Accountability of Individual Directors Grows in the Canadian Capital Markets

Focus on individual director elections and say on pay expected to dominate 2012 proxy season

TORONTO, Dec. 15, 2011 /CNW/ - As Canadian issuers prepare for the 2012 proxy season, they should expect continued focus on the individuals being put forward for election as directors—and those directors should expect heightened demands for accountability from shareholders—according to a new report on #governanceinsights from leading North American business law firm Davies Ward Phillips & Vineberg LLP.

The report—Davies Governance Insights 2011—looks at governance trends, practices and board profiles of the 360 Canadian issuers that make up the S&P/TSX Composite and S&P/TSX SmallCap indices and the issues that are expected to shape the 2012 proxy season.

Who is around the boardroom table?

The report analyzes the composition of Canadian boards, concluding that they are largely homogenous:

• Directors of TSX 60 companies are typically men in their early sixties; directors of smaller companies tend to be slightly younger.
• Despite the capital markets being global, almost 80% of directors of issuers on the S&P/TSX Composite Index are resident Canadians.
• Women are making slow progress on many Canadian boards—and even slower progress in assuming positions of leadership. Women chaired only seven (3%) of the 360 issuers on the combined S&P/TSX Composite and S&P/TSX SmallCap indices in 2011 and only 53 of the well over 1,500 board committees across those same public companies.
• Most boards are comprised entirely of directors who are independent of management, with the exception of the CEOs.

"Global challenges present an excellent opportunity to rethink some of the accepted practices that may be preventing boards from moving to the next level of effectiveness," said Carol Hansell, a senior partner at Davies. "Are boards sacrificing industry knowledge by insisting on the highest levels of independence? Would more international experience at the board level support the company's strategic planning? Are nominating committees considering the best possible candidates from the global talent pool? These are some of the questions boards should be discussing."

Trends for 2012

The report also identifies a number of trends for 2012:

• Shareholder engagement on issues they believe drive value—such as the composition of the board, strategic direction, and the alignment of compensation with performance—will continue.
• The adoption of majority voting (already strong in 2011) will continue to grow, becoming a generally accepted "best practice" in the next few years. Effective majority voting requires the adoption of voting for individual directors rather than a slate, the reporting of voting results related to individual directors (how many votes "for" and how many withheld), and adopting consequences for directors from whom a majority of votes has been withheld (leading up to and including resignation).
• Shareholders will have their "say on pay" at more and more annual general meetings. More than two-thirds of TSX 60 issuers are expected to put say-on-pay resolutions to their shareholders during the 2012 proxy season, up from a little more than half in 2011.
• Companies will continue to receive shareholder proposals on a wide variety of issues, although they are expected to have little influence on governance practices in 2012. During the 2011 proxy season, only two proposals voted on by shareholders succeeded. A total of 72 proposals were made to 25 issuers; 20 of which were withdrawn.
• Concerns with the integrity of the proxy voting system will continue to grow, particularly among institutional investors.

"Investors will continue to focus on compensation, particularly with the growing adoption of say on pay," notes Davies partner Jason Saltzman. "In addition, we also expect increased focus on director compensation. Directors of some TSX 60 issuers earn well over $150,000 annually, with some chairs receiving in excess of $500,000. Investors will want to know that these directors are devoting the appropriate time to the company's business. Share-based compensation for directors will also continue to be an issue, particularly the size of equity grants to directors and the form of those grants. Option grants are subject to particular criticism."

About Davies

Davies Ward Phillips & Vineberg LLP is an integrated firm of more than 240 lawyers with offices in Toronto, Montréal and New York. The firm is focused on business law and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its clients, regardless of borders.

The firm regularly provides counsel to North America's most prominent organizations and offers analysis of governance and voting issues facing large and small cap issuers. An additional report on shareholder voting, released in 2010, can be found at www.shareholdervoting.com or on the firm's website (www.dwpv.com).

About the Davies Governance Insights 2011 Report

The statistics on Canadian corporate governance presented in this report are based in large part on Davies review of the 2011 management information circulars available for the 360 issuers that make up the S&P/TSX Composite Index and the S&P/TSX SmallCap Index. In some cases, the practices of the 60 largest issuers on the S&P/TSX Composite Index (referred to as the S&P/TSX 60 Index) have been highlighted separately.

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For a full version of this report, visit www.governanceinsights.com.

For further information:

For media inquiries, please contact: 
Mark Cohen
Fleishman Hillard
416.645.8177
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