under certain conditions, to nominate their own candidates.

A Working group made up of the IGOPP board members, chaired by Dr. Yvan Allaire, has examined all arguments in support and against the Proxy Access and concluded that shareholder proxy access is ill advised and may have a negative impact on governance practices. Therefore, IGOPP is opposed to the process whereby shareholders may nominate director candidates.

Shareholder access to the director nomination process brings forth a host of issues related to board dynamics and governance, for instance:

  • the reputational issues of the directors submitted to a contested election and the self-protective behaviour this would bring about;
  • the actual risk of secret negotiations being held between management an investors who are intending to propose nominees;
  • the overwhelming influence accruing to proxy voting advisory firms, whose clients would expect their voting recommendations on the nominees;
  • the risk that the independence of directors nominated by shareholders would be compromised or so perceived;
  • the risk of creating factions and a poisonous atmosphere within the board, which would compromise the proper functioning of the board;
  • the risk of ending up with a board deficient in relevant experience or competence.

However, IGOPP recommends that the nomination/governance committee of the board implement a robust consultation process with the corporation’s significant shareholders and report in the annual Management Information Circular on the process and criteria adopted for nominating any new director. The committee should also report on how the company is complying with the guidelines of the Canadian Securities Administrators’ Policy Statement 58-201.

Members of IGOPP’s board who have participated on the working group:

Yvan Allaire, PhD (MIT), FRSC
Executive Chair, IGOPP
Chair of the Working group

Andrew Molson
Chair
RES PUBLICA Consulting Group

Robert Parizeau
Chairman
Fonds de solidarité FTQ

Guylaine Saucier
Corporate Director

François Dauphin, MBA, CPA, CMA
Working group Secretary
Director of Research, IGOPP