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The Shareholder Association for Research and Education (SHARE) is a national non-profit organization originating within the labour movement. SHARE works with institutional investors to promote socially, economically and environmentally responsible investment practices through research, educational activities, and advocacy.

The SHARE Key Proxy Vote Survey is an annual survey of the discretionary proxy voting practices of Canadian investment managers and proxy voting services that vote the proxies of Canadian shares owned by institutional investors.

The 2002 Key Proxy Vote Survey is also available in French. To order a copy, please contact SHARE. The French publication is available thanks to the support of the Fédération des travailleurs et travailleuses du Québec (FTQ) and the Fondation pour la formation économique du Fonds de solidarité FTQ.

L’enquête sur les vote clés de procuration 2002 est aussi disponible en français. Pour obtenir une copie, contactez SHARE. La traduction a été effectuée grâce à la collaboration de la Fédération des travailleurs et travailleuses du Québec (FTQ) et de la Fondation pour la formation économique du Fonds de solidarité FTQ.

© 2002, Canadian Shareholder Association for Research and Education

ISBN # 0-9731062-3-9 ISSN # 1703-3268

Shareholder Association for Research and Education 702 – 1166 Alberni Street Vancouver, British Columbia Canada V6E 3Z3 Phone: (604) 408-2456 Fax: (604) 408-2525 Email: [email protected] Website: www.share.ca

The contents of this document are printed on 100% post-consumer recycled, chlorine-free paper. The cover is printed on 15% post-consumer recycled cover stock.

CONTENTS

EXECUTIVE SUMMARY.................................................................................1

HOW INVESTMENT MANAGERS VOTE PROXIES ...........................................4

SURVEY METHOD........................................................................................5

FIRMS THAT DID NOT RESPOND.................................................................7

FIRMS THAT REFUSED TO PARTICIPATE......................................................8

SUMMARY OF PROXY ISSUES ......................................................................9

FIRM RANKING .........................................................................................21

FIRM SUMMARY BY TIER ...........................................................................21

AGGREGATE FIRM RESPONSE BY PROPOSAL .............................................24

FIRM SCORECARDS...................................................................................26

2002 Key Proxy Vote Survey

Executive Summary Page 1

EXECUTIVE SUMMARY

The recent crisis of confidence in North American corporations has highlighted the importance of investor oversight in ensuring strong corporate governance and performance. The ability to vote proxies is one of the principal mechanisms for investors to direct corporate policy.

In the case of pension plans, proxies are considered valuable plan assets and trustees have a fiduciary duty to ensure that proxies are voted in a prudent and responsible manner. The Guidelines for the Development of Investment Policies and Procedures for Federally Regulated Pension Plans, released by the Office of the Superintendent of Financial Institutions in April 2000, affirms these two points:

Plan administrators should not ignore the value of voting rights acquired through plan investments. Shareholder votes are often most valuable when used in alliance with others. Failure to describe in the investment policy how these rights will be used leaves plan administrators open to charges of either negligence or arbitrary action, possibly in violation of the standard of care requirement. Investment policies should describe and require the use of voting rights, whether directly or through proxy.

If the power to vote proxies is delegated to investment managers, proxies should be bound by rules established in the investment policy. The administrator should receive a report showing how proxies were voted, and affirming compliance with the administrator’s proxy voting policy.1

The SHARE 2002 Key Proxy Vote Survey is modelled on the American Federation of Labour and Congress of Industrial Organizations’ (AFL-CIO’s) Key Vote Survey2. The purpose of the Survey is to provide pension trustees and other fiduciaries with information about how Canadian investment managers and proxy voting services voted proxies under their discretion on key management and shareholder proposals identified by SHARE to be critical to the interest of plan members. The 27 management and shareholder proposals surveyed in the SHARE 2002 Key Proxy Vote Survey were selected based on a long-term, worker-owner view of shareholder value that emphasizes management accountability, good corporate governance, compliance with international labour standards, and corporate social responsibility (see “Methodology” section).

1 Office of the Superintendent of Financial Institutions, Guidelines for the Development of Investment Policies and Procedures for Federally Regulated Pension Plans (April 2000), Appendix I, section I.6.6. 2 Copies of the AFL-CIO’s 2002 Key Vote Survey are available by contacting the American Federation of Labour and Congress of Industrial Organization, 815 16th Street N.W., Washington D.C. 20006, phone: (202) 637-5000, www.afl-cio.org.

Executive Summary

For the SHARE 2002 Key Proxy Vote Survey, vote recommendations were based on SHARE’s Model Proxy Voting Guidelines (the “Guidelines”), which were released in 2002. The Guidelines, developed with the advice of experts in pension fund management, corporate governance and social responsibility, provide a model to assist Canadian pension funds with formulating proxy voting guidelines. The Guidelines are available through SHARE at <www.share.ca>.

The SHARE 2002 Key Proxy Vote Survey polled 93 private investment management firms and five proxy voting firms on how they voted proxies under their discretion on behalf of Canadian pension plans in relation to 27 proposals (22 management proposals and five shareholder proposals). In total, fifty-two firms (53%) replied to the Survey of which forty firms (41%) provided positive responses. These forty firms manage approximately $320 billion in institutional assets, including approximately $81 billion invested in Canadian equities. Of the top thirty-five private investment managers in Canada as reported by Benefits Canada, twenty-four (69%), with approximately $300 billion of institutional assets under management, responded positively to the Survey; more than double the response rate in the Survey’s inaugural year. This reflects managers’ growing acknowledgement of the importance of transparency in the voting of proxies and their willingness to make this information available to investors. Forty-six firms (47%) did not respond (see “Firms that did not Respond” at page 8).

The remaining twelve firms (12%) refused to participate (see “Firms that Refused to Participate” at page 9). In many instances, firms that declined to respond cited client confidentiality as the reason. In SHARE’s view, an investment manager’s approach to voting proxies under the firm’s discretion is important information that should be made available to all investors to assist in making informed decisions regarding the selection and review of investment managers.

With the exception of three firms, all respondents voted more than 90% of proxies at their discretion (i.e. not at the instruction of a client), and twenty-five firms exercised their discretion over 98% or more of proxies voted.

