GEAC is a recent example of a company that recorded vote results only by show of hands, despite the inclusion of several non-recurring business items on the agenda. Among other problems this practice makes it difficult for a shareholder to conduct an audit of their vote or degree of support for their position among fellow shareholders.

The OECD has added language reinforcing the need for full voting rights for holders of ADRs, which do not always offer the holder the right to vote.

A new paragraph seeks removal of barriers limiting shareholders’ freedom to discuss issues that impact their rights, and barriers limiting voting agreements between shareholders, as long as they are not made in conjunction with a takeover bid. This is consistent with the evolution of shareholder rights plans in Canada, which have increasingly carved out voting agreements from the list of triggering events over the last decade.

The OECD calls on institutional investors to disclose their governance policy, including a proxy voting policy. This new addition reflects the understanding that institutional investors are acting more responsibly and have developed standards, including disclosure of and methods of dealing with conflicts.
The concept of independent pension trustees overseeing employee pension funds is reinforced in this revision. Creditors’ rights are introduced to the governance mix as well. This is consistent with recent court decisions in Canada concerning fiduciary duties of directors of companies operating under bankruptcy protection.

The OECD now recommends full disclosure of director compensation. While Canada is generally a leader in the area of disclosure, we fall short in the area of director compensation. In particular, disclosure of the aggregate number of options held by directors is seldom provided in Canada.
The OECD has added a section seeking disclosure of conflicts or perceived conflicts among providers of corporate information to investors. Such providers

include analysts, lawyers, rating firms, etc. The statement also addresses the structure of employee compensation to ensure there are no conflicts at an entity that provides products that derive revenues from both issuers and investors This is a minimum standard to preserve the integrity of our capital markets.

Independence, as defined by the OECD, has been clarified and a requirement has been added for disclosure of any of these director relationships.

A new section requiring the disclosure of the duties of any special committees of the board has been added.

The OECD now recommends companies consider and disclose a reasonable limit to the number of concurrent directorships a member of their board may reasonably hold and suggests board attendance by individual directors be disclosed.

The concept of an auditor oversight board is also supported in the guidelines. The sections on auditor independence have also been strengthened.
In this draft, there is increased support for the separation of Chair and CEO positions. A new minimum requirement is that an alternative mechanism be in place to ensure checks and balances where the CEO and Chair are combined.

Only previously implied by the guidelines, the OECD has now spelled out a goal for boards: the adoption and promotion of an ethical culture within their company. It makes specific references to various widely recognized global instruments. They stress the alignment of director and officer compensation with the long-term interests of shareholders and the company.

Ethics is a necessity in order to serve the long-term interests of shareholders, just as shareholder responsibility is a necessity in order to achieve good governance. The OECD’s and others’ guidelines do have differences but it is a sure thing that they will help us achieve the right corporate culture.