Canada: 2018 ISS And Glass Lewis Updates To Canadian Proxy Voting Guidelines

Last Updated: January 25 2018
Article by Jon C. Truswell, Brent W. Kraus, Karen Keck and Hind Masri

Institutional Shareholder Services (ISS) and Glass, Lewis & Co (Glass Lewis) have both released their updates to their respective Canadian proxy voting guidelines for the upcoming 2018 proxy season. The ISS updates apply to shareholder meetings of publicly traded Canadian companies occurring on or after February 1, 2018, while Glass Lewis updates apply to meetings that are held on or after January 1, 2018.

Recommendations from proxy advisory firms such as ISS and Glass Lewis can have a significant impact on the outcome of business conducted at shareholder meetings, especially if institutional investors comprise a significant component of the company's 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 or Glass Lewis.

A. Gender Diversity (ISS and Glass Lewis)

In keeping with the intention of the gender diversity policies in National Instrument 58-101 – Disclosure of Corporate Governance Practices (NI 58-101), ISS and Glass Lewis are taking steps to increase the representation of women on boards and in executive positions.

ISS has adopted a gender diversity policy. Pursuant to this policy, ISS generally will recommend to vote withhold for the chair of the nominating committee or the committee designated with the responsibility of a nominating committee (or, if no such committee or committee chair has been identified, for the chair of the board) if:

  • a company has not adopted a formal written gender diversity policy per NI 58-101; and
  • no female directors serve on its board.

The gender diversity policy should include a clear commitment to increase board gender diversity using measurable goals and/or targets to be achieved within a reasonable period of time. Boilerplate or contradictory language in a gender diversity policy may result in a recommendation to vote withhold. To assess a company's commitment to gender diversity, ISS will also consider a board's approach to considering gender diversity in executive officer positions, its goals and/or targets and programs and/or processes for advancing women in executive officer roles, and how the success of such programs and/or processes are monitored.

The ISS gender diversity policy will be applicable to S&P/TSX Composite Index companies in 2018 and to all TSX-listed company issuers in 2019, but will not apply to:

  • newly publicly listed companies within the current or prior fiscal year;
  • companies that have transitioned from the TSXV within the current or prior fiscal year; or
  • companies with four or fewer directors.

Commencing in 2019, Glass Lewis generally will recommend to vote withhold for the chair of the nominating committee if a company does not have at least one woman on the board or has not adopted a formal written diversity policy. A negative recommendation may be extended to the entire nominating committee depending on the size of the company, the industry in which the company operates and the company's governance profile. However, Glass Lewis may not recommend to vote withhold if the company is not a S&P/TSX Composite Index issuer, or the company has either disclosed a sufficient rationale for not having any female board members or a plan to address the lack of diversity on the board.

B. Director Overboarding (ISS and Glass Lewis)

ISS currently considers an individual director nominee to be "overboarded" if:

  • in the case of a CEO, he/she sits on the board of more than two public companies (including the company of which he/she is CEO); and
  • in the case of directors other than the CEO, he/she sits on more than four public company boards.

However, ISS will only issue a recommendation to vote withhold for an individual director nominee that is overboarded if such nominee has attended less than 75 percent of his/her respective board and committee meetings held within the past year without a valid reason for these absences.

Commencing on February 1, 2019, ISS will no longer consider attendance and will issue a recommendation to vote withhold for an individual director nominee if:

  • in the case of any executive, he or she sits on the board of more than three public companies (including the company of which he/she is CEO); and
  • in the case of non-executive directors, he/she sits on more than five public company boards for ISS.

In the case of CEOs, however, ISS will only issue a recommendation to vote withhold in respect of their outside boards.

Currently, Glass Lewis generally recommends to vote withhold for a director nominee if:

  • in the case of an executive, he/she serves on more than two TSX-listed public company boards; and
  • in the case of non-executive directors, he/she serves on more than five TSX-listed public company boards.

However, Glass Lewis may refrain from issuing a negative voting recommendation if: (i) it determines that a director can devote sufficient time to board duties, which determination is made by taking into account a number of factors, including the size and location of all the companies where the director serves as a director, the director's board roles at the companies in question, whether the director serves on the board of any large privately-held companies, the director's tenure on the boards in question, and the director's attendance record at all companies; or (ii) the company provides sufficient rationale for the director's continued board service.

Glass Lewis did not make any changes to its policy, but has clarified that, in the case of an executive other than a CEO, it will evaluate the specific duties and responsibilities of the executive's role in determining whether an exception is warranted to Glass Lewis' limit of two total board memberships for executives.

C. Advance Notice Requirements (ISS)

ISS has modified its policy in respect of advance notice requirements to provide that it will issue a recommendation to vote against any advance notice provision that: (i) calls for a nominating shareholder's presence at the meeting regardless of the number of votes obtained by his or her nominee; or (ii) would give the company broad discretion to require excessive additional information that, if requested and received, will be made publicly available to shareholders.