To provide a means of comparison, the SHARE 2002 Key Proxy Vote Survey classifies firms into three tiers. Tier one includes firms that voted on five or more proposals in the Survey and received an overall score of 80% or more. In 2002, four firms made tier one. Tier two includes firms that voted on five or more proposals in the Survey and received an overall score between 25% and 79%. Twenty firms were included in tier two. The third tier includes firms that voted on five or more proposals in the Survey and obtained an overall score less than 25%. Six firms made tier three. The balance of respondent firms voted on less than five of the proposals surveyed and were not classified. Individual firm scores are

... an investment manager’s approach to voting proxies under the firm’s discretion is important information that should be made available to all investors.


Executive Summary Page 3

reported in the Survey results.

Responses received indicate that there are significant differences in how investment managers vote proxies on specific issues (see “Aggregate Firm Response by Proposal” at page 22). Consequently, SHARE recommends that pension trustees pay closer attention to how investment managers and proxy voting services vote proxies in the course of their selection and review.

This report begins with a review of the various approaches that investment managers take in voting proxies. The second section summarizes the method used to generate the Survey’s findings, followed by a discussion of each resolution surveyed and the position of SHARE on the issue as articulated in SHARE’s Model Proxy Voting Guidelines. Lists are provided of those firms who refused to participate and those who did not respond, as well as aggregate tables summarizing the responses by firm and by proposal. The report concludes by providing “scorecards” for individual firms detailing how they voted proxies under their discretion on each proposal.

How Investment Managers Vote Proxies

HOW INVESTMENT MANAGERS VOTE PROXIES

Generally speaking, pension funds and other institutional investors delegate responsibility for voting their proxies to their investment manager(s) or a proxy voting service. In certain instances, larger investors may elect to vote their proxies internally.

In most instances where responsibility for voting proxies is delegated to an investment manager, they will fulfill this responsibility by either:

Delegating the voting to a proxy voting service;

Dedicating a staff person within the firm to vote the proxies;

Assigning individual portfolio managers to vote the proxies attached to equities in their portfolio; or

Some other arrangement.

Of the 40 investment managers that responded positively to the SHARE 2002 Key Proxy Vote Survey, 19% used a proxy voting service, 47% had dedicated staff responsible for voting the proxies, 30% assigned responsibility to individual portfolio managers within the firm, and the remaining 24% indicated other arrangements for voting proxies. A number of firms used several means to vote proxies. Consequently, percentages do not necessarily total 100%.

More importantly, the vast majority of investment managers retain discretion on how proxies are voted. Respondents indicated that, on average, more than 92% of proxies for Canadian equities under management were voted at the discretion of the firm. Twenty-five respondents (62.5%) exercise discretion over 98% or more of Canadian proxies voted and 19 firms (47.5%) maintain voting discretion over their entire Canadian equity portfolio.

The degree of discretion exercised by voting agents on behalf of pension plans and other institutional investors illustrates the importance of transparency and reporting in this area. Where pension plans have not provided proxy voting guidelines to their investment manager or proxy voting service, trustees should ensure that they receive quarterly proxy voting records that allow them to monitor how proxies are being voted. Trustees should also retain discretion in their investment policy to direct voting on particular resolutions.

The degree of discretion exercised by voting agents on behalf of pension plans and other institutional investors illustrates the importance of transparency and reporting.


Survey Method Page 5

SURVEY METHOD

The SHARE 2002 Key Proxy Vote Survey is an effort to provide Canadian pension funds and other institutional investors with a greater understanding of how investment managers vote proxies under their discretion on issues of significant interest to plan members.

Selection of Proposals

The Survey polled investment managers on 22 management proposals and five shareholder proposals proposed by pension funds and other investors.

Proposals were selected based on a worker-owner view of value that emphasizes management accountability, good corporate governance, compliance with international labour standards, and corporate social responsibility.

Management proposals were selected from proposals put before shareholders by S&P/TSX300 companies that met all of the following criteria:

The proposal contravened SHARE’s Model Proxy Voting Guidelines (the “Guidelines”) and was opposed by a minimum of 25% of the votes cast; or

Otherwise addressed an issue deemed to be of significant interest to plan members and beneficiaries.

Shareholder proposals that met the following criteria were included in the survey:

The proposal complied with the Guidelines and was supported by a minimum of 15% of votes cast; or

Otherwise addressed an issue deemed to be of significant interest to plan members and beneficiaries.

Selection of Firms

Investment managers surveyed were selected from an initial pool of approximately 140 firms that manage Canadian equities on behalf of institutional clients. Firms that did not manage Canadian equity portfolios for pension fund clients, that did not compete for their client base, or that delegate the voting of proxies to sub-advisors were not included, leaving a total of 93 firms surveyed. In addition, five proxy voting firms were included.

Determination of SHARE’s Vote Recommendations

Vote recommendations were based on SHARE’s Model Proxy Voting Guidelines, which were released in 2002. The Guidelines, developed with the advice and guidance of an advisory committee of experts in pension fund management, corporate governance and social responsibility, provide a model to assist Canadian pension funds with formulating proxy

Survey Method

voting guidelines and evaluating proxy voting by voting agents where discretion for this task has been delegated. Copies of the Guidelines are available through SHARE at <www.share.ca>.

Data Collection and Review

Survey forms were sent to each firm, with follow-up by fax, phone and electronic mail to confirm receipt and to obtain a response. Voting records received were confirmed in writing with the respective firm. The voting records provided reflect only those proxies voted at the discretion of the investment manager or proxy voting service.

Reporting Firm Performance

Firm responses are reported as a no response, refusal to participate, or positive response. Companies that did not provide any response to SHARE’s communications are noted in the “no response” category. Firms that indicated that they did not wish to participate in the survey are listed in the “refusal to participate” category. Firms that provided a completed response to the survey form are listed in the “positive response” category.

For those firms that responded positively, a rating is given in two forms: a raw score and a percentage derived by comparing votes cast with SHARE’s vote assessment. Both the raw score and the percentage should be considered when evaluating a manager’s proxy voting performance. The ratings of managers who held shares of many companies may be more representative of their proxy voting policies than the ratings of managers who held shares of only a few. Abstentions are counted as votes not in accordance with SHARE’s vote assessment on the basis that abstaining from a vote is equivalent to not voting.

In order to provide the most meaningful assessment and comparison of firm performance, the SHARE 2002 Key Proxy Vote Survey divides respondent firms into three tiers based on the number of proposals voted:

Tier One: Firms that voted on five or more proposals and scored 80% or higher.

Tier Two: Firms that voted on five or more proposals and scored between 25% and 79%.

Tier Three: Firms that voted on five or more proposals and scored less than 25%.

Firms that cast less than five votes are considered to have an inadequate sample size for ranking purposes. Scores for these firms are presented in the summary results and on individual score cards, but are not ranked and should be treated with caution. Firms that provided separate responses for different segments of their Canadian equity portfolio are ranked separately for each portfolio.


Firms That Did Not Respond Page 7

FIRMS THAT DID NOT RESPOND

The 46 firms listed below did not respond to the Survey.

Acker Finley Asset Management Inc.

Acuity Investment Management Inc.

AGF Magna Vista Capital Management

AIG Global Investment Corp.

AIM Funds Management Inc.

Altamira Financial Services Ltd.

Aurion Capital Management Inc.

Bank of Ireland Asset Management Ltd.

Baring Asset Management, Inc.

Black Investment Management

BMO Harris Private Banking

Bonham & Co. Inc.

Caldwell Investment Management Ltd.

Cardinal Capital Management, Inc.

CM Investment Management Inc.

Co-operators Investment Counselling Ltd.

Duncan Ross Associates Ltd.

Fidelity Investments Canada Limited

Foyston, Gordon & Payne Inc.

Gestion Sodagep Inc.

GWL Investment Management Ltd.

Hansberger Global Investors

Horizon 360 & Associates Inc.

Howson Tattersall Investment Counsel

HSBC Asset Management (Canada) Ltd.

Industrial-Alliance Pacific Life Insurance

ING Investment Management

J.R. Senecal & Associates Investment

Jones Heward Investment Counsel Inc.

Laketon Investment Management Ltd.

Lincluden Management Ltd.

Louisbourg Investments

Maritime Life Assurance Company

Marquest Investment Counsel Inc.

Mawer Investment Management

Middlefield Group

Montrusco Bolton Investments Inc.

Morgan Meighen & Associates

Natcan Investment Management

Optimum Asset Management Inc.

Pictet International Management

Proxy Vote Plus

Sentry Select Capital Corp.

Van Berkom & Associates Inc.

Wise Capital Management Inc.

Working Ventures Investment Services

Firms That Refused To Participate

FIRMS THAT REFUSED TO PARTICIPATE

The 12 firms listed below elected not to participate in the Survey. In some instances, investment managers indicated that client confidentiality agreements prevented them from responding. In SHARE’s view, an investment manager’s approach to voting proxies under the firm’s discretion is important information that should be made available to all investors, to assist them in making informed decisions in the selection and review of investment managers.

Barclays Global Investors Canada Limited

Bona Vista Asset Management Ltd.

Brandes Investment Partners

Capital Guardian Trust Co.

GE Asset Management Incorporated

Genus Capital Management Inc.

Gluskin Sheff + Associates Inc.

London Life Investment Management Ltd.

McLean Budden Limited

Pembroke Management Ltd.

Scheer, Rowlett & Associates Investment

TD Asset Management Inc.


Summary of Proxy Issues Page 9

SUMMARY OF PROXY ISSUES

This section summarizes SHARE’s position on each issue surveyed as articulated in SHARE’s Model Proxy Voting Guidelines (the “Guidelines”). The discussion on each issue begins with a summary of SHARE’s general position as articulated in the Guidelines, followed by a brief explanation of the recommendation for each proposal. Proposals have been grouped together where they address substantially the same issue.

Statements made here reflect the general nature of each issue and do not represent the specific arguments put forward by individual corporations or their shareholders, nor do they reflect the guidelines or rationale applied by any specific investment manager surveyed. For the specific submissions made regarding each proposal, please refer to the respective corporation’s proxy circular, which is available on SEDAR <www.sedar.com>. Investment managers should be contacted directly regarding the criteria and/or guidelines they applied in the voting of proxies.

Adoption of stock option plan

Consideration of proposals to increase the number of shares in a stock option plan requires consideration of a number of issues, including executive compensation and performance, director compensation and share ownership, and the price, expiry, dilution and grant rate of options.

Executives are motivated to excel when their compensation is tied to their individual and company performance. As a general rule, executive compensation should be based on and reflect performance, rather than tenure or other criteria. For example, the Guidelines do not favour giving executives retention bonuses or restricted stock awards.

Executive performance should be evaluated by the board’s compensation committee, or by another independent group of evaluators. Clear, objective goals or standards for performance should be agreed on at the beginning of each evaluation period, and each executive’s performance should be measured against those goals at the end of that period. These goals must be objectively tied to the company’s performance relative to other companies in the same industry, and within the control or influence of the employee being evaluated.

SHARE prefers that directors not be granted stock options. Although this is a common way to compensate directors, stock options tend to align the directors’ interests with management rather than shareholders, and accounting treatments of stock option plans create the illusion that the options have no cost to the company. However, we realize that there may be some cases where providing stock options to directors is in the best interests of shareholders, such as small, start-up companies that need to recruit well-qualified directors. At a minimum, directors should not be included in the same stock option plan

Summary of Proxy Issues

or compensation plan provided to management or employees of the company. Plans to compensate directors with stock should not be structured to encourage short-term holdings, and are subject to the same concerns about appropriateness, dilution, and so forth, as stock option plans for management. In all cases, director compensation must be structured in a way that will preserve the independence of the board of directors and promote the long-term interests of all shareholders.

Stock options should be issued at the fair market price of the stock at the time of issuance, and should expire within five years.

Stock option plans dilute the earnings and voting strength of shares not in the plan. The level of acceptable dilution is relative to the size of the firm. Small companies may have a dilution rate of as much as 10%, but larger companies should have less dilution. SHARE opposes stock option plans in which the total dilution is more than 10%. Plans with dilution of more than 5% should meet at least one of the following criteria:

the plan is open to all employees, or a large proportion of them;

the company is a growth company;

the company is in a difficult financial situation;

the company’s compensation policy is below competitive levels for the industry; or

the plan is consistent with competitive compensation levels in the industry.

