Institutional Shareholder Services ("ISS") and Glass, Lewis & Co., LLC ("Glass Lewis"), two leading proxy advisory firms, recently released updated guidelines for the 2015 Canadian proxy season. The revisions reflect a continued focus on advance notice bylaws along with other defensive measures relied on by management and incumbent boards. Given the influence that ISS and Glass Lewis have on voting, understanding these guidelines could be critical for issuers in advance of the upcoming 2015 proxy season. For the ISS guidelines update, see here. For the Glass Lewis guidelines update, see here.
The ISS "Canada Proxy Voting Guidelines Updates" makes a number of changes across a range of subject areas, including the independence of former CEOs, advance notice policies, by-law amendments and private placements.
Former CEO Independence – Five Year Cooling Off Period
ISS will deem a former CEO to be independent for the purposes of serving on the board or any key committee, including the audit committee, after a five year cooling off period unless there is any relationship with the issuer, or an executive officer of the issuer, which could reasonably be perceived to interfere with the exercise of his/her independent judgment.
Advance Notice Policies
ISS clarified that it will generally recommend that investors withhold votes from directors in situations where an advance notice by-law has been adopted by the board but has not been placed on the voting agenda for the upcoming shareholders' meeting. ISS noted that the ability for shareholders to put forth nominees is a fundamental right that should not be amended by issuers or their boards without shareholder approval.
The update also includes a list of factors that ISS may consider problematic if included in advance notice policies, including:
- reasonable notice periods for shareholders to propose nominees;
- requirements that nominees deliver a written agreement to comply with all director policies and guidelines;
- unreasonable disclosure requirements for nominees that go beyond what would be required in a dissident circular or what is necessary to determine director qualifications and related matters; and
- provisions that the issuer will not be obligated to include information about the nominees in shareholder communications.
ISS clarified that it will generally oppose any by-law amendment if the full by-law text is not either included in the meeting materials or referenced in an easily accessible location such as SEDAR.
ISS added several criteria to expand on their case-by-case approach to analyzing private placements. Some of the new factors include whether the rationale for the private placement is detailed; the dilutive effect on existing shareholders; whether there is a discount or premium in issuance price to the unaffected share price prior to the announcement; and the market's response following the announcement.
The Glass Lewis "Proxy Paper Guidelines 2015 Proxy Season" includes a number of modifications, the three most significant relating to majority voting, shareholder rights plans and advance notice policies.
Glass Lewis has revised their approach on majority voting policies for Toronto Stock Exchange ("TSX") listed companies to reflect changes in the TSX listing requirements. The TSX now requires uncontrolled companies to implement majority voting policies.
Accordingly, Glass Lewis will recommend that shareholders withhold votes from all members of the governance committee for an uncontrolled issuer that lacks such policy.
Shareholder Rights Plans
Glass Lewis has updated its framework for reviewing shareholder rights plans. In short, they will consider supporting a plan with a trigger threshold that is not unreasonably low (i.e. lower than 20%) if it incorporates the following provisions in its qualifying offer clause: (i) there is no requirement that it be an all-cash offer; (ii) there is no requirement that the offer remain open for more than 90 business days; (iii) the offeror is allowed to amend, reduce and change the terms of the offer; (iv) no fairness opinion is required; (v) there is a low or no premium requirement; and (vi) the board does not have discretion to amend the material terms of the plan unilaterally.
Advance Notice Policies
The update clarified that Glass Lewis will generally support advance notice policies that are reasonable and not unduly restrictive for shareholders. The guidelines point in particular to the notice timelines, stating that Glass Lewis will generally recommend that shareholders vote for policies that require a nominating shareholder to provide notice not less than 30 days and not more than 70 days prior to the date of the annual meeting. If these notice periods are not provided, Glass Lewis may consider recommending that shareholders vote against such policies. In addition, Glass Lewis will also consider recommending voting against an advance notice policy if it does not allow for the commencement of a new time period for shareholder nominations in the event of an adjournment or postponement of the annual meeting.
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