architecture-22231_1920On January 26, 2017, the Canadian Securities Administrators (CSA) published CSA Staff Notice 54-305 Meeting Vote Reconciliation Protocols, which provides guidance for establishing accurate, reliable and accountable meeting vote reconciliation protocols (Protocols). The whole, with the goal of improving the transparency and the quality of shareholder voting and ostensibly, shareholder engagement in publicly traded companies.

The Protocols target key service providers involved in meeting vote reconciliation, namely: CDS, intermediaries (such as bank custodians and investment dealers), the primary intermediary voting agents (such as Broadridge), and transfer agents that act as meeting tabulators (key service providers). The guidance provided by the Protocols addresses the types of operational processes which should be implemented by these key service providers so that they can better work together to improve meeting vote reconciliation. Furthermore, the CSA hope that the Protocols will set the groundwork for paperless voting and information transmission as well as the development of end-to-end voting confirmation capabilities.

The Protocols target three key areas of concern with regard to the vote reconciliation process:

  1. Generation and Transmission of Complete and Accurate Information: To ensure the accuracy and completeness of information, the Protocols provide guidance on matters such as: (i) the generation and transmission of vote entitlement information, and (ii) the transmission of voting instructions.
  2. Consistency of Information Gathering and Process Management: To ensure the consistency in the gathering and processing of information, the Protocols provide guidance on matters such as: (i) the setting up of vote entitlement accounts, (ii) the recording of proxy votes, and (iii) the generation of vote reports linked to the vote entitlement accounts.
  3. Engagement with Voters: To advance the engagement of beneficial owner clients, the Protocols provide guidance on matters such as: (i) the delivery of the final scrutineer’s report, (ii) the communication of rejected/pro-rated votes to affected intermediary clients, and (iii) the rectification process for errors in the information with respect to the entitlement to vote.

Additionally, the CSA encourage intermediaries to establish and implement written policies and procedures regarding:

  1. The process for determining which beneficial owner clients have voting entitlements for a particular meeting (and how this information is communicated).
  2. How to reconcile voting entitlements of a beneficial owner client to their positions with CDS, DTC or other intermediaries.
  3. The internal safeguards and controls to monitor the effectiveness of such processes.

From a practical perspective, the Protocols, despite their technical nature, were designed taking into account the existing operational processes and technological systems of the key service providers. It is also important to note that the CSA have taken a results based approach to achieving the Protocols’ objectives and allow the key service providers to implement alternative solutions which achieve these objectives even if they deviate from the Protocols.

Given the importance of shareholder voting to the integrity of Canadian capital markets, the CSA’s objectives are laudable. However, as the implementation of the Protocols is not mandatory, it is unclear how successful they will be in achieving their objectives or the secondary objectives of paperless voting and end-to-end voting confirmation capabilities.

It is also likely that the CSA will provide additional guidance and propose additional protocols following the completion of their evaluation of the implementation of the Protocols (and any alternative measures) over the next two proxy seasons. The CSA are also seeking input from a technical committee made up of representatives from key service providers involved in the proxy voting process.