There may be isolated instances in which a slightly higher dilution rate than 10% may be in the best interests of shareholders; these should be determined on a case-by-case basis.

The “burn rate”, or “grant rate” is the number of options granted in a year. In most cases, this rate should be less than 1% of the company’s outstanding shares. SHARE opposes plans with a burn rate of 2% or more. Plans that grant options above 1% will be given special scrutiny, especially if their dilution is also above 5%.

CRYPTOLOGIC INC. The Guidelines recommend voting against the management proposal to adopt a stock option plan because the grant rates for the plan have been very high - 3.91% in 1999, 3.77% in 2000 and 3.64% in 2001 - and the potential dilution would be 19.92%, which is unacceptably high.

Shareholder votes against: 42.0%

References: SHARE Model Proxy Voting Guidelines, sections: 3.2.11 - Director Compensation and Share Ownership; 3.3.3 - Executive Compensation and Performance; 3.3.4.1- Price and Expiry of Options; 3.3.4.2 - Dilution; 3.3.4.3 - Burn Rate.



Increasing the numbers of shares in stock option plans

For a discussion of this issue, see section above entitled “adoption of stock option plan.”

SHARE recommended voting against the management proposals of the following companies calling for an increase in the number of shares in stock option plans for the following reasons:

ATI TECHNOLOGIES INC. The total dilution for this plan would have been 16.33%, directors were included in the plan, and there were no performance criteria written into the plan. In fact, the company had performed quite poorly the previous year, and had laid off employees.


AXCAN PHARMA INC. Dilution for this plan would have been 11.3%.


CANADIAN NATURAL RESOURCES LTD. The grant rates at this company have been high - 4.5% in 2000 and 2.8% in 2001- and the potential dilution would be 10.09%. The board administers this plan instead of an independent compensation committee. Finally, the board includes company executives, which means they are effectively administering their own compensation.


COREL CORP. The potential dilution for this plan would have been 12.88%, options were repriced last year, and directors are included in the plan.


FPI LTD. This proposal would have nearly doubled the number of shares in the stock option plan. Directors were included in the plan, and the grant rates have been high, 1.42% in 2000 and 2.57% in 2001. Furthermore, the options expire one month after an executive’s employment ends.



LINAMAR CORP. Directors were included in the plan, and the grant rates have been high, 2.19% in 2000 and 2.1% in 2001.


MACDONALD DETTWILER & ASSOCIATES Directors were included in the plan, the grant rates have been very high - 12.76% in 2000 and 4.13% in 2001 - and the potential dilution was 12%. Also, the plan was administered by the full board, which includes a company executive.


QLT INC. The potential dilution would have been 13.21%, and directors were included in the plan.


PENN WEST PETROLEUM Grant rates for this plan have been high - 3.04% in 2000 and 2.87% in 2001 - and directors were included in the plan.


PRECISION DRILLING CORP. The grant rate was high - 3.22% in 1999, 3.03% in 2000, and 1.98% in 2001 - directors were included in the plan, and the full board, which includes company executives, administers the plan.


References: SHARE Model Proxy Voting Guidelines, sections: 3.2.11 - Director Compensation and Share Ownership; 3.3.3 - Executive Compensation and Performance; 3.3.4.1 - Price and Expiry of Options; 3.3.4.2 – Dilution; 3.3.4.3 - Burn Rate.



Amendment of stock option plan

For a discussion of this issue, see section above entitled “adoption of stock option plan.”

COMPTON PETROLEUM CORP. The Guidelines recommend voting against the management proposal to amend the stock option plan because the grant rate for this plan was very high - 3.41% in 2001, and the potential dilution was 9.5%. Although that dilution rate is within the 10% limit, with such a high grant rate, it would soon go above 10%.


References: SHARE Model Proxy Voting Guidelines, sections: 3.2.11 - Director Compensation and Share Ownership; 3.3.3 - Executive Compensation and Performance; 3.3.4.1 - Price and Expiry of Options, 3.3.4.2 - Dilution; 3.3.4.3 - Burn Rate.

Repricing of stock options

When the market price of a stock is lower than the price offered in the stock option (so-called “underwater” options), the stock option may be repriced to match the lower market price, or it may be withdrawn and reissued after a delay at the lower rate. In either case, this divides shareholders’ and option holders’ interests, since shareholders cannot reprice their shares.

SHARE opposes repricing of stock options, or the reissuance of “underwater” options. It also opposes stock option plans that leave open the possibility of repricing or reissuing options.

TLC VISION CORP. The Guidelines recommend voting against the management proposal that called for a repricing of stock options.


Reference: SHARE Model Proxy Voting Guidelines, section 3.3.4.4 - Repricing.

Restriction on sale of stock options

It is in the shareholders’ best interests for management to be long-term shareholders in the companies they run. Placing restrictions on when stock options can be exercised provides some incentive to management to act in the long-term interest of the corporation. Alternatively, where no vesting period is stipulated, management can exercise their stock options immediately for short-term personal gain.

The vesting period for stock options varies by corporation. In many instances, no vesting


period is stipulated. The Guidelines require that stock options have a minimum holding period before they can be exercised. Vesting (i.e. the period after which they may be exercised) may accelerate if there is a change in the ownership of more than 50% of the company’s stock. SHARE recommends opposing all accelerated vesting and plans that are 100% vested when granted, and supporting “performance-vesting” (i.e. stock option plans that vest as specific performance goals or standards are met.)

TORONTO DOMINION BANK The Guidelines recommend voting against the shareholder proposal that would require half of the shares acquired under options to be held for at least one year. While SHARE’s Guidelines support delayed vesting of options, TD Bank had structured their stock option plan to bring management’s stock ownership to a target level proportionate to their basic annual salary (i.e. the more you earn, the more stock you should hold). This seemed to be a reasonable plan that was likely to foster long-term shareholding, and it is less restrictive than the proposal.


Reference: SHARE Model Proxy Voting Guidelines, section 3.3.4.5 - Vesting.

