Institutional Shareholder Services

This post was contributed by Walied Soliman, Partner, Norton Rose Canada, and Evelyn Li, Associate, Norton Rose Canada

A scan of recent business headlines suggests shareholder activism continues to rise, and even the who’s who of deep-rooted Canadian businesses are not immune.

While preparing for the upcoming proxy season, whether or not your company is at risk for a proxy contest, it might be a good idea to consider adopting certain pre-emptive defensive tactics, including a by-law to provide advance notice for nomination of directors as recently proposed by Arius3D Corp.

Proxy fights

Dissidents in a proxy contest typically look to gain board control by replacing directors with nominees whose strategy reflects that of the dissidents. Dissidents can propose their own nominees by:

  • requisitioning a meeting of shareholders to remove incumbent directors and elect the dissidents’ nominees;
  • preparing a shareholder proposal to the company within the prescribed timeline before a shareholders’ meeting, for inclusion in the management information circular;
  • soliciting proxies for the dissidents’ nominees before a meeting of shareholders; or
  • ambushing from the floor (i.e., during the motion to elect management’s nominees as directors) at a meeting of shareholders.

For your company, an ambush is the worst-case scenario as you would have no advance warning and no chance to prepare a defence.  Other shareholders and proxyholders (i.e., the non-dissidents) would also learn of the dissidents’ proposal and nominees at the time of the ambush, just before voting for the election of directors.