CIRI Advocates on Potential Regulation of Proxy Advisory Firms

In June of this year the Canadian Securities Administrators (CSA) issued a consultation paper (25-401) regarding the potential regulation of proxy advisory firms and requested comment from the marketplace.

Through the CIRI Issues Committee we formed a working group to develop a response to the CSA consultation paper and also developed a survey for practitioner members to obtain their input on this important topic.

CIRI issued its response to the CSA in September and included the following recommendations:

1. Proxy Advisory Firms should be required to disclose methodologies, sources of information, assumptions used to prepare their research reports and rationale for their voting recommendations.
2. Proxy Advisory Firms should prominently identify in the research reports and voting recommendations provided to their institutional investor clients any specific potential conflicts of interest with regard to the issuer and analyst/reviewer ownership interests.
3. Proxy Advisory Firms should be required to provide to all issuers draft research reports and voting recommendations for review for factual accuracy, allowing 48 to 72 business hours for issuers to respond prior to the reports being distributed to the Proxy Advisory Firms’ clients.
4. Proxy Advisory Firms should be required to include in the final report to investors any comments provided by issuers regarding the review process, the research report and the voting recommendations.
5. Proxy Advisory Firms should establish an appeals process and identify an independent third party or Ombudsman to adjudicate on behalf of those issuers who have concerns about a research report that cannot be resolved through direct dialogue with the Firm.

Institutional investors who use a Proxy Advisory Firm should comply (or explain why they do not comply) with a requirement to disclose how they assess the advice received from the Firm, and not automatically follow the advice.

Since our filing we know of several CIRI members who have sent letters of support for the CIRI recommendations to the CSA.