The Lexpert Guides to the Leading US/Canada Cross-Border Corporate and Litigation Lawyers in Canada profiles leading business lawyers and features articles for attorneys and in-house counsel in the US about business law issues in Canada.
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ADVANCE NOTICE REQUIREMENTS nominations and sufficient information on the nominees, thereby allowing them to make an informed vote after having a reasonable period of time to deliberate. An advance notice requirement also allows the company time to investigate and critique the dissident shareholder and the dissident's director nominees, and if appropriate, formulate a strategy to combat the dissident. ARE ADVANCE NOTICE REQUIREMENTS ACCEPTED PRACTICE? Commonplace in the United States An advance notice bylaw is common for American companies. For example, Lockheed Martin Corporation, Starbucks Corporation and the Coca-Cola Company have instituted an advance notice bylaw. Courts in the United States have generally found such bylaws to be valid, though they cannot be applied inequitably or unduly restrict the shareholder franchise. Courts in the United States will also interpret any ambiguity in the terms of the bylaws against the company. Adoption by Canadian Companies Advance notice requirements have been adopted by a growing number of Canadian companies. In the last year, more than 30 Canadian companies listed on either the TSX or TSX Venture Exchange have adopted advance notice requirements. Canadian companies that have an advance notice requirements include Tim Hortons Inc., Bombardier Inc., IAMGOLD Corporation, SNC-Lavalin Group Inc., Paramount Resources Ltd., MAG Silver Corp., Harte Gold Corp., Continental Precious Minerals Inc. and Rio Alto Mining Limited. Endorsed by Canadian Courts The validity of an advance notice requirement for a Canadian public company was recently confirmed by a court in Canada, in which we represented one of the parties. In Northern Minerals Investment Corp. v. Mundoro Capital Inc. (July 20, 2012), the Supreme Court of British Columbia upheld advance notice requirements because they ensure an orderly nomination process for directors and allow shareholders to be informed of the potential election of dissident directors prior to the meeting: "In this case it has not been established that the Policy is one that infringes shareholder rights. Rather, the Policy in fact ensures an orderly nomination process and that the shareholders are informed in advance of an AGM what is in issue. In doing so the Policy prevents a group of shareholders from taking advantage of a poorly attended shareholders' meeting to impose their slate of directors on what could be a majority of shareholders unaware of such a possibility arising." > Two additional factors influenced the court's finding of the good faith and reasonableness of the advance notice requirements: • the company intended to seek shareholder approval and confirmation of the policy (the advance notice requirements had been implemented through a board adopted policy); and • the terms of the policy provided the board discretion to waive any requirement of the policy, which discretion can be reviewed by the court. It is noteworthy that the court upheld the advance notice requirements in the face of a potential proxy contest, though it acknowledged that the circumstances of each case require scrutiny. The court held such a policy did not infringe shareholders' rights to elect the directors of a company. The Ontario Superior Court also recently held that there was nothing unfair or inappropriate in introducing an advance notice "An advance notice requirement prevents stealth proxy contests and meeting ambushes." "Advance notice requirements for director nominations have come to Canada." bylaw during a proxy contest (Maudore Minerals Ltd. v. The Harbour Foundation (July 18, 2012)). Endorsed by Proxy Advisory Firms Both Institutional Shareholder Services (ISS) and Glass Lewis & Co., the leading proxy advisory firms, have endorsed advance notice requirements for Canadian companies. ISS, in its Canadian Corporate Governance Policy 2013 updates, states: "All shareholders should be provided with sufficient disclosure and time to make appropriate decisions on the election of their board representatives. Advanced Notice Requirement Policies typically provide a transparent, structured, and fair director nomination process, whereby all shareholders, irrespective of whether they are voting by proxy or attending the meeting, are made aware of potential proxy contests in advance of the meeting. Shareholders are also provided with important information pertaining to proposed dissident director nominees within a specified time frame, allowing shareholders to fully participate in the director election process in an informed and effective manner." Similarly, Glass Lewis, in its 2013 Proxy Season Guidelines, justifies Canadian companies adopting advance notice requirements on the basis that they "ensure that all shareholders receive notice of director nominations, as well as sufficient information regarding their identities, intentions or qualifications." Both ISS and Glass Lewis require that the deadline for notice of director nominations must not be more than 65 days and not less than 30 days prior to the meeting date. HOW ARE ADVANCE NOTICE REQUIREMENTS IMPLEMENTED? Advance notice requirements are generally implemented through an amendment to the company's charter documents. Depending on the company's jurisdiction of incorporation, an amendment to its charter documents requires either prior shareholder approval or board approval with shareholder ratification at the next shareholder meeting. For British Columbia incorporated companies, the court in Northern Minerals Investment Corp. v. Mundoro Capital Inc. held that it is also acceptable to adopt advance notice requirements through a board-adopted policy. However, we are of the view that it is prudent for a British Columbia company to adopt advance notice requirements through an amendment to its charter documents to withstand the potential of future court challenges. There is always a risk that shareholders will not ratify the advance www.lexpert.ca | LEXPERT • June 2013 | 41 C-00-Firm.indd 41 13-05-17 10:06 AM