Norton Rose Fulbright is a global law firm providing the world’s preeminent corporations and financial institutions with a full business law service. The firm has more than 4,000 lawyers and other legal staff based in Europe, the United States, Canada, Latin America, Asia, Australia, Africa and the Middle East.
Institutional Shareholder Services (ISS) and Glass Lewis (GL)
have both updated their proxy voting guidelines for the 2019 proxy
season. Key changes to the guidelines include board gender
diversity, director overboarding, virtual meetings and
environmental and social risks. The revised guidelines are
applicable to meetings held in 20191.
Board gender diversity
Since the end of 2014, the Canadian Securities Administrators
have required TSX-listed issuers to disclose whether they have
adopted a written policy relating to the nomination of women
directors and executive officers and, if so, how the board or its
nominating committee measures the effectiveness of such policy. If
no policy has been adopted, issuers must disclose why not.
Notwithstanding this disclosure obligation, gender diversity
continues to be an important issue for ISS and GL as provided in
the guidelines described below.
ISS
Glass
Lewis
ISS's gender diversity guideline will be applicable in the
2019 proxy season to "widely held" companies. Widely held
companies are defined as S&P/TSX Composite Index companies as
well as companies designated by ISS based on ISS client ownership.
ISS originally proposed 2019 guidance would be applicable to all
TSX companies. Prior 2018 guidance referred to only S&P/TSX
Composite Index companies.
ISS recommends withholding voting for the chair of the
nominating committee (or, if no nominating committee, the chair of
the committee with the closest responsibility to the nominating
committee or, if no nominating committee or other committee
identified, the board chairman) if company has:
no female directors; and
no disclosed written gender diversity policy (which should
include measurable goals/targets)
exemption from ISS gender diversity guideline for:
newly publicly listed companies within the current or prior
fiscal year;
companies who have graduated from the TSX-V, within the current
or prior fiscal year; and
issuers with four or fewer directors
as announced in late 2017, this proxy season GL will generally
recommend voting against the chair of the nominating committee if
company has no female directors. GL may also recommend voting
against the chair of the nominating committee if board has not
adopted a formal written diversity policy
GL may extend an adverse voting recommendation to other members
of nominating committee of a company that does not meet the above
requirements. GL will consider such factors as company size,
industry, management gender diversity, governance profile and other
concerns regarding the composition of the board
GL may refrain from making an adverse voting recommendation
against directors of companies outside the S&P/TSX Composite
Index if company has provided sufficient rationale for not having
any female directors. Such rationale may include a planned
timetable to address the lack of board diversity
Director overboarding
The issue of director overboarding and whether a director can
effectively discharge his or her duties when serving on multiple
boards continues to draw the attention of institutional shareholder
groups
ISS
Glass
Lewis
ISS will continue in 2019 to recommend voting against
"overboarded" directors of TSX-listed companies
2019 guideline amends definition of overboarded to remove
previous 75% meeting attendance trigger. As a result, ISS Canadian
and U.S. standards are now harmonized by referencing only the
number of boards a director sits on
a non-CEO director who serves on more than five public company
boards will continue to be considered overboarded
a CEO director who sits on more than two outside public company
boards will continue to be considered overboarded and ISS will
recommend withholding votes for CEO director in respect of election
to outside boards
subsidiary boards will be counted as separate boards. However,
ISS will not recommend withholding vote for CEO director of any
controlled subsidiary (>50% ownership)
no change in guidance and GL will generally vote against an
‟overboarded" director. GL defines an overboarded
director as a director:
who is an executive officer who sits on more than two outside
public company boards; or
is a non-executive board member who sits on more than five
public company boards
GL generally permits TSX-V directors to sit on up to nine
boards. Where directors are on both TSX and TSX-V boards, GL will
consider on a case-by-case basis. GL will look at specific duties
and responsibilities of executive non-executive directors in
determining if an exemption is warranted
Virtual shareholder meetings
Virtual shareholder meetings enable shareholders to participate
in meetings electronically. ISS and Glass Lewis have both expressed
concern that such meetings may restrict the ability of shareholders
not present in person to fully participate at such meetings.
ISS
Glass
Lewis
ISS does not currently publish Canadian guidance on virtual
meetings
commencing in 2019, if companies hold virtual shareholder
meetings without giving the option of shareholders attending in
person, GL may recommend voting against members of the governance
committee. In determining whether to make such a recommendation, GL
will examine the company's disclosure to ensure if shareholders
will be afforded the same rights at a virtual meeting as they would
have at an in-person meeting
GL will be looking for examples of effective disclosure,
including shareholders' ability to ask questions, the
procedures for posting such questions and the company's
responses, and technical and logistical issues concerning access to
the platform and technical support to assist in access
Environmental and social risk oversight
ISS
Glass
Lewis
ISS continues in 2019 to recommend voting on a case-by-case
basis on environmental and social (E&S) proposals. 2019
guidance has been updated to update factors taken into account in
determining recommendation, including making it explicit that a
factor to be considered will be whether there are significant
controversies, fines, penalties or litigation associated with
E&S proposals
GL may recommend voting against members of the board who are
responsible for oversight of E&S risks where companies have not
properly managed or mitigated E&S risks
Other changes / guidance
ISS
Glass
Lewis
Executive compensation: GL has clarified its policy regarding
contractual payments and arrangements that may drive an executive
compensation negative recommendation. In considering the risks
involved in the grants of front-loaded awards, GL will review the
suitability of the award, including its quantum, design and
rationale. GL will also review claw-backs as part of its view of a
company's compensation policy
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 and GL guidelines. Copies of the ISS 2019 Americas Proxy Voting
Guidelines updates can be accessed here and the GL Proxy Paper
Guidelines Recommendations can be accessed here.
Footnote
1 The ISS guidelines are effective for meetings held on
or after February 1, 2019, and the GL guidelines are effective for
meetings held on or after January 1, 2019.
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