Approval of Shareholder Rights Plan (“Poison Pill” Resolution)

Shareholder rights plans, which are also called “poison pills”, involve issuing stock purchase rights. These rights are usually not exercisable unless a hostile takeover offer is tendered or a potential acquirer of the company purchases a specified percentage of the shares. If the company cannot fend off the takeover, the plan allows holders of the rights to buy additional shares or sell shares at very favourable prices. This imposes significant costs on the potential acquirer, making the takeover less attractive.

Poison pills may be intended to force hostile bidders to negotiate with a company’s board of directors. This can help shareholders receive the best price for their stock in a takeover. However, it is more common for the poison pill to stop the takeover attempt, and for the price of the company’s stock to drop significantly. And, like other takeover defences, poison pills tend to protect the directors and management regardless of whether or not the takeover is in the best interests of shareholders.

In Canada, companies must submit poison pill plans to a vote by shareholders within six months of adopting them. If poison pills are adopted without shareholder approval, the Guidelines recommend that shareholders withhold votes for the directors who adopted them.

When poison pill plans are submitted for shareholder approval, they should be assessed on a case-by-case basis based on detailed criteria (see SHARE Model Proxy Voting Guidelines, section 3.4.1 for a list of criteria). Approval should only be granted where the plan ensures



that shareholders will receive a good price for their stock in a takeover, without protecting management or the board at the expense of the shareholders’ interests.

ALCAN ALUMINUM LTD. The Guidelines recommend voting against the management proposal to adopt the shareholder rights plan because Alcan’s proxy circular included very little information about the plan, and it was not possible to determine from that information whether or not it satisfied the requisite criteria.


Reference: SHARE Model Proxy Voting Guidelines, section 3.4.1 - Shareholder Rights Plans or “Poison Pills”.

Transaction of other business

Sometimes companies include the approval of “other business” as an item on the proxy ballot, without specifying what the “other business” consists of. SHARE believes this constitutes giving the company broad discretion to act without specific shareholder approval on issues that would otherwise require such approval.

ANGIOTECH PHARMACEUTICALS TLC VISION CORP. The Guidelines recommend voting against the management proposals because they violated this SHARE guideline.

Shareholder votes against: 28% (Angiotech Pharmaceuticals); 28.2% (TLC Vision Corp.)

Reference: SHARE Model Proxy Voting Guidelines, section 3.1.3 - Votes to Approve “Other Business”.

Election of Conrad M. Black as director

Candidates for director must be able to devote a sufficient amount of time and energy to the board in order to oversee the corporation well and uphold their fiduciary duties to the corporation and shareholders. Indicators of a nominee’s ability to devote sufficient time and energy to the board include the number of other boards the candidate serves on, other positions the candidate holds, and, if the candidate is already a director, his or her attendance at board meetings in the past.

Although attendance at board meetings is not the sole determinant of a director’s performance, poor attendance makes it difficult for a director to fulfill his or her responsibilities to the board. Since boards customarily schedule their routine meetings and committee meetings at least a year in advance, anyone who agrees to be nominated for


director should be prepared to attend all board meetings. SHARE recommends voting against existing directors if they have missed 25% or more of the board’s meetings, including committee meetings, unless there are extenuating circumstances.

CANADIAN IMPERIAL BANK OF COMMERCE The Guidelines recommend voting against the re-election Mr. Black to the board of directors because the bank’s proxy circular indicates that he attended only seven of 13 board meetings.


Reference: SHARE Model Proxy Voting Guidelines, section 3.2.4.1 - Directors’ Ability to Devote Sufficient Time and Energy.

Auditor fee disclosure

Auditor independence is vital to shareholders. A company’s annual financial statement is usually the only information shareholders have about the company’s performance and financial condition. They must feel confident that they can rely on this information, and that the auditors who produce the information have not been compromised.

From time to time, companies hire outside auditors as consultants or to provide other services. Some auditing firms use annual audits as a loss-leader, and give their auditors commissions for selling consulting and other services to their clients. SHARE believes these practices compromise the independence of those auditors. We strongly prefer auditors who have not performed other services for a corporation and do not hold contracts to perform services other than the annual audit.

At a minimum, companies should disclose all of their relationships with their auditors, and all fees paid to auditors for auditing and for consulting or other non-audit services. This disclosure is especially important in those cases where the company has made an exception to the independence provisions above.

DUPONT CANADA LOBLAW COMPANIES LTD. The Guidelines recommend voting for the shareholder proposal to require disclosure of fees paid to auditors.

Shareholder votes for: 100% (Dupont) and 98% (Loblaws). Note: Both corporations recommended voting in favour of this proposal.

Reference: SHARE Model Proxy Voting Guidelines, section 3.2.13.2 - Auditor Independence.



Creation of an independent corporate governance committee

A board of directors should have a corporate governance committee responsible for oversight of the governance of the corporation. This committee should be able to function independently of management. The committee should have at least a majority of independent directors and an independent chair; ideally all of its members should be independent directors.

FPI LTD. The Guidelines recommend voting against the management proposal to establish a corporate governance committee. Normally, SHARE would applaud a company that set up a corporate governance committee. However, this proposal gave the corporate governance committee the duty to review all written material before it came before the board to ensure that directors associated with their three major shareholders did not see competitively sensitive material. Information disclosed in the corporation’s proxy circular suggest that these three shareholders are FPI’s competitors, which would explain this strange provision. In any case, a board cannot function effectively when some of the directors are denied access to material and relevant information.


Reference: SHARE Proxy Voting Guidelines, section 3.2.16 - Corporate Governance Committee.

Labour standards and compliance report

A large portion of overseas manufacturing for North American apparel companies is done through contracting and subcontracting, rather than through facilities owned directly by the companies. This makes it possible for a company’s products to be produced in conditions that violate international labour and environmental standards without the company’s knowledge. Failure to monitor contractor practices and compliance with international standards can present liabilities to shareholders through loss of corporate goodwill, consumer boycotts, and legal claims. Such liabilities can be avoided where the company makes an effort to learn about their contractors’ operations, and to insist on operating practices that conform to international standards as a condition for awarding the contract. However, the number and diversity of contractors and contracting companies involved makes insisting on international standards and enforcing them a complex matter.

For this reason, SHARE encourages companies to establish a monitoring process that includes independent verification of contractors’ compliance with labour and environmental standards. SHARE recommends involving local religious, human rights and workers' organizations that are independent and well-respected in the monitoring process, and using incentives, rather than premature termination of contracts, to encourage suppliers to raise their labour and environmental standards.


