As we've previously discussed, ISS released
its 2014 Corporate Governance Policy Updates in November
of last year. ISS also announced that it was
continuing consultations on a number of issues that could result in
policy changes for 2015, with director tenure being identified as
one such issue in the U.S. and Canada. Currently, ISS'
Benchmark U.S. and Canada Voting Policies do not
consider director tenure as a factor in setting vote
recommendations in director elections.
According to a survey conducted by ISS, close to three-quarters
of investors consider long director tenure to be problematic. While
long tenure directors have experience and company-specific
knowledge that may positively affect corporate decision-making,
there is concern that long tenure may undermine the independence of
ISS is thus exploring three potential approaches to its voting
policy approach regarding director tenure. Specifically, the
options being explored by ISS are to: (i) "consider the
mix of director tenures on the board as a key factor when
determining a vote recommendation on members of the nominating
committee"; (ii) favour classifying "directors with
lengthy tenures as non-independent and apply existing board-related
voting policies as it relates to director independence"; and
(iii) maintain the status quo, i.e. no policy
position on this issue.
ISS does not provide a definition of "lengthy tenure"
in its consultation document. International corporate governance
codes that consider the issue generally set a threshold of nine to
12 years. Meanwhile, investors surveyed by ISS identified 10 years
as the threshold beyond which director independence could be called
into question. If such a threshold were to be adopted by ISS in
North America, a significant number of directors would be
potentially affected. Indeed, in the U.S., the average tenure of
S&P 500 boards is 8.6 years according to the Spencer Stuart
Board Index. In Canada, data marshalled by the Clarkson Centre for
Board Effectiveness indicate that about three-quarters of the
companies of the S&P/TSX Composite Index have at least one
board member with a minimum of 10 years of service and more than a
third of such companies have at least 50% of their directors who
have served at least 10 years.
Ultimately, it remains to be seen whether ISS will amend its
voting policy to address director tenure. Investors consulted by
ISS have expressed reluctance toward the imposition of strict
limits on tenure and ISS recognizes that empirical studies on the
impact of director tenure on financial performance provide mixed
results. However, the fact the issue is being considered by ISS
suggests that boards would be well advised to consider term limits,
otherwise ISS or the regulators may do it for them.
This is the first in a series of five posts
intended to consider securities regulatory developments to
watch in 2014. Also note
the OSC's recent proposal on board gender
diversitywould require disclosure on whether
or not the issuer has adopted director term limits and, if not,
disclosure as to why.
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.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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