Guide to Shareholder Activism and Proxy Contests in Canada

director nominees following the submission of their nomination. Although these features are fairly common in U.S.-style advance notice bylaws, they are virtually unseen in the Canadian context. Primo Water used its new U.S.-style advance notice bylaw as a tool to reject all the director nominations submitted by Legion Partners. It was this set of facts which led Legion Partners to launch an oppression application in the Ontario Superior Court of Justice seeking, among other things, a declaration that its director nominations were valid and an order to invalidate or amend the controversial provisions in the company’s U.S.-style advance notice bylaw. In its application, Legion Partners cited Canadian guidance and the established legal principle that, in Canada, advance notice bylaws be used as a shield to protect shareholders and not as a sword to exclude nominations given on ample notice. Similar complaints were made by the activist to the OSC and the TSX. Primo Water ultimately acceded to all of Legion’s demands in the litigation in a settlement agreement accepting all of Legion Partners’ director nominations and including such nominees on its universal proxy card. Shortly prior to the meeting of shareholders in which the contested election would take place, the parties settled the proxy contest on terms that required Primo Water to put two of Legion Partners’ nominees on the board and to adopt certain governance enhancements, including revisions to the advance notice bylaw to bring it in line with Canadian standards. 10. Universal Proxy Cards Canadian proxy rules have always permitted an issuer or a shareholder to use a “universal” proxy card. A universal proxy card lists the names of all of the duly nominated director nominees for election at an upcoming shareholders’ meeting, regardless of whether the nominees were nominated by management or shareholders. Universal proxy cards allow shareholders to vote for a combination of director nominees from competing slates, as they could if they voted in person at the shareholders’ meeting. When one party deploys a universal proxy card, that card becomes the more attractive option because shareholders can tailor their votes by voting for their preferred mix of management and dissident nominees. For example, if a shareholder supports a dissident who uses a universal proxy, but believes that the dissident slate put forward is too large, a universal proxy card would allow the shareholder to vote for a subset of the dissident nominees and also vote for one or more management nominees. In addition, the use of a universal proxy can provide an important informational advantage since, in the absence of agreement between a dissident and the issuer, typically neither side will have advance access to proxies submitted on the other side’s card. By using a universal proxy and persuading shareholders to use that proxy to cast their votes, a party may be able to secure a clearer picture of their prospects for success in advance of the meeting.