SEARS CANADA HUDSON’S BAY COMPANY The Guidelines recommend voting for the shareholder proposal to apply international labour standards to the companies’ supply chains, and to provide shareholders with independently verified reports on their adherence to these standards and their plans for improving their performance. The proposal was a reasonable request that the companies’ monitor their overseas contractors and report to shareholders on potential associated liabilities and the preventative measures being taken.

Shareholder votes for: 6.2% (Sears Canada); 36.8% (Hudson’s Bay Company)

Reference: SHARE Model Proxy Voting Guidelines, section 4.5.4 - Monitoring Foreign Contractors.

Authorized capital

Capitalization of companies is a complex issue. SHARE assesses each vote to authorize the issuance of shares individually, using the following criteria.

If a company has an authorized capital system, it may request shareholder approval for a share issuance authorized under the company’s articles of incorporation or by-laws, or it may request to increase the amount of shares authorized for issuance under the articles or by-laws. In these cases, the criteria for approval of the issuance will be the history of previous requests for stock issuance, the size and purpose of this request, and the status of pre-emptive rights for this stock issuance.

If the company has a conditional capital system, its stock issuances can only be used for a specific transaction or purpose and have a fixed expiration date. In these cases, the criteria for approval of the issuance will be whether or not pools of capital from previous issuances are still available, and if they are, the potential for aggregate dilution presented by the current request.

Under both kinds of capital systems, a company should seek shareholder approval before issuing shares to raise funds for general financing. Issuances of more than 50% are of particular concern because they require shareholders to either accept a significant dilution of stock or provide the funds needed to maintain their relative positions in the company. Because issuances without pre-emptive rights result in the dilution of stock, these issuances should be limited to no more than 10% of issue capital.



INEX PHARMACEUTICALS CORP. The Guidelines recommend voting against the management proposal because the corporation proposed to increase their shares by 100%, and gave no reason in the proxy circular for such a substantial increase.

The corporation refused to disclose the vote totals on the proposal.

Reference: SHARE Model Proxy Voting Guidelines, sections: 3.1.2 - Capitalization and Issuance of Shares; 3.5.1 - Unequal Voting Shares and Dual Classes of Stock.

Classified Board of Directors

On a classified or staggered board, directors are elected for a term longer than one year; typically the term is three years. The terms are staggered so that only one-third of the directors come up for election each year. On an unclassified or non-staggered board, all of the directors are elected annually.

Proponents of classified boards maintain that they promote continuity and a focus on the long term in corporate governance and planning. Opponents of classified boards argue that they reduce corporate accountability to shareholders, make it unnecessarily difficult for shareholders to remove directors, and make it nearly impossible to change control of a board or replace it in the event of a takeover bid or if corporate performance warrants such a change. Furthermore, continuity and long-term thinking do not depend on staggering directors’ terms of office.

The Guidelines recommend voting against proposals to adopt a classified board of directors. However, if staggered terms for directors have been approved by a majority of shareholders, it will not vote against individual directors simply because their terms are staggered.

PROPRIETARY INDUSTRIES The Guidelines recommend voting against the management proposal to create three classes of directors with staggered three-year terms.

The corporation refused to disclose the vote totals on the proposal.

Reference: SHARE Model Proxy Voting Guidelines, section 3.2.9 - Classified Boards/Staggered Terms for Directors.

Adjournment or postponement of the meeting if required

Shareholder meetings are sometimes adjourned or postponed for various reasons including time constraints or management’s desire to solicit additional proxies prior to a vote. In SHARE’s view, shareholder meetings should take place at the time and in the location


where they are scheduled. Management should not have advance discretion to adjourn or postpone a meeting. Such a decision should be decided at the meeting when the adjournment or postponement is sought, with shareholders present.

TLC VISION CORP The Guidelines recommend voting against the management proposal to allow management discretion to adjourn or postpone the shareholder meeting for the purpose of soliciting additional proxies.


Independent board for controlled publicly traded companies

A company’s management is responsible for running the company, and is accountable to the Board of Directors. The Board of Directors is responsible for overseeing management performance in a way that ensures maximum long-term growth of shareholder value, and is accountable to the shareholders as owners of the corporation. Directors are not in a good position to hold management accountable if they depend on the corporation for any benefit or consideration. In order to fulfill its responsibilities, the Board must be independent of management and effectively represent all shareholders.

For this reason, two-thirds of the Board of Directors should be independent of management (see Model Proxy Voting Guidelines, section 3.2.1 for a definition of “independence”). At a minimum, there should be a majority of independent directors on a board.

TORONTO DOMINION BANK The Guidelines recommend voting for the shareholder proposal calling for independence of boards of directors of companies controlled by the Bank. In SHARE’s view, if all companies should have independent boards, then it is consistent to require the boards of companies controlled by a bank to be independent.

Shareholder votes for: 11.3%

Reference: SHARE Model Proxy Voting Guidelines, section 3.2.1 - Independent Board of Directors.


Firm Ranking Page 21

FIRM RANKING

The following list summarizes how respondents voted proxies under their discretion compared to SHARE’s vote recommendation. Firms that responded positively to the Survey are divided into tiers with aggregate scores reflecting only those proposals on which each respective firm voted. Firms listed under tier one voted on five or more proposals and scored 80% or higher. Tier two firms voted on five or more proposals and scored between 25% and 79%. Tier three firms include those that voted on five or more proposals and scored less than 25%. Firms that cast less than five votes are considered to have an inadequate sample size for ranking purposes. Scores for these firms are not ranked and should be treated with caution.

Firms that provided votes for only a segment of their portfolio are indicated with a “ * ”. In instances where firms only provided voting records for a segment of their Canadian equity portfolio, voting records for their entire Canadian equity portfolio may differ from what is reported in the Survey.