D. Pay for Performance (ISS)

To assess pay for performance, ISS begins with a quantitative screening tool, which includes the following measures:

  • Relative Degree of Alignment, which compares the relative pay for performance alignment against ISS peers over three years;
  • Multiple of Median, which compares the absolute size of pay package against ISS peers over one year; and
  • Pay-TSR Alignment, which measures pay changes trends relative to shareholder value creation trends over five years.

The results of the quantitative analysis provides ISS with a low, medium or high level of concern, which dictates the level of scrutiny that applies when conducting the qualitative review of the compensation discussion and analysis that follows.

ISS has updated the quantitative screening tool to include the relative alignment between CEO pay and a company's financial performance. More specifically, the financial performance assessment compares the company's financial and operational performance relative to ISS peers over a two or three-year period. The financial performance is measured using the following metrics, selected and weighted by industry: return on invested capital, return on assets, return on equity, EBITDA growth and operative cash flow growth. The inclusion of the financial performance assessment in the quantitative analysis may impact the overall level of concern produced by this initial quantitative screening tool.

For 2018, ISS is also slightly modifying its TSR methodology. Instead of using a single date for the beginning and ending stock price in the TSR calculation, ISS will average the stock prices for trading days in the beginning month and the closing month used for the calculation.

E. Equity Scorecard Methodology (ISS)

ISS uses a scorecard to evaluate an equity plan based on the cost to shareholders, the historical grant practices (i.e., the use of equity) and governance features. Each of these pillars is scored and a score of 50 points out of 100 points will result in a recommendation to vote in favor of an equity plan as long as the equity plan does not have any "deal-breaker" identified by ISS (i.e., discretionary or insufficiently limited non-employee director participation, an amendment provision which fails to adequately restrict the company's ability to amend the plan without shareholder approval or a history of repricing stock options without shareholder approval). For 2018, ISS has updated the manner in which points are allocated under the grant practices pillar in respect of the requirement for S&P Composite Index companies to apply a post-exercise or post-settlement hold period to an executive's shares. Full points will be received for the hold period criteria if a 12-month hold period is applied after an option has been exercised or an award has settled. Previously points were awarded on a sliding scale for hold periods of twelve to 36 months in length.

F. Board Responsiveness to Shareholder Dissent (Glass Lewis)

Glass Lewis is of the view that the board has an imperative to respond to shareholder dissent from a proposal at an annual meeting of more than 20 percent of votes cast. In the event that 20 percent or more of shareholders withhold votes from a director nominee, vote against a management-sponsored proposal or vote for a shareholder proposal, Glass Lewis expects a board to respond appropriately. For example, if a say on pay proposal receives less than 80 percent support, the company should disclose, in detail, its outreach efforts to shareholders and any actions taken in respect of this outreach. Similarly, if a director nominee or an equity plan receives less than 80 percent support, the company should engage with its largest shareholders to identify the source of the concern and then take steps to demonstrate that it understands the concern. While the 20 percent threshold alone will not automatically generate a negative vote recommendation on a future proposal, it may be a contributing factor to vote against management's recommendation in the event Glass Lewis determines that the board did not respond appropriately.

G. Dual-Class Share Structures (Glass Lewis)

Glass Lewis added a discussion to their 2018 policy as to their consideration of dual-class voting structures when analyzing a company's governance. Glass Lewis is of the belief that such voting structures are typically not in the best interest of common shareholders. As such, Glass Lewis added the presence of dual-class share structures to the list of factors that it will consider in determining whether to issue negative recommendation on director elections at newly public companies.

H. Virtual Shareholder Meeting (Glass Lewis)

Glass Lewis has introduced a new policy regarding virtual shareholder meetings. In 2018, Glass Lewis will not make voting recommendations solely on the basis that a company is holding a virtual-only meeting; however, beginning in 2019, Glass Lewis will recommend voting against members of the governance committee where the board is planning to hold a virtual-only shareholder meeting and the company does not provide disclosure in its circular which assures shareholders that they will be afforded the same rights and opportunities to participate in virtual shareholder meetings as they would at an in-person meeting.

I. Proxy Access (Glass Lewis)

Glass Lewis has clarified that they will evaluate all proxy access proposals on a case-by-case basis. When these resolutions are proposed, Glass Lewis will examine the regulatory landscape to assess if existing proxy access rights are sufficient or preferable to those requested by the proposal. In instances where Glass Lewis believes that existing laws, policies or regulations either provide shareholders with adequate proxy access rights or would prohibit a company's adoption of the requested provision, they will recommend that shareholders vote against such proposals.

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
Jon C. Truswell
Karen Keck
Similar Articles
Relevancy Powered by MondaqAI
Stewart McKelvey
Norton Rose Fulbright Canada LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Stewart McKelvey
Norton Rose Fulbright Canada LLP
Related Articles
 
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