The role of regulators in corp governance Flashcards
New governance req.
To list on NYSE - mandatory compliance to the rules
Proposal in Canada: voluntary compliance with a mandatory disclosure req in terms of how they meet the guidelines if corp do not implement specific std.
Sarbanes-Oxley Act of 2012
In response to Enron and Worldcom, an assertion of fed authority over CG.
Board independence
Board committees are valuable means to keep oversight over firm’s activities
Audit committee - s171
Sarra & Kung:
- Independence = 1) unrelatedness of financial interest; 2) ability to critically examine and challenge when necessary
- To foster independence: board composition, non-mgt directors meet separately from inside directors on a regular basis.
SH activism
Institutional investors:
- Pension funds - very involved in CG
- Mutual funds - fund vote in underlying companies
Hedge funds and private equity - Fund managers vote
Socially responsible investors: evaluate corp on financial and social and environmental records; fund managers vote.
Involvements: proxy contests, engagement, SH proposals
Individual/Retail SH: beneficial owners - hold shares in a brokerage account, who in turn hold shares in a bank, depository inst. or clearing agency [registered owners]
NOBO = Non-objecting Beneficial Owners OBO = Objecting Beneficial Owner - why anonymous? want to reach trigger point before having to disclose
Disclosure in proxy process as a CG tool
Proxy regulation as controlling what info SH must be given before their proxy can be solicited
- Strongly influenced by S14 of Securities Exchange Act in US.
Based on the Efficient Capital market hypothesis
- Assumes that markets are efficient at incorporating new info into price of shares and that the price of shares are an appr. grade for the quality of management
Key aspects of proxy regulation
Part XIII of CBCA
S149 - management in a distributing company must send a proxy circular with req. info to all SH whose proxy is being solicited
Beneficial owner
Registered owner - Only the registered shareholder or their proxy are allowed to vote at a shareholder’s meeting
NI 54-101 now requires intermediaries to send proxy material to NOBO so they can vote if they want to or instruct intermediary to vote.
- provide beneficial owner with either a) computerized form to be completed by NRH and return to intermediary, or b) proxy form signed by intermediaries to be filled in by NRH and submit it.
Requirements for the Form of Proxy
s148 - SH can appoint a person, who may or may not be a SH, other than the pre-designated one on the form
- Re Goldhar
Sample on 650-655
Who is required to solicit proxy?
Both management and dissent SH
Info circular must be sent, and incl info in sufficient details to permit SH to form a reasoned judgment on the matter
- additional info req. if sent by management
Compliance with 1+ proxy solicitation rules
Being incorporated under the CBCA always exempts a corporation from OSA proxy solicitation requirements.
Companies that trade in US and solicit proxies must comply with Securities Exchange Act of 1934
- can seek advance ruling from SEC
Ontario Securities Act, s.88 – where a corporation subject to the OSA complies with proxy soliciting law of its incorporating jurisdiction and such law is substantially similar to that of Ontario, the corporation is exempt from OSA proxy regulation
The definition of proxy solicitation
s147 - very broad def - any communication under the circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy
- Ad in newspaper for SH meeting is not a solicitation unless it was on behalf of mgt
SH solicitation
s150 - A person shall not solicit proxies unless a proxy circular is provided
- Exception: No proxy circular required if not on behalf of mgt + total # of SH whose proxies are solicited is 15 or less
- Exception: No proxy circular is required if not on behalf of mgt + conveyed by public broadcast, speech or publication.
Aimed at enhanced SH participation.
Adequacy of disclosure - Materiality
Materialist structures both ex ante disclosure and defines cause of action ex post.
- Harris v Universal Exploration
Harris v Universal Exploration
Facts: Amalgamation of U and P. P’s SH get more shares in the new company than U.
- Here the circular gave impression that company value was fixed by independent experts, but this was not the case.
- It is not necessary to include an appraisal in the information circular, but if asserting something as an independent appraisal, this should be true.
The Test for Materiality
- An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.
Facts omitted (or misstated) do not need to be “outcome determinative,” so no requirement to show that a shareholder would have voted differently.
Rather, “there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonably investor as having significantly altered the total mix of information made available.”
Remedy for material misstatement or omission
s154 - Permit an interested person to apply to court for a restraining order on holding shareholder meeting, an order requiring a correction in the circular; and an order adjourning the shareholder meeting
- An express statutory cause of action
SH proposals
s137 - Both registered and beneficial SH are entitled to submit proposals for consideration at a meeting
- Ownership req: 1% of o/s shares or $2000 + 6m holding
- Submitted 90 days before anniversary of last AGM
- May nominate director with 5% of vote
- Max 500 words proposal
Corp is obligated to give notice of proposal in circular
- May refuse to incl proposal based on narrow grounds
