Goodbye holiday season... hello proxy season! Here are four practical tips to consider when preparing proxy circulars in 2021.
The Canadian Coalition for Good Governance (CCGG) recently published its 2020 Best Practices for Proxy Circular Disclosure, which provides its readers with examples of and guidance with respect to excellent proxy disclosure by Canadian issuers. With proxy season only a few short months away, we have distilled the CCGG guidance into four key tips for preparing a 2021 proxy circular.
1. Disclose Diversity Metrics
Diversity on boards is a hot topic of conversation and there is a growing expectation that boards and senior management be diverse. Notably, early in 2020, new diversity disclosure requirements were introduced in the Canada Business Corporations Act (CBCA), which require CBCA-incorporated publicly listed issuers to provide shareholders with information about the diversity, extending beyond gender, of their boards and in senior management positions.
To enhance diversity disclosure, best practice includes disclosing measurable objectives for achieving diversity, and further, demonstrating a commitment to diversity. This can be evidenced in a number of ways, including:
- Being transparent with diversity measures;
- Introducing gender or other diversity targets;
- Collecting data to support decision-making; and
- Establishing initiatives and programs that support the development and inclusion of diverse employees.
As we have previously discussed, both ISS and Glass Lewis have updated their gender diversity voting policies and now generally expect issuers to adopt targets for women on boards. By 2022, ISS will expect companies on the S&P/TSX Composite Index to adopt a 30% target for women on boards and Glass Lewis expects issuers with six or more board members to have at least two female board members. More recently, the Ontario Capital Markets Modernization Taskforce (Taskforce) published its Final Report which included, among its recommendations, a proposal that would require Canadian publicly listed issuers to set their own board and executive management diversity targets. However, the Taskforce suggests that publicly listed issuers set an aggregated target of 50% for women and 30% for BIPOC, persons with disabilities and LGBTQ+ individuals, with implementation to be completed within five and seven years, respectively.
2. Integrate Environmental and Social Disclosure
There is now a heightened focus on environmental and social (E&S) matters, particularly by institutional investors, and CCGG notes an increased prominence of E&S factors in recent proxy circular disclosure. While the inclusion of E&S disclosure continues to evolve, issuers looking to address E&S matters for the 2021 proxy season will want to thoroughly discuss their E&S performance in all areas that affect their business, including corporate culture, director recruitment, incentive systems, and corporate strategy. Examples of where E&S disclosure can be integrated into a proxy circular include:
- Discussing any E&S performance metrics used in executive compensation;
- Indicating a director's health, safety and environmental expertise in her/his director biography and in director skills matrices; and
- Describing any environmental risks identified by the company in its strategic planning process.
Frameworks like the Sustainability Accounting Standards Board (SASB) standards and the Taskforce on Climate-related Financial Disclosure (TCFD) framework, each of which has been endorsed by eight of Canada's largest pension plans, may also provide guidance for how to best integrate E&S disclosure into a proxy circular. Integrating E&S disclosure demonstrates to shareholders that the company is aware of and actively addressing material E&S considerations.
3. Consider Readability
Shareholders who rely on proxy circular disclosure come in all different forms, from individual to institutional. Proxy circulars should be easy to understand for all readers who will be relying on them and organized in such a way that information is complete, accurate and easy to find. In order to help the overall organization, consider using descriptive headings, providing visual aids where possible, and grouping related information to reduce redundancies. Summaries of key points in each major section can also be helpful for identifying and communicating important information to shareholders. Further, in accordance with the instructions to Form 51-102F5 Information Circular and the guidance in Companion Policy 51-102CP – Continuous Disclosure Obligations, plain language principles, such as using short sentences, avoiding jargon, and using technical terms only when necessary, should also be applied when preparing disclosure.
4. Skip the Boilerplate Commentary
Disclosure should be practical, robust, and reflect the realities of the business. While boilerplate language may check the box, it does not provide readers with information to understand the business or distinguish a company amongst others. This is often the case with respect to discussions on risk management oversight, where best practice includes detailing how risks are delegated to board committees and the specific processes by which the board ensures that such risks are being assessed, monitored and mitigated. Also, rather than including boilerplate language regarding the company's strategic planning process, consider providing more practical details about the board's involvement in this process and any key areas of consideration.
In light of the COVID-19 pandemic, the Canadian Securities Administrators have released guidance that endorses the idea that issuers should be specific in their disclosure and that there is no "one size fits all" model for issuers to follow with respect to its continuous disclosure obligations.
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.