Shareholder support for such drastic and wholesale change is generally noteworthy in the Canadian activist space, and the occurrence of two such events in one year is all the more extraordinary. Time will tell if these contests are harbingers of a shift to more decisive shareholder engagement. At the very least, for now they stand as encouraging examples to investors of the outcomes that are possible when shareholders act decisively when the circumstances warrant. Developments in Advance Notice By-Laws South of the border, the adoption of universal proxy rules by the U.S. Securities and Exchange Commission (SEC) in September 2022 led many issuers to amend their advance notice by-laws, with some amendments sparking high-profile legal battles. These developments offer lessons for Canadian companies considering adopting or amending an existing advance notice by-law. This section explores the key differences between U.S. and Canadian practices and provides practical guidance for Canadian boards.
Time will tell if the resounding activist victories in Gildan and Dye & Durham are harbingers of a shift to more decisive shareholder engagement in Canada.
as a “shield” to protect against ambushes at shareholder meetings, not a “sword” to exclude legitimate director nominations or to buy time for management to counter dissident shareholders. Additionally, because Canadian corporate statutes generally require shareholder ratification for the adoption or amendment of by-laws, the governance community, including Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. (Glass Lewis), as well as the Toronto Stock Exchange (TSX), has established standards for the adoption of advance notice by-laws that temper their use by issuers. As discussed below, the general approach in Canada is that the disclosure requirements imposed on a nominating shareholder should be limited to information that is required in a dissident proxy circular under applicable laws.
THE CANADIAN CONTEXT
In the U.S., advance notice by-laws are often issuer- friendly, imposing onerous disclosure requirements on nominating shareholders, including the completion of lengthy questionnaires. These sometimes byzantine requirements can empower a willing board to reject director nominations on technical grounds, effectively affording the issuer the opportunity to thwart a proxy contest or extract time or leverage for negotiations with the dissident. In contrast, the corporate and governance regimes regulating the use of advance notice by-laws in Canada generally seek to balance the interests of issuers and nominating shareholders. Canadian case law emphasizes that advance notice by-laws should be used
REGULATORY INTERVENTION IN CANADA
Recent developments raise questions about whether Canadian securities regulators (as opposed to Canadian courts) will intervene in disputes over advance notice provisions. In Jacob Cohen and YourWay Cannabis Brands Inc. (June 22, 2023), the British Columbia Securities Commission (BCSC) declined to assume jurisdiction in an application challenging an issuer’s use of an advance notice provision to reject a dissident’s director nominations. The BCSC regarded the matter squarely as one of corporate law and therefore a matter to be decided by a court. Noting that it did “not see any issue of law or policy engaged […] involving securities
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Governance Insights 2024
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