4. Day One — Service Provider Panel

PANELISTS:

Glenn G. Keeling — Partner, Phoenix Advisory Partners. Mr. Keeling is a Canadian authority on shareholder services, strategic solicitation, and corporate governance matters. In his 18-year career he has served as the President and CEO of Georgeson Canada, a founder and partner of Laurel Hill Advisory Group and most recently, a partner with Phoenix Advisory Partners. His current role focuses on significant cross border and internationally connected shareholder communications and corporate governance advisory.

Chris Makuch — Vice President, National Sales and Marketing, Georgeson Canada. As a specialist in shareholder response services, Mr. Makuch provides strategic counseling and program execution in proxy solicitation, shareholder base analysis, information agent services, and shareholder asset reunification/small shareholder programs. Prior to joining Georgeson in 2008, Mr. Makuch co-founded The Shareholder Response Group in 2002. He hs also worked in the Financial Services Division of Hill & Knowlton Canada and at Georgeson Shareholder Communications as Director of Business Development.

Penny Rice — Senior Vice President, Proxy Advisory Services Laurel Hill Advisory Group. Ms. Rice has 20 plus years of experience in shareholder relations for publicly traded companies. She is currently responsible for the Proxy Advisory Service at Laurel Hill, and oversees the implementation of various aspects of shareholder communication and related activities including shareholder identification, proxy solicitation and information agent services in her role overseeing. Prior to joining Laurel Hill, she was entrusted with progressively expanding responsibilities within Computershare Investor Services and Georgeson Shareholder.

Patricia Rosch — President, Investor Communication Solutions, International Broadridge Financial Solutions, Inc. Ms. Rosch joined Broadridge in 1996 as Director of Sales and Marketing, after having held a number of strategic planning positions at a major Canadian bank and a number of product development and marketing positions in the brokerage and mutual fund industries. In May 2011, she was named President of Investor Communication Solutions, International. She is currently responsible for Broadridge’s global proxy business.

Bill Brolly — Senior Manager Market Development, Global Capital Markets Group Computershare. In his 25 years of experience, Mr. Brolly has chaired various industry committees relating to depository and securities processing, including the Canadian Capital Markets Association (CCMA). His consulting work has focused on advising government agencies on the pre-issue logistics of wide spread public distribution of securities (demutualization, commercialization, privatization, and government retail savings bonds). His experience and knowledge of securities processing, has also included depository, registration and share transfer in the UK, Caribbean, Latin America, US, India, Philippines, Hong Kong, and Canada.

Helen Stratigeas — Vice President, Client Services Equity Transfer & Trust Company. Ms. Stratigeas is a recognized industry expert in investor communications, shareholder meeting conduct, and proxy voting solutions. She has worked closely with the CSA and securities industry participants to implement best practices that meet the needs of all stakeholders. She has been quoted on best practices for investor communications and has led and participated in numerous steering and regulatory committees to identify and improve regulations.

James Hinnecke — Director, Product Management, Canadian Stock Transfer Company (CST). Having worked in the Canadian life insurance and financial services industries for more than 30 years (including 22 years in transfer agency services, working for a number of different transfer agents), Mr. Hinnecke has been an active participant in the evolution of beneficial shareholder communications. He is currently responsible for ensuring that CST’s products and services incorporate client needs, current and pending regulatory requirements, and emerging technological opportunities. He also serves on the Securities Transfer Association of Canada’s (STAC) Legal Regulatory Working Group .

DISCUSSION:

“The Canadian system has not kept pace with trading growth and the settlement system does really lend itself to direct communications between issuers and investors

There are problems with votes at 55% of meetings and over voting occurs in 1 out of 5 meetings. Proxies can be issued for a greater number of shares than are held in bulk by the intermediary at the record date.

This result causes a problem in 20% of meetings. Occurrences of intermediary over voting were recorded over 7000 times this year alone.

…No public issuer in Canada can say that voting is 100% accurate, and that those who voted have an economic interest in the shares voted.”

- Bill Brolly,

Computershare

Topic 1- The Quality of the Vote Received

Bill Brolly:

• Computershare is a tabulator and vote scrutineer at over 2400 meetings in Canada
• Declining voting statistics and other associated problems are systemic
• They don’t necessarily originate in the transfer agent’s office
• The integrity of the system is something that regulators must resolve to address and a holistic approach must be taken
• The Canadian system has not kept pace with trading growth and the settlement system does really lend itself to direct communications between issuers and investors
• Growing international interest in Canadian companies will only make the problems worse
• There are problems with votes at 55% of meetings and over voting occurs in 1 out of 5 meetings
• There is a fundamental difference between how shares are voted in the beneficial and registered voters systems:

• In the registered environment, there’s a direct 1:1 relationship between the investors and their shares
• 2 registered shareholders can either vote their shares, or not vote their shares
• In the beneficial holder system, shares are pooled; there is no direct relationship between the holder and his or her shares
• The record of client ownership exists only on the bank’s internal record keeping system
• In a pooled account, 2 shareholders may be shown to have 100 shares each, while in actuality only one does because of share lending by the broker, or any number of reasons; in any event, the voting by one is predicated on the non-

Helen Stratigeas:

• The First Step of Proxy Voting:

• A list of registered voters is maintained for issuers and produced for mailing purposes
• This lists the holders entitled to vote as of the record date and is comprised of those who have physical certificates and those registered in DRS
• It also includes positions held by depositories like CDS and DTC and includes registered nominee positions held in a bank or nominee name or shares held by depositories

The Second Step of Proxy Voting:

“There is a flaw in these simple steps that raises the potential of over voting, with three possible scenarios:

• Shares on loan as the most common over voting case;
• Proxies are being executed by intermediaries without checking to see if they have already been voted;
• Once an omnibus proxy is provided to the issuer for NOBOs, the intermediary position is over and they should refer their client to the party that mailed or is tabulating. If the shareholder refuses, then they should contact the tabulator to assist them.

No one wants a shareholder to be disenfranchised and so intermediaries need to ensure that their clients are aware that their account needs to be set up exactly as it is reported”

- Helen Stratigeas,

Equity Financial Trust Company

• Broadridge pulls data from intermediaries to create files for their mailing, for the creation of omnibus proxies, if coded, and to create vote files for tabulation purposes.
• They also receive info from CDS listing the total brokerage position for each of the intermediaries.
• The problem is that there are intermediaries that may lend or borrow shares, or there are omnibus accounts.
• The depositories and intermediaries holding positions for other parties give the authority to the parties that have control over the execution of the votes that they are entitled to vote on.
• CDS sends an omnibus proxy, as a registered shareholder, along with the list of the issuer, giving them the authority to accept votes directly from the intermediaries
• Info may include omnibus account info, intermediaries holding for other parties, etc.
• Once CDS gets the omnibus proxy, they break it down by shareholder
• As the registered shareholder, CDS sends omnibus proxy to intermediaries that they can receive authorization.
• If the issuer is mailing directly to NOBOs, an omnibus proxy is provided where the intermediaries are giving the authority to the issuer to accepts votes directly from the NOBO holders.

• The Third Step of Proxy Voting:

• Upon receipt of these documents, the issuer’s tabulator begins to adjust the voting records accordingly
• The depository positions are reduced and an appropriate number of shares are allocated to the intermediaries, as authorized by the depositories
• For the mini-omnibus proxy positions, the same mechanism is applied.
• The same happens under the NOBO omnibus proxy as well: shares are deducted from the intermediary’s position in accordance with their instructions

There is a flaw in these simple

“A sizeable number of Canadian issuers have investors who choose to hold their shares via a US broker, or a European broker.

37% of shareholders (held by intermediaries in the US or abroad) do not receive DTC omnibus proxies by the meeting date and without the omnibus proxy, those shares may not get counted.

Each season Computershare receives 8000 faxes from Broadridge to allocate votes from one participant to another – the sheer number begs the question of why these votes are being allocated between the participants.”

- Bill Brolly,

Computershare

“There is a flaw in these simple steps that raises the potential of over voting.”

- Helen Stratigeas,

Equity Financial Trust Company

Topic 2- Post-Reconciliation

Bill Brolly:

• Proxies can be issued for a greater number of shares than are held in bulk by the intermediary at the record date.
• This isn’t known to the shareholder who receives an entitlement.
• Reconciliation only occurs if there is an excess of votes by a shareholder over the number of shares held by the intermediary.
• This means that more voting instructions are mailed out than there are shares held.
• This result causes a problem in 20% of meetings
• Over voting usually occurs because multiple intermediaries over vote.
• Occurrences of intermediary over voting were recorded over 7000 times this year alone.
• Given that we are experiencing voting discrepancies at 55% of meetings, no public issuer in Canada can say that voting is 100% accurate, and that those who voted have an economic interest in the shares voted.

Topic 3- End-to-End Confirmation

Bill Brolly:

• Unless we address the integrity of the underlying vote, we cannot address other problems in the voting system.
• We may be counting votes of holders who are not entitled to vote.
• Transfer agents can provide vote confirmations for registered holders and NOBOs who have chosen the transfer agent to be a distributor, because in both cases you have a 1:1 relationship.
• But this cannot happen with OBOs and NOBOs that are mailed by the issuer’s agent; you can get omnibus level confirmation, but nothing more.
• Vote confirmation on its own will be insufficient to solve the larger problems in the system.
• The integrity of the system needs to be properly addressed before end-to-end confirmation should be fully considered.

