Norton Rose Fulbright is a global law firm providing the world’s preeminent corporations and financial institutions with a full business law service. The firm has more than 4,000 lawyers and other legal staff based in Europe, the United States, Canada, Latin America, Asia, Australia, Africa and the Middle East.
Institutional Shareholder Services (ISS) and Glass Lewis (GL)
have both updated their proxy voting guidelines for the 2018 proxy
season. Key changes to the guidelines relate to director
overboarding and gender diversity. The guidelines are generally
stated to be applicable to meetings held in 2018, but the
implementation of some changes (as set out below) is delayed until
the 2019 proxy season.
Director
Overboarding
Current Guideline(s)
Changes to or Clarification of Guideline(s)
ISS guideline applicable to
TSX-listed companies only
whether or not a company has a
majority voting policy, ISS recommends voting against directors who
are "overboarded"
ISS definition of overboarded is two
tier:
CEO director who sits on more than
one outside public company board or non-CEO director who sits on
more than four public company boards; and
director has attended less than 75%
of his or her respective board and key committee meetings in last
year without valid reason (the attendance trigger)
ISS withhold recommendation will only
apply to CEO director with respect to outside boards
GL defines an overboarded director as
a director:
who is an executive officer who sits
on more than two public company boards; or
is a non-executive board member who
sits on more than five public company boards
GL generally permits TSX-V directors
to sit on up to nine boards. Where directors are on both TSX and
TSX-V boards, GL will consider on a case-by-case basis
ISS current guideline will apply in
the 2018 proxy season. New guideline will be applicable to
TSX-listed companies for meetings held on or after February 1,
2019
ISS will continue to recommend voting
against "overboarded" directors in new guideline
ISS will amend the definition of
overboarded for meetings held on or after February 1, 2019, to
mean:
a CEO director who sits on more than
two outside public company boards; and
a non-CEO director who serves on more
than five public company boards
attendance trigger will be removed
for proxy season 2019, which will harmonize Canadian and US
standards
ISS withhold recommendation will only
apply to CEO director with respect to outside boards. Although
subsidiary boards (>50% ownership) will be counted as separate
boards, they will not be considered outside boards to which
the withhold recommendation applies
GL has not changed its director
overboarding policy but has clarified that when determining whether
non-CEO executive
directors are overboarded, GL will
look at specific duties and responsibilities of executive in
determining if an exemption is warranted
Board Gender
Diversity
Current Guideline(s)
Changes to or Clarification of
Guideline(s)
neither ISS nor GL currently has
formal gender diversity guidelines
since 2015, the Canadian Securities
Administrators have required disclosure by TSX-listed issuers as to
whether they have adopted a written policy relating to the
nomination of women directors and executive officers and, if so,
how the board or its nominating committee measures the
effectiveness of such policy and, if not, why not
ISS is introducing a gender diversity
guideline applicable to S&P/TSX Composite Index companies in
the 2018 proxy season
ISS gender diversity guideline will
be applicable to all TSX-listed companies in the 2019 proxy
season
ISS recommends withholding voting for
the chair of the nominating committee (or, if no nominating
committee, the chair of the committee with the closest
responsibility to the nominating committee or, if no nominating
committee or other committee identified, the board chairman) if
company has:
no female directors; and
no robust gender diversity policy in
place (which should include measurable goals/targets)
exemption from ISS gender diversity
guideline for:
newly publicly listed companies
within the current or prior fiscal year;
companies who have graduated from the
TSX-V, within the current or prior fiscal year; and
issuers with four or fewer
directors
GL has not adopted a voting
recommendation regarding gender diversity for the 2018 proxy season
but has added a discussion as to its considerations on gender
diversity
GL will continue to review the
composition of boards and note concern where a board lacks
representation of diverse candidates
GL will introduce a gender diversity
voting recommendation for the 2019 proxy season that will generally
recommend voting against the chair of the nominating committee if
company has:
no female directors; or
no formal written diversity policy in
place
GL may refrain from making a
recommendation for companies outside the S&P/TSX Composite
Index, or if company has provided sufficient rationale for not
having any female directors
both ISS and GL have publicly
acknowledged concerns regarding boilerplate gender diversity
disclosure and are looking for an issuer's clear commitment to
increase gender diversity on its board, which should include
goals/targets
Virtual Shareholder
Meetings
Current Guideline(s)
Changes to or Clarification of
Guideline(s)
no current guidelines in Canada
regarding meetings held by virtual means only as in other
jurisdictions
both ISS and GL have publicly
supported hybrid meetings (expanding participation in
"in-person" meetings electronically to persons who cannot
attend in person)
concern regarding virtual-only
meetings that such meetings may restrict ability of shareholders to
participate
no ISS or GL recommendation for 2018
season but GL will be looking for robust disclosure as to how the
issue of shareholder participation will be addressed
in 2019, GL will generally recommend
voting against members of the governance committee where the board
is intending to hold a virtual-only meeting and does not
provide robust disclosure in the circular that assures shareholders
they will be afforded the same rights at a virtual meeting as they
would have at an in-person meeting
Board
Responsiveness
Current Guideline(s)
Changes to or Clarification of Guideline(s)
ISS will generally recommend
withholding votes for continuing directors where the board failed
to act on shareholder proposal that received majority shareholder
support at the previous shareholder meeting
GL may recommend voting against
compensation committee members if the committee fails to address
shareholder concerns on failed say-on-pay proposals
current GL guideline that when 25% or
more of shareholders withhold votes from a director nominee, vote
against a management proposal or vote for a shareholder proposal,
the board should respond to such concerns
GL has amended its guideline to
provide that a board of directors has an imperative to respond
where 20% or more shareholders withhold votes from a nominee
director, vote against a management proposal or for a shareholder
proposal. GL further notes that in dual-share structure companies,
it will examine the level of support of non-affiliated
shareholders
Other
Changes/Guidance
Current Guideline(s)
Changes to or Clarification of Guideline(s)
Pay for Performance
ISS guideline applicable to TSX
issuers where there is significant long-term misalignment between
CEO pay and company performance
GL pay-for-performance model in
place
Advance Notice Guidelines
advance notice guidelines in place
for both ISS and GL for TSX group companies
Pay for Performance
ISS guideline for pay for performance
still in place but ISS has updated its quantitative screen
methodology to incorporate a three-year Relative Financial
Performance Assessment that measures the alignment of pay and
financial performance in peer group
no amendments to GL methodology re.
pay-for-performance model but GL has clarified grading system by
stating that a C grade means a company's pay and performance
percentage rankings to peers is generally aligned
Advance Notice Guidelines
no substantive changes to advance
notice guidelines but ISS has made amendments to bring guideline in
line with 2017 TSX notice that requiring nominating shareholder
presence at the meeting where nominee is proposed for the
nomination to be accepted would not be consistent with TSX director
election requirements
Depending on their institutional shareholder base, issuers will
also want to consider any voting recommendations issued by such
institutional shareholders that may, in some instances, exceed the
ISS and GL guidelines. Copies of the ISS 2018 Benchmark Proxy
Guidelines can be accessed here and the GL Proxy Paper Guideline
Recommendations can be accessed here.
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