In this article, we explore 10 important trends that should be of interest to general counsel and boards in their strategic and compliance planning.
1 Boards Should Expect Continued Attention from Activists
As we discussed in our article on shareholder activism, 2023 was a banner year for activism in Canada. No fewer than 47 companies were targeted by activists (excluding shareholder proposals), well in excess of even pre-pandemic levels of activity. We see little reason to expect this activity to abate in 2024. While scrambled macroeconomic indicators may have tempered the market for public M&A activity, continued uncertainty is unlikely to dissuade activists from taking on underperforming companies. As evidenced by the trend of activist "swarms," most recently witnessed with Gildan Activewear as 2023 drew to a close, even shareholders who would not typically be viewed as having an activist posture are becoming more vocal.
In addition, the shareholder-friendly decision of the Ontario Superior Court in Sandpiper, which rejected a target board's decision to substantially postpone a requisitioned shareholder meeting, may provide some hope to activists that the courts will provide a more sympathetic ear should they need to seek judicial recourse while pursuing a proxy campaign. Accordingly, public company boards should remain attuned to feedback from their shareholders and proactively address criticism, given that negative feedback can be a harbinger of an upcoming activist campaign. In addition, public company boards considering actions that may affect shareholder voting rights should be particularly conscientious about managing the board's process and director conflicts.
For a more detailed discussion of the Sandpiper decision, including the conflict issues that arose, see our bulletin Time (and Process) of the Essence: Ontario Court Accelerates Timing of Requisitioned Meeting
2 "Vote-No" Campaigns May Gain Prominence as an Activist Tool
With the adoption of the August 2022 amendments to the Canada Business Corporations Act (CBCA) to introduce true majority voting for directors, a "vote-no" campaign can now yield concrete results whereby a director candidate receiving a majority of "no" votes will fail in his or her election. While we are aware of only one vote-no campaign against a CBCA company in 2023, future campaigns may be on the horizon. For example, recommendations from proxy advisory firms to vote against certain directors owing to alleged governance shortcomings could have greater impact, especially if used by key shareholders to catalyze a larger vote-no campaign. Pursuing a vote-no campaign can be relatively cost-effective and result in a course change at a target even if the campaign does not succeed in dislodging an incumbent director. In that regard, directors whose votes fall dangerously close to negative territory may feel pressure to address shareholder criticisms. As shareholders of CBCA companies now have greater influence at the ballot box, attention has turned to how incumbent directors may best protect themselves. In our view, a target's best defence is to ensure a robust and ongoing campaign of shareholder engagement and appropriate responsiveness to shareholder feedback.
3 Mandatory Climate Disclosure: Here to Stay (Eventually)
As reported in the 2022 edition of Davies' Governance Insights, in October 2021, the Canadian Securities Administrators (CSA) released for public comment proposed National Instrument 51-107—Disclosure of Climate-related Matters (CSA Proposal), which was aimed at improving the consistency and comparability of climate disclosure and aligning Canadian disclosure standards with the expectations of international investors and, more generally, assisting investors in making informed investment decisions. Currently, Canadian securities law requires issuers to disclose any material information, including material climate-related information. The CSA Proposal imposes a more stringent disclosure requirement, calling for the disclosure of specified climate-related information even if, in some cases, this information is not considered material.
Despite the targeted effective date of December 31, 2022, the implementation of the CSA Proposal has been put on hold while the CSA studies the proposal of the U.S. Securities and Exchange Commission (SEC) for The Enhancement and Standardization of Climate Related Disclosures for Investors (SEC Proposal) published in March 2022, as well as the International Sustainability Standards Board's IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) (ISSB Standards) issued in June 2023.
Although neither the CSA Proposal nor the SEC Proposal has yet been adopted, we expect that the ISSB Standards and recent developments in the proxy sphere will inform Canadian issuers' climate-related disclosure for 2024 and going forward. For example, The Globe and Mail's "Board Games" introduced three new criteria in 2023 aimed at evaluating board oversight for the environment, and the climate expertise and climate training of directors. Similarly, in its 2024 benchmark policy guidelines for Canada, Glass Lewis & Co. (Glass Lewis) expanded its climate-related disclosure policy adopted just last year to apply to TSX 60 companies operating in industries that the Sustainability Accounting Standards Board has determined have material exposure to climate risk. While Canadian public companies await the enactment of formal climaterelated disclosure rules, investor expectations are likely to drive enhanced climate-related disclosure during this interim period.
4 Cybersecurity: A Renewed Governance Frontier
The CSA last issued cybersecurity governance and disclosure guidance in 2016 as part of an initiative to increase cybersecurity awareness and resilience among market participants. As we anticipated that year in Davies' Governance Insights, we believed that managing cybersecurity risks and their potentially significant exposures would continue to be a top priority for many boards.
Since then, virtually all Canadian public company boards have adopted formal cybersecurity risk management practices and policies as a key part of their overall risk oversight frameworks. Although Canadian securities regulators have not yet issued updated cybersecurity guidance, we expect cybersecurity to remain at the fore of boards' risk management priorities in 2024. This view is informed partly by new cybersecurity risk management, strategy, governance and incident disclosure rules adopted by the SEC in 2023, and partly by shareholder expectations. In its 2024 benchmark policy guidelines for Canada, Glass Lewis expanded its cybersecurity voting guidelines adopted just last year to caution that, in instances in which a company has been materially impacted by a cyberattack, Glass Lewis may recommend against appropriate directors should it find the board's oversight, response or disclosure concerning cybersecurity-related issues to be insufficient or not sufficiently transparent. In light of a number of high-profile cyberattacks that affected Canadian public companies in 2023, it would be prudent for issuers to review and update their existing cybersecurity practices and policies against best practices.
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