Guide to Shareholder Activism and Proxy Contests in Canada

Although meeting mechanics largely fall within the purview of corporate law, securities regulators retain broad public interest jurisdiction to intervene — even when there has not been a breach of securities law — and might be prompted to do so if there is evidence to suggest that an issuer is holding a virtual-only meeting for tactical reasons. Staff of the CSA provided guidance in 2022 on virtual shareholder meetings (2022 CSA Guidance) and stated that they recommend issuers adopt practices at virtual meetings that are transparent and consistent with practices used at in-person meetings. Similarly, proxy advisory firms ISS and Glass Lewis have historically been opposed to virtual-only shareholder meetings out of concern that they disenfranchise shareholders. This view was relaxed, out of necessity, during the COVID-19 pandemic as in-person meetings were effectively prohibited by “stay at home” orders. Now, Glass Lewis is permissive of virtual-only meetings provided that issuers take steps to ensure that the virtual meeting “approximates” an in-person meeting experience by providing for certain participation and information rights and ensuring effective disclosure regarding such rights. Although ISS proxy voting guidelines for Canadian issuers do not refer to virtual meetings, its advice for U.S.- and European-based companies is substantially similar to Glass Lewis’ and is permissive of virtual-only meetings provided companies do not take steps to preclude in-person meetings and that steps are taken to ensure virtual meetings provide comparable rights and opportunities for shareholders to participate electronically as they would during in-person meetings. VIRTUAL CONTESTED MEETINGS From a tactical perspective, there are a number of advantages for an issuer in holding a virtual-only meeting. Given that the meeting is held entirely online, the lack of a physical presence and ability for shareholders to speak at the meeting means that there is less risk that a newsworthy event occurs at the meeting. As most virtual-only meetings are audio-only broadcasts controlled by the issuer, third parties would be unable to block access to the meeting and dissidents would be unable to display signs, symbols or props in making their commentary. Additionally, shareholders would not be able to hear any applause or other supportive reactions to speeches made by dissidents. As comments and questions are generally submitted through a portal moderated by the chair, who is then asked to read the comments and questions out loud, the chair is able to control how they are presented and to edit them prior to reading them out loud or to rule comments and questions out of order. Even if a dissident is given the ability to speak at a virtual meeting, the issuer could limit this right or the chair could use the virtual meeting software to shut off the dissident’s microphone if they are out of order. The 2022 CSA Guidance also encourages issuers to enter into meeting protocols with dissidents ahead of a virtual contested meeting. Such protocols can reduce the instances of “tactical gamesmanship” seen at in-person shareholder meetings and can also reduce the likelihood that the chair’s rulings will be subsequently challenged in court. Meeting protocols establish procedural rules for the meeting, such as the identification of the chair of the meeting, provision of a draft of the script of the meeting to the dissident, the right to review proxies received and tabulated by the scrutineers prior to the cut-off time and after the meeting, rules with respect to the authenticity and validity of proxies (such as the Securities Transfer Association of Canada (STAC) Proxy Protocol) and limitations on introducing new items of business at the meeting.