Institutional Shareholder Services (ISS), one
of the world's most influential proxy advisory firms, recently
released its draft proposed voting policies for 2016. ISS is
currently requesting feedback on new or potential changes to three
voting policies in Canada covering the following areas: director
overboarding, compensation-related votes at externally-managed
issuers and the introduction of an equity plan scoreboard.
ISS has recognized the risk in directors sitting on an excessive
number of boards, such that directors become over-committed and
unable to dedicate the required time and energy to each board
necessary to effectively represent shareholders' interests.
Currently, ISS' Canadian policy defines an overboarded
non-CEO directors who they sit on more than six public company
CEO directors who sit on more than two outside public company
boards (in addition to the company he or she is the CEO of).
ISS' proposed policy changes (slated to take effect on
February 1, 2017) would define an overboarded director as:
non-CEO directors who sit on more than four public company
CEO directors who sit on more than one public company board (in
addition to the company he or she is the CEO of).
Importantly, ISS' Canadian overboarding policy is linked to
attendance: a "withhold" voting recommendation will only
be issued where an overboarded director also has a poor attendance
record (designated as less than 75% attendance at meetings).
In response to issues around cost transparency and best
practices in equity-based compensation, ISS has proposed an update
to its Canadian equity plans policy by introducing a
"scoreboard" approach. Currently, ISS' policy
consists of a series of pass / fail tests relating to plan cost,
non-employee director participation, plan amendment provisions and
re-pricing without shareholder approval.
The proposed scorecard approach would continue to account for
the current factors, but, instead of the current pass / fail
system, would instead tally all positive and negative factors for a
total score to form the basis of ISS' ultimate
recommendation. The factors are proposed to fall within the
following broad categories: Plan Cost, Plan Features, and Grant
Practices. ISS describes the proposal as introducing a more
holistic approach to vote recommendations, with the ultimate goal
of providing shareholders greater depth of insight into risk
ISS' proposed policy update in this category relates to the
often inadequate disclosure of compensation arrangements with
Externally-Managed Issuers (EMIs), who typically
pay fees to outside firms for management services. In many
cases, some or all of an EMI's executives are directly
compensated by the external management firm, rendering a meaningful
review of incentive compensation not possible.
In response, ISS proposes case by case recommendations on
say-on-pay resolutions, individual directors, committee members, or
the entire board as appropriate, where EMIs provide limited
disclosure about their management services agreements and
compensation. ISS has identified a number of factors to
consider in each case, including: the size and scope of the
management services agreement, overall performance, related party
transactions and board and committee independence.
The author would like to thank Kira Misiewicz, articling student, for her assistance in preparing this legal update.
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