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For activist investors, it's all about who has the power

A priority of a watchdog group is to see slate voting ended in Canada, JANET McFARLAND writes

From Thursday's Globe and Mail

Canadian investors are pushing companies and regulators for reforms to bolster their powers to fight shareholder battles, highlighting weaknesses in Canada's shareholder democracy system.With a growing focus on shareholder activism, investors are also increasing their demands for more powers to protest against unpopular corporate moves or improve weak boards of directors. Major shareholders say some top priorities for reform are shareholder voting rights, access to nominate directors and disclosure of voting information.

Michael Wilson, chairman of the Canadian Coalition for Good Governance (CCGG), which represents 35 of Canada's largest institutional investors with more than $550-billion of assets under management, says one priority for his group is to see slate voting eliminated.

Slate voting requires shareholders to vote for a company's directors as an entire slate, but investors say they want the right to cast a vote for each director individually. This allows them to single out directors who have poor credentials for the job, or who have bad attendance records or inadequate ownership of shares in the company.

"Some people say that as a matter of principle there should be slate voting because a board has to have congeniality," Mr. Wilson said. "But I think if someone on a board is not pulling their weight, individual director voting encourages people to be more industrious or to step down. We have a long way to go in this area."

The issue received more prominence this spring, when investors complained that slate voting at Molson Inc. made it difficult to protest against the nomination of Hollinger Inc. executive Dan Colson to Molson's board.

"It matters a lot, because if you see a [nominee] that you don't like, you can really give a powerful message," said Claude Lamoureux, chief executive officer of Ontario Teachers Pension Plan Board.

"There are names of people we see over and over, and they don't do things we think are right."

Indeed, Mr. Lamoureux said he would like to see individual director voting become mandatory for all companies in Canada.

A Report on Business review of corporate governance in Canada found that 46 per cent of companies in the benchmark S&P/TSX composite index allowed individual director voting in 2004, while 54 per cent had only slate voting.

But David Beatty, managing director of the CCGG, said only 16 per cent of companies actually list each director by name on the ballot with a box to vote "for" or "withhold" for the nominees. Many others provide written instructions that a rejected director's name can be written into a space provided, or crossed out.

He said these options are not clear enough.

"It's not conducive to understanding that you actually have a choice. So we just took a hard-line position: I want this to be the same way a ballot is."

In a similar vein, Mr. Lamoureux said he also would like regulators to toughen the requirement for companies to report the results of shareholder votes, allowing no more than five days to publish the numbers. The current rule says results must be reported "promptly" following the annual meeting, but many companies have waited weeks and even months to disclose their numbers.

"A lot of companies take so long it's ridiculous," Mr. Lamoureux said. "There should be a more specific rule. And if they don't do it, the securities commission should do something."

Shareholders are also championing an array of other reforms to improve other types of information disclosure. For example, many are asking companies to boost disclosure of executive compensation policies, and especially executive pension costs. Mr. Lamoureux said companies should also publish the names of their outside compensation consultants, much the way they identify their auditors, since they have such a major role in companies' executive pay policies.

More broadly, investors are also beginning to increasingly ask for the right to propose director nominees for a board.

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