In 2012 and 2013, Canada witnessed the introduction of soliciting dealer fee arrangements by the incumbent board in the proxy contest context, including the 2012 proxy contest involving EnerCare Inc., the 2012 battle between TELUS Corporation and Mason Capital Management LLC (Mason) and the 2013 proxy contest between JANA Partners and Agrium. In the JANA/Agrium proxy contest, Agrium offered to pay soliciting dealer fees of $0.25 per share for each share voted in favour of the election of all of Agrium’s incumbent directors. Agrium did not make any public disclosure of the payment of soliciting dealer fees, offering the fees in a confidential communication to broker-dealers. Agrium’s use of soliciting dealer fees generated intense media coverage and negative reaction from shareholders, academics, the marketplace and international press. It also focused attention on the propriety of the practice, not only in proxy contests for board elections but also in the context of M&A. Following the Agrium contest, numerous shareholder organizations and commenters condemned the practice, particularly in the context of a board election, characterizing it as “vote buying.” It was noted that dealers in the United States will not engage in the practice on the grounds that by taking compensation for soliciting votes, they would run afoul of proxy solicitation rules in Rule 14a-2 under the Securities Exchange Act of 1934. In 2017, another controversial use of soliciting dealer fees took place by Liquor Stores N.A. Ltd., in defending a proxy contest launched by PointNorth Inc. After that case, in which the ASC declined to intervene to sanction the conduct, the CSA sought comment on the use of, and regulatory approach to, soliciting dealer fee arrangements. In response, in 2019, the Canadian Investment Regulatory Organization (CIRO), Canada’s investment dealer self-regulatory organization, published a guidance note to address the management of conflicts of interest concerning such arrangements. In the guidance note, CIRO stated that soliciting dealer fee arrangements that relate to contested director elections involving fees that are paid only for votes in favour of one side and/or only if a particular side is successful raise significant conflicts of interest for a dealer that are unmanageable and as such should be avoided. As a result, while soliciting dealer fees are not yet prohibited by Canadian law, it is expected that the dealer community will move away from these arrangements with respect to contested director elections in Canada, especially if they are one-sided or contingent on a particular result. Since the adoption of the CIRO guidance, we are not aware of any Canadian issuer using soliciting dealer fee arrangements in a contested director election.
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Guide to Shareholder Activism and Proxy Contests in Canada
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