Proxy season is once again upon us! When preparing proxy materials in 2022, issuers should focus on meaningful engagement with shareholders and integrating environmental and social disclosure into their circulars and other annual disclosure documents.

At this time of year, Canadian public companies are focused on drafting their proxy circulars and preparing for their annual shareholder meetings, many of which will once again be in a virtual (or hybrid) format. To provide guidance to issuers, the Canadian Coalition for Good Governance (CCGG) recently published its 2021 Best Practices for Proxy Circular Disclosure. The Canadian Securities Administrators (CSA) has also recently published recommendations on virtual shareholder meetings. We have set out the key takeaways from the CCGG and CSA guidance below.

Emphasize Shareholder Experience

It remains important that issuers continue to engage with their shareholders and provide them with ample information regarding the issuer's business and the upcoming shareholder meeting. To keep shareholders well-informed and allow for an excellent shareholder experience, CCGG's recommended best practice includes disclosing the following in an issuer's proxy materials:

  • Sufficient information regarding access, participation and voting at shareholder meetings;
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  • Contact information in the event a shareholder experiences any technical issues while registering for, accessing or attending a virtual meeting;
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  • Details regarding any other means used by the issuer to promote meaningful communication with its shareholders and potential topics to be discussed; and
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  • A letter from the board chair indicating key developments, board activities, and governance issues that the board wishes to communicate to its shareholders.

Further, since many shareholder meetings continue to be conducted in a virtual (or hybrid) format, the CSA generally recommends that issuers be transparent with respect to the virtual meeting process and that such meetings provide a level of interaction between shareholders and management that is comparable to in-person meetings.

Highlight Environmental and Social Disclosure

As we previously discussed in  Four Practical Tips for Proxy Disclosure in 2021, there remains a heightened focus on environmental and social (E&S) disclosure in 2022. New this year, the CCGG notes the following:

  • A board skills matrix should include E&S-focused expertise when such expertise is important to the issuer's business and the board's role in risk management and strategic planning oversight. An issuer should discuss the proficiencies that this expertise provides, along with how it relates to the business of the issuer, to show that appropriate directors are being recruited.
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  • An issuer's letter to shareholders may comment on the issuer's approach to select E&S topics, as it is becoming an expectation that corporate boards are informed of and concerned with these matters.

Also of note is proposed National Instrument 51-107 – Disclosure of Climate-related Matters, which was published for comment in late 2021 (with the comment period ending on February 16, 2022), as we discussed in Climate-related Disclosure Requirements Proposed by the CSA. The proposed instrument would introduce disclosure requirements regarding climate-related matters for reporting issuers (other than investment funds) in their proxy circulars, annual information forms and annual management's discussion and analysis, as applicable, using the recommendations of the Task Force on Climate-related Financial Disclosures. With respect to proxy circulars specifically, issuers would need to describe the board of directors' oversight of climate-related risks and opportunities, as well as management's role in assessing and managing climate-related risks and opportunities. While we do not know if or when the proposed instrument will be adopted, issuers may wish to begin proactively thinking about how the proposed requirements will affect their disclosure going forward.

For more information on the environmental, social and governance regulatory framework in Canada, see Environmental, Social and Governance Law: The Canadian Perspective.

Comply with Non-GAAP Financial Measure Disclosure Requirements

To the extent any non-GAAP measures are being included in an issuer's proxy materials, it is important to ensure compliance with National Instrument 52-112 Non-GAAP and Other Financial Measures (NI 52-112), which came into force on August 12, 2021 and is now generally applicable to issuers who have had a fiscal year end since October 15, 2021. As we had discussed in CSA Adopt Disclosure Requirements for Non-GAAP Financial Measures, NI 52-112 sets out disclosure requirements for non-GAAP financial measures, non-GAAP ratios, and certain other financial measures, including capital management measures, supplementary financial measures, and total of segments measures, each as defined in NI 52-112. Note that, if a financial measure is identified by label but does not have a corresponding numerical amount, the disclosure requirements identified by NI 52-112 do not apply.

According to the CCGG, best practice when using non-GAAP measures in executive compensation involves including a brief explanation of the principles applied by the issuer to make sure that any adjustments made to financial data for compensation purposes are appropriate. To the extent applicable, issuers must also provide a quantitative reconciliation of the non-GAAP financial measures for their current and comparative periods to the most directly comparable GAAP measure.

Additional Updates

In addition to the above, the CCGG has provided updated guidance with respect to several governance matters:

  • Term Limits –  While term limits and mandatory retirement can be useful tools to encourage board renewal and assist in long-term succession planning, the primary mechanism to assess whether the renewal of a director is essential to enhance the board's overall performance should be a rigorous annual assessment of the effectiveness of both the board and the individual director.
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  • Executive Succession  – Succession plans should contemplate a variety of planning horizons and, to increase depth throughout the company, give high potential individuals the chance to develop their experience and leadership capabilities.
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  • Director Continuing Education –  By asking board members on an annual basis to provide input on educational topics of interest, board members can proactively deal with any gaps in their understanding of the issuer's business, and, in turn, the issuer will be able to address these matters in presentations to the board.
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  • Executive Compensation and Risk Management – While clawback policies can be a valuable tool to manage compensation-related risk, anti-hedging policies (i.e. policies designed to restrict hedging against future declines in the market value of securities) can also be useful for that purpose.

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.