Canada: ISS Announces 2015 Canadian Proxy Voting Guideline Updates

Last Updated: November 28 2014
Article by Karen Keck, Jon C. Truswell and Elyse P. van Spronsen

Institutional Shareholder Services (ISS) released updates to its Canadian proxy voting guidelines for the upcoming 2015 proxy season. The ISS updates will apply to shareholder meetings of publicly traded Canadian companies occurring on or after February 1, 2015.

Recommendations from proxy advisory firms such as ISS can have a significant impact on the outcome of business conducted at shareholder meetings, especially if institutional investors comprise a significant component of the shareholder base. Canadian public companies should review the updates with their legal counsel to determine the likely impact and take steps to mitigate any potential adverse voting recommendations from ISS.

Updated Definition of Independence

The existing ISS guidelines generally recommend a withhold vote from any "insider" or "affiliated outside director" where: (i) the board does not have a majority of independent directors; or (ii) the board lacks a separate compensation or nominating committee.

"A former CEO will be considered independent after a five year 'cooling-off' period provided that he or she otherwise is independent."

Pursuant to the definition of independence in the existing ISS guidelines, a director nominee is considered to be an "affiliated outside director" and therefore not independent, if he or she was the former CEO of the issuer or its affiliates at any time or an acquired company within the past three years. The 2015 ISS updates provide that a former CEO of the issuer, its affiliates or an acquired company will be considered independent after a five year "cooling-off" period unless the former CEO fails to meet any of the other criteria contained in the ISS definition of independence.

"A director nominee will not be considered independent if he or she has any material relationship with the issuer or any one or more members of management of the issuer."

The 2015 ISS updates have supplemented the definition of independence to include a provision that deems any director nominee that has any material relationship with the issuer or with any one or more members of management of the issuer not to be independent. A "material" relationship is a financial, personal or other relationship that a reasonable person might conclude could potentially influence one's objectivity in the boardroom in a manner that would have a meaningful impact on an individual's ability to satisfy his or her requisite fiduciary standards on behalf of shareholders.

"Generally vote withhold from any director who has served as the CEO of the issuer within the past five years and is a member of the audit or compensation committee."

The existing ISS guidelines generally recommend a withhold vote from any director on the audit or compensation committee if: (i) the director has served as the CEO of the issuer at any time; or (ii) the director has served as the CFO of the issuer within the past three years.

As a consequence of the updated definition of independence, ISS will recommend a withhold vote from any director who has served as the CEO of the issuer within the past five years and is a member of the audit or compensation committee.

Unilateral Adoption of an Advance Notice Provision

"Generally vote withhold from individual directors, committee members or the entire board, as appropriate, where an advanced notice policy has been adopted by the board but has not been included on the voting agenda at the next shareholders' meeting."

This new recommendation was introduced by ISS and arose from its view that a shareholder's ability to put forward director nominees is a fundamental right that should not be amended by management or the board without shareholders' approval or, at a minimum, with the intention of receiving shareholder approval at the next meeting of shareholders.

Advance Notice Requirement

"Vote case-by-case on proposals to adopt or amend an advance notice policy or bylaws containing or adding advance notice requirements, giving support to those proposals that support the stated purpose of advance notice requirements as described below."

Under the 2015 ISS updates, ISS continues to vote case-by-case on proposals to adopt or amend an advance notice policy or bylaws containing or adding advance notice requirements and now gives support to proposals that solely support the stated purpose of advance notice requirements, which is to prevent stealth proxy contests, provide a reasonable framework for shareholders to nominate directors by allowing shareholders to submit director nominations within a reasonable timeframe and provide all shareholders with sufficient information about potential nominees in order for them to make informed voting decisions on such nominees.

In addition, the specific features of advance notice requirements given support in the existing ISS guidelines have also been modified and supplemented by the 2015 ISS updates as follows:

Existing ISS Guidelines 2015 ISS Updates
 

Include a deadline for giving notice of shareholders' director nominations for an annual meeting which is: (i) not more than 65 days and not fewer than 30 days prior to the meeting date if the notice of annual meeting is given 50 days or more before the meeting date; and (ii) the close of business on the 10th day following first public announcement of the annual meeting, if notice of the annual meeting is given fewer than 50 days prior to the meeting date.

Include a deadline for giving notice of shareholders' director nominations for a special meeting which is the close of business on the 15th day following first public announcement of the special meeting.

     

Removes maximum upper limit for notification of director nominations for annual meetings.*

* The 2015 Glass Lewis & Co. updated guidelines indicate that it may vote against advanced notice policies that deviate from a notice period of not less than 30 days and not more than 70 days prior to the date of the annual meeting.

