For now, proxy access in Canada is limited to large financial institutions and its broader adoption seems unlikely. ISS has not provided specific parameters for shareholder proposals relating to proxy access and states in its 2023 Guidelines that it will take a case-by-case approach in evaluating these proposals. 14. Compensation Arrangements for Director Nominees One of the principal challenges that an activist faces is recruiting credible and compelling board candidates for a dissident slate. The use of universal proxy cards in Canada and, more recently, in the United States has focused on the quality and independence of individual director nominees; this in turn has raised the bar for activists: the credibility of the activist will be judged on its ability to attract high-quality dissident candidates. In the past, in order to attract the best candidates, some activists have provided incentive compensation arrangements to those willing to serve as director nominees. In two high-profile proxy contests in 2013, this practice came under attack: one in Canada in which U.S. hedge fund JANA Partners sought to compensate its nominees who were proposed for election to the board of Agrium Inc., and one in the United States, in which Elliott Management Corp. entered into compensation arrangements with its nominees in its proxy fight with Hess Corp. In these cases, the director nominees were provided with compensation that included an incentive component tied to the performance of the target companies’ shares over a certain period of time. In addition, compensation agreements often include a more modest fixed stipend as well as indemnity arrangements; however, these components have not attracted notable criticism. Activists argued that incentive payments were consistent with good corporate governance because they help link director pay to performance, which can benefit all shareholders. They also argued that these arrangements were necessary to attract better candidates who would otherwise have no compensation for their significant efforts unless ultimately elected to a board. On the other side, critics labelled director compensation arrangements as “golden leashes” leading to “poisonous conflicts” that create a subclass of directors, compromise the nominees’ independence and create dysfunctional boardrooms. In particular, criticism highlighted instances in which time frames of the incentive arrangements were too short to align the dissident nominees with the long-term interests of shareholders.
Today, although compensation and indemnities for an activist’s candidates during the pendency of a proxy contest are acceptable, activists are advised to avoid post-election compensation arrangements.
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Guide to Shareholder Activism and Proxy Contests in Canada
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