Legislation ending discrimination against socially responsible shareholder proposals passes in Parliament

A new federal law putting an end to decades of discrimination against socially responsible shareholder proposals has passed Parliament and received royal ascent.

“Change to this legislation has been long overdue," said Eugene Ellmen, Executive Director of the Social Investment Organization. "Members of the socially responsible investment community are pleased that this legislation has been enacted and we look forward to these new rules for next year's round of shareholder meetings."

The legislation -- Bill S-11 -- was passed by Parliament in early June and received royal ascent on June 14. All that remains is for the regulations accompanying the new bill to be approved and published. This is expected to take place in the Fall, early enough that the new rules can come into force for next year's "proxy season" -- the yearly round of annual general meetings where corporations debate and discuss shareholder proposals.

Bill S-11 amends the 26-year-old Canada Business Corporations Act (CBCA). The critical issue for the SIO in the old legislation concerned a clause permitting corporate management to reject shareholder proposals filed “primarily for the purpose of promoting general economic, political, racial, religious, social or similar causes." Bill S-11 removed this clause from the CBCA.

"We are very pleased that the federal government has agreed with us that shareholders have a right to be heard on proposals of social and environmental responsibility,” Ellmen said.

Amendments to the CBCA were introduced in March, 2000, but, disappointingly, last year’s bill continued to give management the right to reject proposals for “general economic, political, racial, religious, social or similar causes" unless the shareholder could prove that the proposal substantially affected the corporation’s business. In response, SIO appeared before the Senate Banking, Trade and Commerce committee in May, 2000 along with the Taskforce on the Churches and Corporate Responsibility and Democracy Watch.

Last year’s bill died on the order paper when the federal election was called in the Fall. When the bill was re-introduced on Feb. 6, the objectionable wording was eliminated.

While SIO has welcomed the government’s move on this issue, it expressed concern about other parts of the new bill, specifically that minimum share requirements, provision to allow pooling of shareholdings and time requirements for filing proposals are written into the regulations rather than the law. In letters to the government, the SIO said it is important to put these matters in the Bill to prevent erosion of shareholder rights through regulatory change.

In addition, the SIO asked the government to seriously consider establishment of an independent arbitrator to adjudicate disputes over shareholder proposals between management and shareholders. Such an arbitrator would provide for low-cost and timely resolution of disputes.

However, in a letter to the House of Commons Industry Committee, SIO said it supported passage of the Bill, saying that it did not want to hold up passage, which would jeopardize putting the new rules in place for the 2002 proxy season.

For a full text of the 2nd reading debate on the bill in the House of Commons, see House of Commons Hansard.

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