Institutional Shareholder Services (ISS) has updated its proxy voting guidelines for the 2021 proxy season. The Canadian updates relate to policies on board gender diversity, director accountability on environmental and social risk oversight failures and shareholder litigation rights as related to exclusive forum provisions.  Unless otherwise noted, the revised guidelines are generally applicable to meetings held on or after February 1, 2021.

Board gender diversity

  • Beginning in February 2022, ISS will raise the existing minimum board gender diversity policy thresholds for S&P/TSX Composite Index issuers. ISS will recommend voting withhold for the chair of the nominating committee (or other directors responsible for board nominations) where women comprise less than 30% of the board of directors and the issuer has not disclosed a formal written gender diversity policy that includes a commitment to achieve at least 30% women on the board over a reasonable timeframe.
  • ISS's current benchmark policy was implemented in 2019 and will remain in effect for the 2021 proxy season.  It generally recommends voting withhold for the chair of the nominating committee (or other directors responsible for board nominations) if the issuer has no women on its board and it has not disclosed a formal written gender diversity policy with measurable goals and/or targets. The existing policy applies to S&P/TSX Composite Index and "widely held" TSX issuers.
  • There is no change proposed to the existing policy for non-composite TSX issuers who are considered "widely held" by ISS.

Director accountability

  • Beginning in 2021, significant risk oversight failures related to environmental and social concerns, including climate change, may, on a case-by-case basis, trigger vote recommendations against board members.
  • ISS's current benchmark policy, applicable to TSX and Venture issuers, already provides that ISS may recommend a vote against one or more directors for material failures of governance, stewardship, risk oversight or fiduciary responsibilities at the issuer.  The current examples of failure of risk oversight include bribery, large or serial fines or sanctions from regulatory bodies, significant adverse legal judgments or settlements and hedging of issuer stock.

Shareholder litigation rights & defenses re: exclusive forum provisions

  • ISS has introduced a new policy, which will be applicable to both TSX and Venture issuers, in respect of board proposals to adopt an exclusive forum bylaw.  Beginning in 2021, ISS will vote case-by-case on such proposals, taking the following into consideration:
    • jurisdiction of incorporation;
    • board rationale for adopting the provision;
    • legal actions subject to the provision;
    • evidence of past harm as a result of shareholder legal action against the issuer originating outside of the jurisdiction of incorporation;
    • other corporate governance provisions and shareholder rights of the issuer; and
    • any other problematic provisions that raise concerns regarding shareholder rights.

COVID-19-related guidance

  • In light of the COVID-19 pandemic, ISS issued updated policy guidance in April 2020 regarding virtual-only AGMs, poison pills, board composition, executive compensation, option repricing, dividends, share repurchase programs and financings. This guidance will generally continue to apply for the 2021 proxy season, with updates as needed.  Please refer to our earlier legal update.

Depending on their institutional shareholder base, issuers will also want to consider the voting recommendations issued by other institutional shareholders that may, in some instances, exceed the ISS guidelines.

A copy of the ISS 2021 Proxy Voting Guidelines updates can be accessed here.

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