New Age of Dialogue
“Regulatory change and new technologies will encourage stronger corporate governance, better transparency and two-way dialogue between corporate issuers and their investors.”
Investment industry regulators are currently reviewing a number of policies and regulations that could mean significant changes for the way investors and issuers communicate, says Patricia Rosch, president of Broadridge Investor Communication Solutions, Canada.
“There is a lot of change on the horizon,” says Ms. Rosch, a longtime investment industry observer. “I think it is beneficial that the regulators are looking at moving from principally paper-based distribution, and trying to allow ways to provide more efficient means for companies to connect with both their retail and institutional shareholders.”
Ms. Rosch’s company, a division of Broadridge Financial Solutions, Inc., is keeping a close watch on Canadian regulators’ review of proxy rules relating to beneficial shareholders as well as policies that deal with the delivery of documents by electronic means. One method of electronic delivery, which is called Notice and Access, has been permitted in the United States since 2007.
She notes that regulatory changes occurring in the United States are providing impetus to examine and modify similar rules in Canada. “There are changes in the U.S. that may come across the border,” she says. “For example, ‘Say on Pay,’ is going to become law in the U.S. on January 21 this year. In Canada, it is not mandatory but it is deemed a best practice by the Canadian Coalition of Good Governance, and the Ontario Securities Commission is examining whether securities regulators should consider introducing mandatory say-on-pay requirements for reporting issuers in Ontario.”
Such regulatory changes should benefit both issuers and investors “What used to be predominately one-way communication from issuers or mutual fund companies out to their investors will change with rules that include new communication channels,” she says. “This will make use of technological advances to the benefit of all – issuers, fund companies and investors. It will encourage stronger corporate governance, better transparency, and two-way dialogue.”
While new technology and evolving regulations have the potential to improve shareholder communications in Canada, there are still challenges. Some rule changes have had unintended consequences. Changes to the rule that governs proxy communications with beneficial shareholders have created a situation where some public corporations are not sending proxy materials to all beneficial holders. “The rule is silent on paying for delivery to beneficial owners that choose not to disclose their names, and as a result many of these investors are not getting materials for meetings. Last proxy season, investors representing 12% of all shares in Canadian corporations were not sent proxy materials by the companies in which they had invested. Our statistics show that this number is increasing. We need to be concerned – investors are not being recognized and their right to participate in the proxy process must be protected. Investors must be given the right to vote their shares in the companies in which they’ve invested,” she says.
Broadridge is a proponent of encouraging dialogue amongst industry participants and has established a Canadian advisory committee, composed of corporate issuers, banks, brokers, mutual fund companies, custodians and institutional investors, to identify and discuss potential improvements to the shareholder communication process.
Ms. Rosch’s firm is front and centre in efforts to use the Internet to broaden communications between shareholders and issuers. She highlighted a recent comScore report that found that Canada has the world’s highest Internet access penetration, with about 68% of Canadians routinely online, versus just 59% for Americans. “We see this as a huge opportunity to build solutions that enhance efficiency, equity and engagement in the proxy process by enabling firms to truly interact with their investors.”
Innovations from her firm include the Virtual Shareholder Meeting, which allows validated shareholders to attend the meeting, post questions and tender votes. “It takes away the geographic boundaries and allows shareholders who can’t attend in person to also take part,” she says. “The technology is available and as companies in the U.S. adopt it, we are seeing higher investor participation.”
Her company also has a product called the Shareholder Forum; an online platform that lets validated shareholders take part in a company-run dialogue and submit questions. “Some leading-edge companies, particularly technology firms in the U.S., are using this in order to review future business plans and strategies; they will put out sentiment surveys to understand what shareholders are thinking about the company. Companies like Best Buy are making good use of this technology.”
While some of these technologies are not yet available in Canada, Ms. Rosch believes that there is an appetite for innovation. “We conduct focus groups with retail investors, and through our ongoing consultations with regulators, issuers, the brokerage community, custodians and institutional investors, we’re building the tools the market is asking for. Technology will be the foundation of a more robust, effective shareholder communication process.”