FIRM SUMMARY BY TIER

Tier 1

Firm Raw Score %

Fairvest Corporation 23 of 27 85%

Greystone Managed Investments Inc. 4 of 5 80%

Jarislowsky, Fraser Limited 5 of 6 83%

Marco Consulting Group 14 of 14 100%

Firm Ranking

Tier 2

Firm Raw Score %

Alliance Bernstein Institutional Investment Management 5 of 7 71%

AMI Partners Inc. 5 of 7 71%

Beutel, Goodman & Company Ltd. 4 of 8 50%

Burgundy Asset Management Ltd. 4 of 6 67%

Connor, Clark & Lunn Investment Management Ltd. 14 of 18 78%

Franklin Templeton Investments Corp. (Bisset Investment Management division) *

9 of 12 75%

Guardian Capital Inc. 7 of 9 78%

Knight, Bain, Seath & Holbrook Capital Management Inc. 6 of 13 46%

Letko, Brosseau & Associates Inc. * 2 of 6 33%

Mulvihill Capital Management Inc. 5 of 10 50%

PCJ Investment Counsel Ltd. 2 of 6 33%

Perigee Investment Counsel Inc. 7 of 11 64%

Proxy Voter Services 10 of 15 67%

Sceptre Investment Counsel Ltd. 3 of 10 30%

Scotia Cassels Investment Counsel Limited 8 of 13 62%

Seamark Asset Management Ltd. 3 of 5 60%

Standard Life Investments Inc. 3 of 7 43%

State Street Global Advisors Ltd. 16 of 27 59%

TAL Global Asset Management Inc. 5 of 10 50%

UBS Global Asset Management 11 of 21 52%

YMG Capital Management Inc. 13 of 23 57%


Firm Ranking Page 23

Tier 3

Firm Raw Score %

Elantis, Desjardins Global Investment Management Inc. 3 of 14 21%

Gryphon Investment Counsel Inc. 2 of 12 17%

J. Zechner Associates Inc. 1 of 9 11%

MFC Global Investment Management - Index Funds * 5 of 27 19%

MFC Global Investment Management - North American

Equities * 3 of 13 23%

Phillips, Hager & North Investment Management Ltd. 3 of 14 21%

Firms that voted on fewer than five proposals Firm Raw Score %

Cundill Investment Research Ltd. 0 out of 0 0%

Deans Knight Capital Management Ltd. 0 out of 2 0%

Galileo Equity Management Inc. 1 out of 3 33%

Hybridge Investment Management Inc. 1 out of 2 50%

J.P. Morgan Fleming Asset Management 1 out of 2 50%

JMR Financial, Inc. 0 out of 0 0%

Leith Wheeler Investment Counsel Ltd. 3 out of 4 75%

Morrison Williams Investment Management Ltd. * 1 out of 3 33%

P.J. Doherty & Associates Co. Ltd. 1 out of 4 25%

Sprucegrove Investment Management Ltd. * 3 out of 4 75%

Aggregate Firm Response by Proposal

AGGREGATE FIRM RESPONSE BY PROPOSAL

The following table lists the number of firms that voted on each proposal in accordance with SHARE’s recommendation out of the total number of firms that voted on the proposal. Totals are provided as a raw score and percentage.

Corporation Proposal Raw Score %

Alcan Aluminum Ltd. Approval of shareholder rights plan 21 of 32 66%

Angiotech Pharmaceuticals

Transaction of other business 6 of 13 46%

ATI Technologies Inc. Increasing number of shares in a stock option plan

9 of 12 75%

Axcan Pharma Inc. Increasing number of shares in a stock option plan

8 of 13 62%

Canadian Natural Resources Ltd.

Increasing number of shares in a stock option plan

13 of 23 57%

CIBC Election of C.M. Black as director 5 of 30 17%

Compton Petroleum Corp.

Amendment of stock option plan 7 of 10 70%

Corel Corp. Increasing number of shares in a stock option plan

5 of 8 63%

Cryptologic Inc. Adoption of stock option plan 7 of 9 78%

Dupont Canada Auditor fee disclosure 15 of 15 100%

FPI Ltd. Creation of independent corporate governance committee

4 of 7 57%

FPI Ltd. Increasing number of shares in a stock option plan

3 of 7 43%

Hudson's Bay Company Labour standards and compliance report 8 of 16 50%

Inex Pharmaceuticals Corp.

Authorized capital 0 of 10 0%


Aggregate Firm Response by Proposal Page 25

Linamar Corp. Increasing number of shares in a stock option plan

5 of 13 38%

Loblaw Companies Ltd. Auditor fee disclosure 20 of 21 95%

MacDonald Dettwiler & Associates

Increasing number of shares in a stock option plan

2 of 4 50%

Penn West Petroleum Increasing number of shares in a stock option plan

11 of 24 46%

Precision Drilling Corp. Increasing number of shares in a stock option plan

7 of 16 44%

Proprietary Industries Classified board of directors 2 of 3 67%

QLT Inc. Increasing number of shares in a stock option plan

9 of 21 43%

Sears Canada Labour standards and compliance report 4 of 11 36%

TLC Vision Corp. Transaction of other business 4 of 7 57%

TLC Vision Corp. Adjournment or postponement of meeting

4 of 7 57%

TLC Vision Corp. Repricing of stock options 4 of 7 57%

Toronto Dominion Bank Restriction on sale of share options 27 of 35 77%

Toronto Dominion Bank Independent board for controlled publicly traded companies

6 of 35 17%

Firm Scorecards

FIRM SCORECARDS


Firm Scorecards Page 27

Alliance Bernstein Institutional Investment Management Score: 5 out of 7 = 71%

Corporation Proposal Vote

Recommended Vote: Against

Alcan Aluminum Ltd. Approval of shareholder rights plan Against

Canadian Natural Resources Ltd. Increasing number of shares in a stock option plan Against

CIBC Election of C.M. Black as director For

Linamar Corp. Increasing number of shares in a stock option plan Against

Toronto Dominion Bank Restriction on sale of share options Against

Recommended Vote: For

Hudson's Bay Company Labour standards and compliance report For

Toronto Dominion Bank Independent board for controlled publicly traded companies Against

AMI Partners Inc. Score: 5 out of 7 = 71%





Increasing number of shares in a stock option plan Against

CIBC Election of C.M. Black as director Abstain

Penn West Petroleum Increasing number of shares in a stock option plan Against



Loblaw Companies Ltd. Auditor fee disclosure For


Against

Firm Scorecards

Beutel, Goodman & Company Ltd.

