Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) have recently published their updates to their voting policies for the 2018 proxy season. In addition to a number of other updates, both ISS and Glass Lewis have announced updates with respect to their voting recommendations on board gender diversity and overboarded directors, which are described below.

Board Gender Diversity

Under the new ISS voting policy, ISS will recommend voting WITHHOLD on the chair of a company's nominating committee (or other committee that performs the board nomination function) if both of the following are true:

  • The company does not have (or has not disclosed that it has) a formal written gender diversity policy; and
  • There are no female directors on the board of directors of the company.

ISS requires that gender diversity policies include a clear commitment to increase board gender diversity, measurable goals and/or targets to increase gender diversity within a reasonable period of time and no contradictory language.

The new ISS voting policy will apply to S&P/TSX Composite Index Companies in 2018 and all Toronto Stock Exchange listed companies in 2019 (a list of companies included in the S&P/TSX Composite Index can be found here). The ISS gender diversity guidelines will not apply to companies that have become publicly listed within the current or prior fiscal year, or to companies that have transitioned from the TSX Venture Exchange within the current or prior fiscal years or to companies with four or fewer directors.

Glass Lewis has indicated that in 2018 they will not make voting recommendations solely based on the diversity of the board of directors of a company. Board diversity will, however, be one of many considerations in Glass Lewis' evaluation of a company's corporate governance practices. In 2019, Glass Lewis will generally recommend voting WITHHOLD on the chair of a company's nominating committee (or other committee that performs the board nomination function) and potentially other nominating committee members, if either:

  • The company does not have a formal written gender diversity policy; or
  • There are no female directors on the board of directors of the company.

Unlike ISS, Glass Lewis has not provided guidance on what will constitute an acceptable formal written

gender diversity for their purposes. Glass Lewis has, however, indicated that they may refrain from recommending that shareholders vote WITHHOLD on directors of companies that are not included in the S&P/TSX Composite Index, or have provided sufficient rationale for not having female board members, or have disclosed a plan to address the lack of diversity on the board.

Overboarded Directors

In addition to the new policies on gender diversity, ISS has announced a new voting policy on overboarded directors, which will come into effect February 1, 2019. Under the current voting policy, a director will only receive a WITHHOLD recommendation if they are considered overboarded and such director has attended less than 75% of board and committee meetings without a valid excuse. Under the current policy a director is considered overboarded if such director is a CEO of a public company and sits on more than one outside public company board, or if not a CEO, if such director sits on more than 4 public company boards in total.

Under the new ISS policy, which will come in to effect for shareholder meetings held after February 1, 2019, ISS will generally recommend voting WITHHOLD for an individual director, regardless of the attendance record of such director, if such director:

  • Is a non-CEO director and serves on more than five public company boards; or
  • Is a CEO and serves on the board of more than two public company besides his/her own (WITHHOLD only with respect to their outside boards).

Although Glass Lewis has not updated its voting policies with respect to director overboarding, it has clarified its approach. Relative to the ISS approach, the Glass Lewis approach is much more subjective. Glass Lewis generally recommends that shareholders vote WITHOLD on a director who serves as an executive officer of any public company while serving on more than two public company boards and any other director who serves on more than five public company boards. However, in determining whether to vote WITHHOLD on a director Glass Lewis indicates that it will consider a number of other factors including the size and location of the other companies, 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 for all companies. In the case of directors who serve in executive roles other than CEO, Glass Lewis indicates it will evaluate the specific duties and responsibilities of that role in determining whether an exception is warranted.

Glass Lewis will, however, generally not recommend that shareholders vote against overcommitted directors at the companies where they serve as executive officers. Glass Lewis will also generally refrain from recommending to vote against a director who serves on an excessive number of boards within a consolidated group of companies or a director who represents a firm whose sole purpose to manage a portfolio of investments which include the company.

Other Policy Updates

Both ISS and Glass Lewis have issued a number of other updates to their voting policies. For full details of the updates of ISS, see: 2018 ISS Americas Policy Updates and for the updates of Glass Lewis, see: 2018 Glass Lewis Policy Guidelines.

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