Accordingly, one of the major implications of the CBCA amendments is the removal of this discretion in its entirety, which has been the subject of scrutiny and criticism by market participants. Indeed, one such critique was focused on the possibility that dissident actors could use this instrument as a tactical means to target directors for removal and, unsurprisingly to some, that is precisely what has transpired once the amendments were effective: dissident actors have relied on this new requirement to remove directors by way of Against Campaigns. These campaigns can be highly disruptive and are often conducted as “stealth” or “late announcement” campaigns, leaving management with insufficient time to respond and effectively engage shareholders.
Transparency for against campaigns and advanced notice by-law: A solution for CBCA issuers
Our Special Situations Team developed a novel solution to help issuers prepare for these attacks and prevent dissident actors from utilizing “stealth” or “late announcement” Against Campaigns by launching the Transparency for Against Campaigns By-law.
The Transparency for Against Campaigns By-law provides for the automatic postponement of any shareholder meeting involving an uncontested election of directors where no notice of an Against Campaign has been provided and the sum of (A) all proxies that are or could be voted against directors and (B) all votes that are or could be cast against directors is greater than a certain percentage of total votes that are instructed to be cast, or that could be cast at the meeting as of the proxy cut-off date. This percentage (or threshold) is set based on the percentage of votes that could be indicative of an organized Against Campaign, as well as other factors. Depending on the needs of an issuer, the by-law may be tailored to, among other things, adjust the length of the notice period and meeting postponement or provide for increased quorum requirements where appropriate. Notably, the board has the discretion to waive the application of the by-law as appropriate. For example, a board might consider waiving the by-law where there has not been an organized Against Campaign, or postponement may result in non-compliance with the deadlines for an annual general meeting set out in the CBCA and stock exchange rules and relief in respect of these deadlines has not been obtained.
The objectives underlying the Transparency for Against Campaigns By-law are well established in the context of advance notice by-laws, and the automatic postponement is carefully designed to address these goals:
- Prevent an ambush: Ensures shareholders have sufficient notice of a challenge to the board before voting takes place (particularly in circumstances where shareholders who may not otherwise have voted may choose to do so if they are aware that one or more of the nominee directors might not be elected).
- Transparency: Provides shareholders with disclosures about the persons challenging the board, including the extent of their interests in the corporation and disclosure regarding any joint actors.
- Unoppressive: Protects shareholder voting rights by preventing “sneak” attacks and provides the board with discretion to waive the by-law to ensure appropriate application.
This by-law levels the playing field with respect to Against Campaigns, ensuring that companies have ample disclosure and that all shareholders can make informed decisions based on all the information available. Our award-winning team is here to help, answer questions or help companies implement this new by-law. We encourage companies to reach out directly for strategic advice, comments or questions for our lawyers.