On December 31, 2009, RiskMetrics Group published updated Proxy Voting Guidelines for TSX-listed issuers holding securityholder meetings on or after February 1, 2010. The Guidelines include recommendations for securityholder votes on routine business, director elections, securityholders' rights, capital/restructuring matters, executive officer and director compensation, and social and environmental proposals. The recommendations in the Guidelines place a strong emphasis on supporting and enhancing corporate governance and disclosure best practices.
The following is a summary of some of the key securityholder voting recommendations made by RiskMetrics in the Guidelines.
Board of Directors
- Vote WITHHOLD from all directors nominated by slate ballot where any corporate governance or compensation practices fall short of Canadian best practices as slate ballots shield directors from securityholder disapproval.
Voting on Director Nominees in Uncontested Elections
Insiders on Key Committees
- Vote WITHHOLD from individuals who are insiders on the audit, compensation or nominating committee, because key committees should comprise independent directors.
Audit Fee Disclosure
- Vote WITHHOLD from the members of the audit committee if no audit fee information is available within a reasonable period of time prior to the meeting, because audit firms could compromise the independence of an issuer audit in order to secure lucrative consulting contracts.
Excessive Non-Audit Fees
- Vote WITHHOLD from the members of the audit committee if the non-audit-related fees paid to the external audit firm exceed audit-related fees.
- Vote WITHHOLD from any director who has attended less than 75 per cent of board and committee meetings within the past year without a valid reason for these absences, as directors should be prepared and able to make attendance at the board's meetings a priority.
Former Chief Executive Officer/Chief Financial Officer on Audit or Compensation Committee
- Vote WITHHOLD from a director who served as Chief Executive Officer (CEO) at any time or Chief Financial Officer (CFO) within the past three years, because they are akin to insiders for the purposes of independent oversight.
Voting on Directors for Egregious Actions
- Vote AGAINST or WITHHOLD from individuals or the entire board if there have been material failures of governance, stewardship or fiduciary responsibilities, as accountability and competence have become issues of prime importance following the global financial crisis.
Non-Majority Independent Board/Lack of Separate Compensation or Nominating Committee
- Vote WITHHOLD from any insider or affiliated outsider if a majority of the board is not independent or the board lacks a separate compensation or nominating committee because the balance of board influence should reside with directors free of any pressure or conflicts.
Independent Chair (i.e., Separate Chair and CEO)
- Vote FOR proposals to separate the offices of CEO and chair of the board, because the two positions are distinct jobs that cannot be fulfilled without conflict.
Majority of Independent Directors/Establishment of Committees
- Vote FOR proposals asking that a majority, or up to two-thirds, of directors be independent.
- Vote FOR proposals asking that the audit, compensation and nominating committees be composed exclusively of independent directors.
Majority Vote Standard for the Election of Directors
- Vote FOR proposals requesting that the issuer's constating documents be changed to stipulate that directors must be elected with a majority of the votes cast.
Securityholders' Rights and Defences
Supermajority Vote Requirements
- Vote FOR proposals to lower supermajority requirements and AGAINST proposals to require a supermajority in excess of that required by statute.
- Vote FOR proposals to restore or permit cumulative voting and AGAINST proposals to eliminate cumulative voting.
- Vote FOR proposals to adopt confidential voting.
Appointment of Additional Directors between Annual Meetings
- Vote FOR these resolutions where the governing statute allows the removal of directors by majority vote, the number of appointed directors will not exceed one-third of those appointed at the previous annual meeting and the appointments must be approved at the next annual meeting.
Poison Pills (Securityholder Rights Plans)
- Consider whether the plan is limited in scope to either giving the board time to find an alternative value-enhancing transaction or to ensure the equal treatment of all securityholders. Vote AGAINST plans that go beyond these purposes.
Income Trust Conversions
- Vote AGAINST any proposal that will trigger change-in-control provisions and any plans that are bundled with equity compensation resolutions. Otherwise, take into account the method of conversion, rationale of conversion, change of annualized payout level, equity-based compensation plans, change-in-control, cost of conversion, market reaction, governance and dissent rights.
- Consider governance concerns, the reasons for reincorporating and a comparison of jurisdictional laws. Vote FOR reincorporation where the financial factors outweigh negative governance implications or the governance implications are positive.
Amendments to Constating Documents
- Vote FOR amendments that will clarify ambiguity, reflect changes in corporate law, or streamline other amendments, including housekeeping amendments.
- Vote AGAINST amendments if the quorum for securityholder meetings is set below two persons holding 25 per cent of the eligible vote, the quorum for a meeting of directors is less than 50 per cent of the board and the chair of the board has a casting vote in the event of a deadlock.
Increases in Authorized Capital
- Vote FOR proposals to increase authorized capital if the issuer's securities are in danger of being de-listed or if the issuer's ability to continue as a going concern is uncertain.
- Vote AGAINST proposals to approve unlimited capital authorization.
Private Placement Issuances
- Consider other resolutions combined with the issuance and the financial consequences for the issuer if the issuance is not approved. Vote FOR private placements if the issuance is less than 30 per cent of the issuer's outstanding voting securities and the use of proceeds is disclosed.
Blank Cheque Preferred Stock
- Vote AGAINST proposals to create or increase blank cheque preferred shares unless the company has stated in writing that the shares will not be used for anti-takeover purposes and the voting, conversion and other rights, restrictions and terms of such stock are specified and reasonable.
- Vote AGAINST proposals to create a new class of common stock that will create a class of common stock with diminished voting rights.
- Vote AGAINST amendments to existing escrow agreements that would eliminate performance-based release requirements in favour of time-drive release requirements.
Executive Officer and Director Compensation
Cost of Equity Plans
- Vote AGAINST equity plans if the cost is unreasonable. Equity plans should be assessed on the basis of the dollar cost of plans to securityholders.
- Vote AGAINST equity-based compensation plans if there is a disconnect between the CEO's total compensation and the issuer's stock performance relative to its industry group.
- Vote AGAINST proposals to re-price outstanding options unless it is part of a broader stock option plan amendment that substantially improves the stock option plan.
Problematic Pay Practices
- Vote AGAINST management advisory vote proposals, WITHHOLD from compensation committee members and AGAINST equity plans if there are problematic compensation practices, including poor disclosure, problematic option granting practices or excessive compensation payouts.
Advisory Vote on Executive Compensation (Say-on-Pay) Management Proposals
- Vote AGAINST management resolutions where boards have failed to demonstrate good stewardship of investors' interests regarding executive compensation practices.
Other Compensation Plans
- Vote FOR broadly based employee stock purchase plans featuring purchase prices of at least 80 per cent of fair market value with no employer contribution and offering periods of 27 months or less and where potential dilution will be 10 per cent of outstanding common shares or less.
- Vote FOR deferred compensation plans if potential dilution, together with all other equity-based compensation, will be 10 per cent of outstanding common shares or less.
TSX-listed issuers should consider RiskMetrics' complete voting recommendations that are set forth in the Guidelines when determining how to proceed with various matters that require securityholder approval. If there is uncertainty as to how RiskMetrics will view a particular matter, TSX-listed issuers should discuss the matter with RiskMetrics well in advance of preparing securityholder meeting materials so that the issuer can determine at an early stage the voting recommendation that will be provided by RiskMetrics on the matter and plan its affairs accordingly.
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.