 

Exclude provisions that the board may only waive a portion of the advance notice provisions in its sole discretion.

     

Clarifies that the board should be empowered to waive all sections of the advance notice provision in its sole discretion.

 

Exclude provisions that require any proposed nominee to deliver a written agreement where the proposed nominee acknowledges and agrees that he or she will comply with all policies and guidelines of the issuer that are applicable to directors.

     

Clarifies that a proposed nominee should not be required to deliver a written agreement where the proposed nominee acknowledges and agrees, in advance, to comply with all policies and guidelines of the issuer that are applicable to directors.

 

Supports full disclosure of a dissident shareholder's economic and voting position in the issuer so long as the informational requirements are reasonable and aimed at providing shareholders with the necessary information to review any proposed director nominees in a timely manner.

     

Replaces the full disclosure feature with new parameters which provide that provisions should not include additional disclosure requests that: (i) exceed the disclosure required within a dissident proxy circular; or (ii) are necessary to determine director nominee qualifications, relevant experience, shareholding or voting interest in the issuer, or independence in the same manner as would be required and disclosed for management nominees.

         

New - Exclude provisions that restrict the notification deadline to the one established for the originally scheduled meeting if a meeting has been adjourned or postponed.

         

New – Exclude provisions which stipulate that an issuer will not be obligated to include information provided by dissident director nominees or nominating shareholders in shareholder communications, including the proxy statement.

         

New – Exclude provisions determined to have a negative impact on shareholders' interests and deemed to be outside the purview of the stated purpose of the advance notice requirement.

Article/Bylaw Amendments

"Generally vote against proposals to adopt or amend articles or bylaws with, inter alia, (i) an advance notice requirement that includes one or more provisions which could have a negative impact on shareholders' interests and which are deemed outside the purview of the stated purpose of the requirement, or (ii) any other provisions that may adversely impact shareholders' rights or diminish independent effective board oversight."

Under the existing ISS guidelines, ISS recommends voting for proposals to adopt or amend articles and bylaws unless the resulting document contains any of the following: (i) quorum for the meeting of shareholders is below two persons holding 25 percent of the eligible vote (this may be reduced to no less than 10 percent in the case of a small issuer without a controlling shareholder that is unable to achieve a higher quorum); (ii) quorum for a meeting of directors is less than 50 percent of the number of directors; (iii) the chair of the board has a casting vote in the event of a deadlock at a meeting of directors; (iv) an alternate director provision that permits a director to appoint another person to serve as an alternate director to attend board or committee meetings in place of the duly elected director; and (v) a provision that grants blanket authority to the board with regard to the future capital authorizations or alteration of capital structure without further shareholder approval.

The 2015 ISS updates expands the instances where ISS will not recommend voting for proposals to adopt or amend articles or bylaws to include the following: (i) an advance notice requirement that includes one or more provisions which could have a negative impact on shareholders' interests and which are deemed outside the purview of the stated purpose of the requirement; and (ii) any other provisions that may adversely impact shareholders' rights or diminish independent effective board oversight. In addition, proposals to adopt or amend articles or bylaws will generally be opposed, subject to certain exceptions, if the resulting document is not included in the meeting materials for review or referenced for ease of location on SEDAR.

Capital Structure

"To adopt a clearly defined case-by-case approach and indicate additional criteria that are considered when evaluating private placement issues."

Under the existing ISS guidelines, ISS recommends voting on a case-by-case basis on private placement issuances and generally voting for private placement proposals if: (i) the issuance represents no more than 30 percent of the issuer's outstanding shares; and (ii) the use of the proceeds from the issuance is disclosed.

The 2015 ISS updates retain the case-by-case approach to considering private placement issuances and propose to take into account the following additional criteria: (i) whether other resolutions are bundled with the issuance; (ii) whether the rational for the issuance is disclosed; (iii) dilution to existing shareholders' position (e.g., issuances representing no more than 30 percent of the issuer's outstanding shares on a non-diluted basis is generally acceptable); (iv) any discount or premium on the issuance price; and (v) market reaction to the proposed private placement since the announcement. In addition, ISS will recommend voting for private placement issuances if: (i) the issuer is expected to file for bankruptcy if the transaction is not approved; or (ii) the issuer's auditor or management has indicated that the issuer has going concern issues.

Bennett Jones is able to assist clients in reviewing the updated voting guidelines to determine the likely impact of the voting recommendations from ISS. The 2015 Benchmark Policy Recommendations may be downloaded in PDF format from www.issgovernance.com.

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 Mondaq.com.

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

Authors
Karen Keck
Jon C. Truswell
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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