Topic 4- Causes of Over Voting

Bill Brolly:

• Voting files are not pre-reconciled before materials go out.
• More than one holder votes as a result of share lending, and the account has not been updated to reflect the shares being out on loan.
• Participants voting shares being held by a third party depository.

Helen Stratigeas:

• Tabulators can only deal with issues that arise as a result of votes being submitted that cannot be matched to an intermediary position or if there are no shares left to apply the votes.
• When this occurs, it’s usually for hundreds of thousands or millions of shares.
• Possible Over Voting Scenarios:

1. Shares on Loan
2. This is one of the most common over voting scenarios.
3. Some intermediaries include and distribute proxy materials when shares are on loan, or have been delivered to someone else.
4. If both the votes are recorded, then there is a double vote.
5. Intermediaries do not always issue and forward omnibus proxies.
6. Often this problem is either impossible to figure out, or by the time it is discovered, it is too late to do anything about it.
7. Intermediaries executing proxies on behalf of their clients
8. Proxies are being executed without checking to see whether they have already been voted or not.
9. If a position has already been voted, a revocation needs to be issued before the newly executed proxy can be accepted.
10. Intermediaries need to check with Broadridge before issuing a proxy to their clients, and ensure that the account gets blocked to avoid over voting.
11. Intermediaries executing votes for NOBOs
12. As soon as an omnibus proxy is provided to the issuer for NOBOs, the intermediary position is reduced and they should refer their client to the party that mailed or is tabulating.
13. If the shareholder refuses, then they should contact the tabulator to assist them.
14. Pre-reconciliation is a good practice for helping to reduce the occurrence of over voting, but the number crunching is a time consuming task for regulators

• These scenarios can be resolved by intermediaries undertaking the following:

• Engage in the reconciliation of votes.
• Provide mini omnibus proxies to ensure the proper allocation of shares for voting.
• Intermediaries need to clearly identify who will be voting the shares where a clearing broker is setting up an account.
• If clients ask for a proxy, make sure the position has not been voted.

• If the position has not been voted, before executing the proxy, intermediaries need to make sure that they instruct Broadridge to block the account to prevent double voting
• If the position has been voted, revoke and resubmit new instructions.

Topic 5- International Holdings

Bill Brolly:

• A sizeable number of Canadian issuers have investors who choose to hold their shares via a US broker, or a European broker.
• For some clients, intermediaries do not request or receive the DTC omnibus proxy.
• 37% of shareholders (held by intermediaries in the US or abroad) do not receive DTC omnibus proxies by the meeting date and without the omnibus proxy, those shares may not get counted.
• Foreign central depositories also becoming participants in one another, but none of these depositories are providing omnibus proxies to facilitate voting.
• This may be okay where there is no expectation by the owner that they be able to vote those shares, but when they do expect it, those shares can’t be voted without proper delegation authority.

Topic 6- Who is legally responsible for obtaining the authority to vote?

Bill Brolly:

• It should be the investor and its intermediary and should not fall to the issuer to go through a complex chain of intermediaries to find out who owns the votes and receives the materials.
• The integrity of the system can be repaired through the effective use of technology
• Each season Computershare receives 8000 faxes from Broadridge to allocate votes from one participant to another — the sheer number begs the question of why these votes are being allocated between the participants.
• Holistic reforms are needed before a major scandal breaks (i.e. a takeover that should have gone through but votes were not counted, or a director is left on a board that should have been removed, or a CEO salary is approved or rejected because votes were left sitting on the floor)
• This is a problem that needs leadership, and we can’t just accept the status quo

Bill Brolly:

• These scenarios can be resolved by intermediaries undertaking the following:

• Engage in the reconciliation of votes.
• Provide mini omnibus proxies to ensure the proper allocation of shares for voting.
• Intermediaries need to clearly identify who will be voting the shares where a clearing broker is setting up an account.
• If clients ask for a proxy, make sure the position has not been voted.

• If the position has not been voted, before executing the proxy, intermediaries need to make sure that they instruct Broadridge to block the account to prevent double voting
• If the position has been voted, revoke and resubmit new instructions.

Benjamin Silver (Question):

• Transfer agents and tabulators will receive, from Broadridge, the aggregate proxy in respect of each intermediary, at the issuer’s proxy cutoff time, correct?
• They are not a cumulative vote though and at the end of the day, those votes need to be added up to ensure the number does not exceed the stated CDS record date position held by that intermediary.
• How often have you had to go back and say, This exceeds the CDS position?

Helen Stratigeas:

• This happens 90% of the time, with respect to individual intermediary positions.
• It’s not always a true over vote; the situation may arise because the entries haven’t been applied, because there is documentation that has not arrived for the broker position, or because that information is lost.
• Every time there is a tabulation, it is tabulated against the actual broker position because once CDS passes the information to them, it is broken down by broker.
• These are the positions that have a 90% over vote rate (or the documentation can’t be found etc.)