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TD, RBC to allow certain shareholders to nominate board directors

TD and Royal Bank unveiled this week that they will allow up to 20 shareholders working together to nominate directors to their boards.

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Canada's two largest banks have become the first major companies in the country to allow their shareholders to nominate directors to serve on their boards, a move expected to spur more companies to offer the same option to investors.

Policies unveiled this week by both Royal Bank of Canada and Toronto-Dominion Bank would allow up to 20 shareholders working together to nominate directors to their boards, as long as the investors collectively own at least 5 per cent of the bank's shares and have held them for at least three years. Shareholders can nominate directors to fill no more than 20 per cent of board seats, both policies state.

The criteria pose a significant hurdle for many investors who would like to make changes to the banks' boards by nominating new directors. Royal Bank has more than $140-billion of shares outstanding, so shareholders would have to own $7-billion worth of shares to nominate directors. That means only a large group of major institutional investors could meet the threshold.

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However, both banks said they are willing to lower the ownership threshold under the policies to 3 per cent of their shares, but said they would require changes to the Bank Act to do so.

TD and Royal jointly sent a letter Wednesday to the Finance Department asking for changes to the Bank Act that would allow shareholders to nominate directors to the boards if they control just 3 per cent of a bank's shares.

The two banks said the 3-per-cent threshold has become the market standard in the United States, where proxy-access policies have been adopted by over 85 per cent of companies in the S&P 100 index and 60 per cent of those in the S&P 500 index.

The new policies come after Royal and TD both faced shareholder proxy resolutions at their annual meetings this year, calling on the banks to develop policies to allow investors to nominate directors. TD shareholders voted 52 per cent in favour of the proposal, while 47 per cent of shareholders at Royal Bank supported the motion.

The Canadian Coalition for Good Governance, which represents most of Canada's large institutional directors, has also called on companies to develop policies giving shareholders the ability to nominate directors, a process known as proxy access.

CCGG executive director Stephen Erlichman said Friday his group talked with both Royal and TD this summer as they were developing their new policies, and he hopes many more banks and life insurers will move soon to adopt similar standards.

"CCGG is happy to see both banks step forward to lead the development of enhanced proxy access in Canada," he said.

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The votes cast by RBC and TD shareholders earlier this year "really opened the gate for proxy access in Canada," said Victor Li, executive vice-president of governance advisory at shareholder services firm Kingsdale Advisors, in an interview.

"We see this as a very positive move in the Canadian market space," he said. "I think this is the beginning of a new era."

Banks were under increasing pressure from their own shareholders to adopt proxy access policies, including from U.S. shareholders. "They are getting used to this proxy access. It's just really hard to say, you don't have that here in Canada," Mr. Li said.

And now that the country's two largest banks have adopted policies, "there is no reason the other banks will not follow. And there is no reason to believe this will not build to other sectors, other big companies."

But Toronto securities lawyer Jennifer Longhurst, who specializes in corporate governance issues, said she does not think many other companies will move quickly to adopt proxy-access policies because they may not be necessary for most companies in Canada.

"This represents a major development in Canada – proxy access has now arrived, at least for big banks," she said.

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"That being said, we do not anticipate these latest developments will cause an explosion of proxy access bylaw proposals in Canada in the 2018 proxy season, or cause large numbers of Canadian issuers to rush out and adopt proxy access policies or bylaws."

Ms. Longhurst said many companies are already having a lot more engagement with their shareholders, and are able to respond to requests for changes to their boards without requiring formal proxy nominations.

"There are already several existing avenues, as well as alternatives to proxy access, that may be more suitable for obtaining that investor feedback, rather than through formal proxy access bylaws or policies," she said.

An RBC spokesperson confirmed the new policy is in effect, adding: "As part of our ongoing dialogue with shareholders, we listened and engaged with them to deliver this policy."

A spokesperson for TD confirmed the bank's proxy access statement is now policy, but declined to comment further.

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About the Authors
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

Banking Reporter

James Bradshaw is banking reporter for the Report on Business. He covered media from 2014 to 2016, and higher education from 2010 to 2014. Prior to that, he worked as a cultural reporter for Globe Arts, and has written for both the Toronto section and the editorial page. More

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