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New shareholder rules become law
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The
federal government has enacted new legislation ending discriminatory
treatment against shareholders making social and environmental
proposals. The clause is expected to legitimize shareholder proposals on social and environmental issues. “We believe that the rules of the shareholder game have been stacked against shareholders wishing to discuss issues of social and environmental importance, said SIO Executive Director Eugene Ellmen. “These old rules have discouraged legitimate and healthy exchange between shareholders and management.” “We commend the government for eliminating this language from the new act,” he said. “By eliminating this clause, the government is recognizing the importance of providing shareholders with the right to make proposals on issues of substantial importance to the corporation, including legitimate and prudent matters involving social and environmental issues.” The exclusion clause has been used several times as grounds for refusing to circulate a shareholder proposal, particularly since 1987 when the Ontario Court of Appeal upheld a decision by Varity Corp. not to circulate a shareholder proposal on disinvestment from South Africa. Similar proposals have been circulated by other companies, and in the U.S. are routinely recommended for circulation by the SEC. Because of the cost to shareholders of challenging a rejection decision in court, Canadian corporations have been free to use the clause to reject legitimate proposals. In place of the old wording, the new CBCA requires management to circulate proposals unless they fail to deal substantially with the business affairs of the corporation. The change brings Canadian corporate law more into line with US law on this matter, which does not discriminate against shareholder proposals on economic, political, racial, religious or social grounds. The new legislation also contains other changes to make it easier for shareholders to file proposals and to communicate with each other on proposals. Specifically, it loosens the rules on proxy solicitations, permitting shareholders to communicate with one another. In addition, rules permitting shareholder proposals only from registered shareholders (investment companies that are the shareholders of record) have been scrapped, permitting beneficial shareholders to file proposals. Ellmen said he expects these new rules to help change the investor-corporation relationship. “Certainly large pension funds have been pressing for more say over corporations for governance reasons,” he said. “These new rules will also serve to make social and environmental issues a more common part of this relationship.” The changes to the CBCA will have enormous significance because of the reach of the legislation. The CBCA is the federal government’s corporate statute, setting out the legal and regulatory framework for more than 158,000 federally incorporated businesses, including almost half of the largest companies in Canada. See also Industry Canada www.ic.gc.ca and A Shareholder's Muscle from The Globe and Mail
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