Score: 4 out of 8 = 50%






Against

FPI Ltd. Increasing number of shares in a stock option plan For

Linamar Corp. Increasing number of shares in a stock option plan For

QLT Inc. Increasing number of shares in a stock option plan Against




Against

Burgundy Asset Management Ltd.








Precision Drilling Corp. Increasing number of shares in a stock option plan Against

Toronto Dominion Bank Restriction on sale of share options For


Toronto Dominion Bank Independent board for controlled publicly traded

companies For



Connor, CLARK & Lunn Investment Management Ltd.





ATI Technologies Inc. Increasing number of shares in a stock option plan Against

Axcan Pharma Inc. Increasing number of shares in a stock option plan Against


Increasing number of shares in a stock option plan For


Cryptologic Inc. Adoption of stock option plan Against


Against

FPI Ltd. Increasing number of shares in a stock option plan Against

Penn West Petroleum Increasing number of shares in a stock option plan For


TLC Vision Corp. Adjournment or postponement of meeting Against

TLC Vision Corp. Repricing of stock options Against

TLC Vision Corp. Transaction of other business Against



Dupont Canada Auditor fee disclosure For




Against

Firm Scorecards

Deans Knight Capital Management Ltd.




Angiotech Pharmaceuticals Transaction of other business Abstain

Compton Petroleum Corp. Amendment of stock option plan Abstain

Elantis, Desjardins Global Investment Management Inc.




Alcan Aluminum Ltd. Approval of shareholder rights plan For

ATI Technologies Inc. Increasing number of shares in a stock option plan For




Inex Pharmaceuticals Corp. Authorized capital Abstain

Penn West Petroleum Increasing number of shares in a stock option plan Abstain

Precision Drilling Corp. Increasing number of shares in a stock option plan For

QLT Inc. Increasing number of shares in a stock option plan For

Toronto Dominion Bank Restriction on sale of share options Abstain



Hudson's Bay Company Labour standards and compliance report Abstain


Sears Canada Labour standards and compliance report For


Abstain



Fairvest Corporation





Angiotech Pharmaceuticals Transaction of other business Against



Canadian Natural Resources Ltd Increasing number of shares in a stock option plan Against

CIBC Election of C.M. Black as director Against

Compton Petroleum Corp. Amendment of stock option plan Against

Corel Corp. Increasing number of shares in a stock option plan Against


FPI Ltd. Creation of independent corporate governance committee Against


Inex Pharmaceuticals Corp. Authorized capital For


MacDonald Dettwiler & Increasing number of shares in a stock option plan Against



Proprietary Industries Classified Board of Directors Against











Toronto Dominion Bank Independent board for controlled publicly traded companies Against

Firm Scorecards

Franklin Templeton Investments Corp. (Bisset Investment Management division) Score 9 out of 12 = 75%
















Against

Galileo Equity Management Inc.









Greystone Managed Investments Inc.










Against

Gryphon Investment Counsel Inc.








TLC Vision Corp. Adjournment or postponement of meeting For

TLC Vision Corp. Repricing of stock options For

TLC Vision Corp. Transaction of other business For




Hudson's Bay Company Labour standards and compliance report Against

Sears Canada Labour standards and compliance report Against


Against

Firm Scorecards

Guardian Capital Inc.















Against

Hybridge Investment Management Inc.







For



J. Zechner Associates Inc.





Angiotech Pharmaceuticals Transaction of other business For










For

J.P. Morgan Fleming Asset Management






Firm Scorecards

Jarislowsky, Fraser Limited

Score: 5 out of 6 = 83% Corporation Proposal Vote









Against

Knight, Bain, Seath & Holbrook Capital Management Inc.





Axcan Pharma Inc. Increasing number of shares in a stock option plan For












Against



Leith Wheeler Investment Counsel Ltd.










Against

Letko, Brosseau & Associates Inc.












Against

Firm Scorecards

Marco Consulting Group

Score: 14 out of 14 = 100%
















Hudson’s Bay Company Labour standards and compliance report For





MFC Global Investment Management - Index Funds







Canadian Natural Resources Ltd Increasing number of shares in a stock option plan For


Compton Petroleum Corp. Amendment of stock option plan For

Corel Corp. Increasing number of shares in a stock option plan For

Cryptologic Inc. Adoption of stock option plan For

FPI Ltd. Creation of independent corporate governance committee For




MacDonald Dettwiler & Increasing number of shares in a stock option plan For



Proprietary Industries Classified Board of Directors For












For

Firm Scorecards

MFC Global Investment Management - North American Equities










Linamar Corp. Increasing number of shares in a stock option plan Abstain

Penn West Petroleum Increasing number of shares in a stock option plan Abstain








For

Morrison Williams Investment Management Ltd.








Against



Mulvihill Capital Management Inc.












Loblaw Companies Ltd. Auditor fee disclosure Against


Toronto Dominion Bank Independent board for controlled publicly traded Against

P.J. Doherty & Associates Co. Ltd.








Toronto Dominion Bank Independent board for controlled publicly traded Abstain

Firm Scorecards

PCJ Investment Counsel Ltd.










Against

Perigee Investment Counsel Inc.







CIBC Election of C.M. Black as director Abstain









Against



Phillips, Hager & North Investment Management Ltd.









Cryptologic Inc. Adoption of stock option plan For










Against

Firm Scorecards

Proxy Voter Services





















Against



Sceptre Investment Counsel Ltd.






Compton Petroleum Corp. Amendment of stock option plan For


For








Against

Firm Scorecards

Scotia Cassels Investment Counsel Limited



















For



Seamark Asset Management Ltd.











Against

Sprucegrove Investment Management Ltd.









Against

Firm Scorecards

Standard Life Investments Inc.












Against



State Street Global Advisors Ltd.








Canadian Natural Resources Ltd Increasing number of shares in a stock option plan For





FPI Ltd. Creation of independent corporate governance committee Against




MacDonald Dettwiler & Increasing number of shares in a stock option plan For



Proprietary Industries Classified Board of Directors Against












Against

Firm Scorecards

TAL Global Asset Management Inc.
















Against



UBS Global Asset Management
















MacDonald Dettwiler & Increasing number of shares in a stock option plan Against











Against

Firm Scorecards

YMG Capital Management Inc.














For
















Against

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