Market watchdogs pitch tougher rules for syndicated mortgages to protect investors<\/a><\/li>\n<\/ul>\n\u201cAs the CCGG has said before, we believe vote-buying in the context of proxy contests is unethical and should not be permitted,\u201d Stephen Erlichman, executive director of the governance coalition backed by many of the country\u2019s largest pension funds and money managers, told the Financial Post this week.<\/p>\n
Canadian regulators were silent on this issue after the Agrium affair, despite sharp criticism from institutional shareholders and corporate governance advocates, who noted that the practice does not exist in other regulated jurisdictions such as the United States.<\/p>\n
But this month, securities regulators across the country pledged to look at the practice under the umbrella of the Canadian Securities Administrators, and to determine whether new rules or guidance are needed to govern all soliciting dealer arrangements, not just those related to proxy battles. The CSA\u2019s assessment will also include probing whether fees paid under soliciting dealer arrangements puts investment dealers in a conflict of interest over what\u2019s best for themselves and what\u2019s in the best interest of their clients.<\/p>\n
Soliciting dealer arrangements can be used to solicit securities to vote in connection with any matter requiring shareholder approval, or to tender to a takeover bid.<\/p>\n
\u201cThe practice of soliciting dealer arrangements raises certain securities regulatory issues, notably around conflicts of interest and the integrity of the voting and tendering process,\u201d Louis Morisset, chair of the CSA chief executive of Quebec\u2019s Autorit\u00e9 des march\u00e9s financiers, said in statement announcing the review.<\/p>\n
\u201cIn light of these issues, we believe it is appropriate to assess how these arrangements are being used and whether further regulatory action is appropriate.\u201d<\/p>\n
Industry watchers suggest regulators didn\u2019t intervene earlier because they expected the controversy to reduce the urge to use fee-paying arrangements to secure votes.<\/p>\n
\u201c\u2019After the fallout from the Agrium proxy contest, it was expected that the practice of paying soliciting dealers to secure votes \u2018for\u2019 management nominees in contested director elections would be abandoned,\u201d a trio of corporate lawyers at Toronto-based law firm Davies Ward Phillips & Vineberg LLP wrote in a recent note to clients.<\/p>\n
However, last year, the issue arose again in a proxy contest involving Liquor Stores N.A. Ltd. and PointNorth Capital Inc.<\/p>\n
PointNorth complained to the Alberta Securities Commission, which declined to intervene because, as the Davies lawyers explain, \u201csoliciting dealer arrangements were not explicitly prohibited under applicable laws.\u201d In addition, the practice was not found to be clearly abusive to the capital markets.<\/p>\n
Nevertheless, after that decision last fall, a lawyer at another firm predicted that regulators could move to address the issue on the policy front.<\/p>\n
\u201cThe PointNorth decision is unlikely to be the final chapter on this subject,\u201d Neill May, a partner at Goodmans LLP wrote in a note to clients. \u201cReasons include the widespread use and controversial nature of these arrangements, the potential for a different result if the complainant can lead to evidence of harm and the fact that the ASC did not express a broad perspective on the practice.\u201d<\/p>\n
Among the points left open to debate is whether the use of a soliciting dealer arrangement in a proxy contest goes against the fiduciary duties of directors, or is oppressive to shareholders, wrote May, who is co-chair of the corporate securities group at Goodmans.<\/p>\n
\u201cIn contested director elections it raises probably the biggest question,\u201d said Jeremy Fraiberg, a partner and co-chair of the mergers and acquisitions group at law firm Osler, Hoskin & Harcourt LLP. \u201cThe directors are conflicted and are using corporate assets to pay brokers for votes in favour of the incumbent board.\u201d<\/p>\n
Critics say directors should not be put in a position where they can decide to use company money to pay fees to dealers who get votes that help those same directors maintain their positions \u2014 thereby entrenching themselves \u2014 at the company.<\/p>\n
The CSA will be accepting feedback on its consideration of intervention in soliciting dealer arrangements until June 11. Among the questions asked so far, regulators want to know typical circumstances in which the fee-paying arrangement are used and why, as well as views on the \u201cappropriateness\u201d of using them to get votes cast in favour of management\u2019s recommendations.<\/p>\n
The watchdogs also want to know whether investment dealers\u2019 potential conflicts of interest can be \u201ceffectively managed\u201d with these arrangements.<\/p>\n
The heightened focus on soliciting dealer arrangements is one reason some market watchers expect them to be used sparingly, but there are other disincentives when it comes to using them in proxy battles, \u201cregardless of any regulatory initiatives,\u201d said Bill Maslechko, a partner at law firm Burnet, Duckworth & Palmer LLP.<\/p>\n
\u201cPerhaps most significantly is that they are not viewed favourably by institutional investors or proxy advisory firms,\u201d he said. \u201cSince institutional shareholders make up a significant percentage of most public companies\u2019 shareholder base and as a rule they all vote, it is a rare company that will have a large enough retail shareholder base that it might make sense to consider the use of a soliciting dealer arrangement in a proxy contest.\u201d<\/p>\n
In addition, Maslechko said it is his understanding that some Canadian dealers may already be choosing not to participate in a soliciting dealer group \u201cas a matter of policy.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
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