Canada: What Canadian Public Companies Need To Know About The 2014 ISS Corporate Governance Policy Updates

On November 21, 2013, Institutional Shareholder Services Inc. (ISS) issued its Canadian Corporate Governance Policy 2014 Updates (the 2014 Updates) applicable to shareholder meetings of TSX and TSX-V issuers held on or after February 1, 2014. This year, ISS addresses the following key issues: enhanced quorum by-laws, persistent problematic audit-related practices, board responsiveness to shareholder actions, director independence, over-boarding and attendance, and director and executive compensation.

Recommendations of ISS and other proxy advisory firms can have a substantial effect on the outcome of shareholder meetings, particularly for issuers with a significant institutional investor shareholder base. Issuers are advised to review the 2014 Updates with their advisors and legal counsel to avoid any potential negative voting recommendations at their upcoming meetings.  A full set of the ISS Canadian policies will be published in December 2013.

Summary of 2014 Updates

New ISS Policies

  • Board Responsiveness   ISS states that a lack of board response to shareholder majority votes or majority withhold votes cast in respect of a director is unacceptable. ISS will generally recommend WITHHOLDING voting for current directors if the company has failed to address the issues that caused a majority withhold vote, or has failed to act on majority shareholder supported proposals.
  • Enhanced Quorum Requirements for Contested Director Elections ISS will generally recommend voting AGAINST new or amended by-laws that establish two different quorum levels that result in a higher quorum being required for a meeting where a majority of the current board is sought to be replaced. Shareholder votes should carry equal importance, and therefore all matters of business should be approved at meetings with the same shareholder quorum requirement.
  • Persistent Problematic Audit-Related Practices (TSX issuers only) ISS will recommend WITHHOLDING votes on a case-by-case basis for the re-election of the current members of the Audit Committee and potentially the full board of directors if adverse accounting practices are identified that have risen to a level of serious concern. Examples of such practices include accounting fraud, misapplication of applicable accounting standards or material weaknesses in internal control processes. The severity, breadth, chronological sequence and duration of such issues and the issuer's efforts at remediation will be considered in making the recommendation.

Updates to Existing ISS Policies

Shareholder Rights and Defenses

  • Advance Notice Requirements  ISS will recommend voting AGAINST advance notice by-laws or policies: (i) if the board does not have the ability to waive the entire advance notice provision; or (ii) in instances where the company requires proposed director nominees to deliver a written agreement acknowledging that they will comply with all company policies and guidelines applicable to directors.

Corporate Governance

  • Director Over-boarding and Attendance Policy (TSX issuers only)   ISS has amended its over-boarding policy to combine the concept of over-boarding with a director's attendance at board or committee meetings. ISS is of the view that this double-trigger policy is more appropriate for the Canadian market than the current practice of relying solely on the definition of over-boarding. A director will be over-boarded if he or she falls within the definition of over-boarding and has attended less than 75% of his/her respective board/committee meetings held within the past year without a valid reason (irrespective of whether the company has a majority voting policy).

A director is over-boarded if the director is:

  • a CEO of a public issuer and sits on more than two outside public company boards; or
  • a non-executive director who sits on more than six public company boards in total.

ISS will generally recommend a WITHHOLD vote for such director nominees.  In its attendance policy, ISS will recommend a WITHHOLD vote for directors who, whether or not the company has adopted a majority voting policy, have attended less than 75% of the board/committee meetings held within the past year without a valid reason.

  • Definition of Director Independence  ISS has amended its criteria for identifying "inside directors," "affiliated outside directors" and "independent directors" in its policy on the election of directors at uncontested meetings. The amended criteria specifically addresses the status of interim executive board members, a former CEO of the issuer or an affiliate.
  • Voting on Directors for Egregious Actions  ISS has maintained its current recommendation to, under extraordinary circumstances, WITHHOLD voting for individual directors, committee members or the entire board due to material failures of governance, stewardship, fiduciary responsibilities or risk oversight. The 2014 Updates identify the following examples of failure of risk oversight: bribery, large fines or sanctions, significant adverse legal judgments or any amount of hedging of company stock. Hedging activities by executives and directors that are permitted by a company are explicitly considered a material risk oversight failure.

Director and Executive Compensation

  • Non-Employee Director Participation in Equity Compensation Plans (TSX issuers only)  The 2014 Updates increase the non-employee director permitted value limit on forms of equity (other than stock options) granted to such directors. There are now different limits for option-based and share-based (non-option) equity compensation awards.

ISS will generally recommend voting AGAINST an equity compensation plan where:

  • the aggregate share reserve under the plan for non-employee directors exceeds one percent of the outstanding common shares; or
  • the plan does not specify an annual individual non-employee director grant limit with a maximum value of: (i) $100,000 worth of options under a stock option or omnibus plan; or (ii) $150,000 worth of shares under an equity plan that does not grant stock options.

ISS generally recommends voting AGAINST individual equity grants to non-employee directors when:

  • ISS is already voting against the underlying plan that is being considered at a meeting; and
  • if the director's annual grant would exceed the limits above.
  • Stock Option Repricing Proposals  The 2014 Updates remove the exception under which ISS previously would have approved an option exchange proposal or a repricing of outstanding options. ISS will generally recommend voting AGAINST a repricing of stock options, including the following adjustments that can reasonably be considered repricing: reduction in exercise price or purchase price, extension of the term of outstanding options, cancellation and reissuance of options and substitution of options with other awards. The extension of option terms is also not acceptable to ISS.  
  • CEO Pay for Performance Evaluation – Changes to Quantitative Screen Metrics for Relative Degree of Alignment (RDA)  (TSX issuers only)   ISS determines long-term pay for performance alignment using a two-step process:
    • a quantitative screen that includes relative and absolute analysis on pay for performance based on total shareholder return and other defined metrics; and
    • a qualitative assessment of the CEO's compensation and overall company performance.

The 2014 Updates revise the methodology used to calculate RDA. RDA will be calculated as the difference between the issuer's annualized Total Shareholder Return rank and the CEO's annualized total pay rank within its peer group, equally measured over a single three-year period. Previously, RDA was the weighted average of the one-year and three-year RDA. ISS is of the view that a single three-year measure better aligns with its stated principles of evaluating long-term shareholder performance.

  • Board Communication and Responsiveness Related to Executive Pay (TSX issuers only)  ISS will specifically consider the failure of an issuer to respond to a say-on-pay proposal that received support of less than 70% of votes cast when evaluating its executive pay. ISS will look to enhanced disclosure of engagement efforts regarding the issues that contributed to the low levels of support and the specific actions taken by the company to address such issues in making its recommendations. ISS states that a vote below 70% but above 50% is seen to be representative of substantial shareholder dissatisfaction with a company's executive compensation structure, practices or disclosure.

ISS ongoing public consultation

For the first time, ISS announced it will publicly consult on long-term policy changes beyond the scope of the 2014 proxy season updates. This reflects a shift in ISS's focus on governance from specific seasonal guidance to a continuous review of policy development over the year. The first public consultation period closes in February 2014. The topics open for comment during this first consultation period applicable to Canadian issuers are director tenure and equity-based compensation plans.

Copies of the 2014 Updates and related documents can be accessed below:

Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global legal practice. We provide the world's pre-eminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers based in over 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia. Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare. Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact. Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members ('the Norton Rose Fulbright members') of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions