21. Withhold Campaigns A cost-effective option for shareholders to effect board change at an issuer is to engage in a “withhold campaign” (or “vote no campaign”) — that is, a public campaign to encourage shareholders to withhold their votes on the election of one or more director nominees of an issuer. Shareholders launching withhold campaigns can rely on the public broadcast and private solicitation exemptions (discussed in sections 16 and 17 of this guide) to solicit shareholders to vote “withhold” or “against” a director. Because a withhold campaign does not require the preparation and mailing of a circular, it is significantly less expensive than a full-fledged proxy contest. Further, a withhold campaign need not be successful to count as a win. The fact that the campaign is initiated and enjoys some take up, without necessarily unseating a director, can stimulate the desired engagement of the board on the investor’s issue. As CBCA incorporated public companies are now subject to “true” majority voting (discussed in section 20 of this guide), vote-no campaigns may become a more useful tool for shareholders of such companies. The CBCA majority voting rules provide that a director who fails the vote is simply not elected. This is in contrast to the majority voting policies that the TSX requires listed companies to implement which give the board discretion to decline a resignation in “exceptional circumstances.” Further, CBCA companies listed on junior exchanges, which do not require issuers to adopt a majority voting policy, will now need to comply with majority voting for the first time. A withhold campaign is a flexible tool in the hands of a shareholder that wishes to target a specific director or committee without necessarily causing broad disruption in the boardroom. For example, a shareholder could mount a withhold campaign against the chair of the compensation committee to express concern over compensation decisions. A withhold campaign can be tailored to target specific directors who are, for example, long-tenured, over-boarded or not independent. In addition, a withhold campaign does not require the shareholder to advance an alternative nominee, thus depriving the issuer of a target to take aim at. A withhold campaign can also be used by a shareholder that has missed a nomination window under an issuer’s advance notice bylaw or whose slate was disqualified. By launching a withhold campaign, the shareholder can continue to pressure the board to effect change, notwithstanding that the shareholder’s proposed slate of candidates cannot be elected at the meeting.
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Guide to Shareholder Activism and Proxy Contests in Canada
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