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Institutional Shareholder Services (ISS) and Glass Lewis (GL)
have updated their proxy voting guidelines for the 2020 proxy
season. Changes to the guidelines include director meeting
attendance and committee meeting disclosure, director overboarding,
board diversity, ratification of auditors and excessive non-audit
fees, policies applicable to majority-owned/controlled companies,
and executive compensation and contractual payments and
arrangements. Unless otherwise noted, the revised guidelines are
generally applicable to meetings held in 2020.1
Director attendance and committee meeting disclosure
ISS and GL clarified their policies regarding directors'
attendance records and disclosure regarding audit committee
- ISS clarified that when evaluating
director attendance for TSX-listed companies, exceptions will be
made for nominees who served for only part of the fiscal year or as
directors of newly publicly listed companies or companies that have
recently graduated to the TSX, on a case-by-case basis.
- ISS will withhold voting for
individual director nominees for TSX-listed companies if a company:
- has not adopted a majority voting
director resignation policy and the individual director has
attended less than 75% of the director's board and key
committee (audit, compensation and nominating) meetings in the last
year (without reason); or
- has adopted such a policy and an
individual director has attended less than 75% of such meetings and
a pattern of low attendance exists based on prior years'
- ISS emphasizes that its 75%
attendance threshold is calculated on the aggregate of a
director's board and key committee meetings attendance.
- GL will generally recommend voting
against the governance committee chair of TSX-listed companies when
records for board and committee meeting attendance are not
- Beginning in 2021, GL will recommend
- the governance committee chair of TSX
issuers when the number of audit committee meetings that took place
during the most recent year is not disclosed; and
- the audit committee chair if the
audit committee did not meet at least four times during the
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
- ISS will continue in 2020 to
recommend to withhold voting for "overboarded" directors
of TSX-listed companies.
- ISS recognizes it is preferable if a
director steps down from a board at an annual meeting to ensure an
orderly transition and that this may cause a director to be
temporarily overboarded (e.g., where a director joins a new board
in March but is stepping off another board in June). ISS has
indicated that it will:
- generally not count a board when it
is publicly disclosed that the director will be stepping off that
board at the next annual meeting. This disclosure must be included
within the company's proxy circular to be taken into
- include the new boards that a
director is joining even if the shareholder meeting with the
nominee's election has not yet taken place.
- As a reminder:
- a non-CEO director who serves on more
than five public company boards will continue to be considered
- 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; and
- subsidiary boards will be counted as
separate boards. However, ISS will not recommend withholding voting
for a CEO director of any controlled subsidiary (>50%
- GL will continue to generally vote
against an "overboarded" director, meaning 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 the executive in
determining if an exemption is warranted.
The Canadian Securities Administrators require TSX-listed
issuers to disclose whether they have adopted a written policy on
nominating 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
Amendments to the Canada Business Corporations Act
(CBCA) will come into force on January 1, 2020. These amendments
impose new disclosure obligations regarding diversity
of directors and senior management on all CBCA distributing
corporations. These new disclosure obligations are not restricted
to gender but impose a broader standard of diversity and apply to
TSX, TSX-V and CSE issuers.
Notwithstanding the existing disclosure obligations under
securities law and the impending introduction of obligations under
federal corporate law, ISS and GL have not changed their diversity
guidance to incorporate these broader standards.
- ISS has not changed its 2019 gender
diversity guideline, which is applicable in the 2019 proxy season
to "widely held" companies (defined as S&P/TSX
Composite Index companies as well as companies designated by ISS
based on ISS client ownership).
- GL will review any new company
diversity disclosure resulting from the CBCA amendments and, where
relevant, reflect such expanded disclosure in its analysis for the
election of directors at TSX-listed issuers.
- GL's 2019 guidance on diversity
disclosure has not changed.
Ratification of auditors and excessive non-audit fees
This year, both ISS and GL made changes to their policies
regarding excessive non-audit fees.
|ISS (TSX and
- In considering whether to ratify an
external auditor, ISS determines whether the "non-audit
fees" paid to the auditor exceed the audit and related fees
and tax compliance and preparation fees.
- In determining excessive non-audit
fees, ISS previously limited carve-outs from the "non-audit
fees (other)" category, considering only IPOs, emergence from
bankruptcies and spin-offs.
ISS's updated 2020 guidance
- it may also carve out fees related to
M&A transactions, including dispositions. For companies in the
business of regularly acquiring/disposing assets, however, their
M&A transactions may not be deemed as eligible for a carve-out;
- fees connected to re-domiciliation
may also qualify as a one-time fee eligible to be carved out.
- There is otherwise no change to the
ISS disclosure requirement: fees related to all one-time capital
structure events will be eligible to be carved out only if
there is adequate disclosure about the transactions and a clear
breakdown of fees.
- GL codified its policy on non-audit
fees, stating it may recommend voting against all audit committee
members in the second successive year of excess non-audit
Policies applicable to majority owned / controlled
Both GL and ISS updated their policies applicable to both TSX-
and TSX-V-controlled or majority-owned companies.
|ISS (TSX and
- ISS supports a one-share, one-vote
- ISS clarifies that its policy of
supporting director nominees (on a case-by-case basis) who are or
who represent a controlling shareholder of a majority owned
- applies only to
non-management director nominees; and
- will not apply if any of the
independence and governance criteria set out in the policy are not
- GL expanded its policy on
independence standards for controlled companies, providing that
controlled companies are not required to meet GL's minimum
board size threshold (five directors for TSX issuers and four
directors for TSX-V issuers).
Executive compensation; contractual payments and
In their 2020 guidelines, ISS and GL continued to refine their
policies regarding executive compensation and contractual payments
- ISS continues to vote on a
case-by-case basis on TSX-V issuers' share-based compensation
- ISS provides new guidance regarding
rolling plans. ISS will generally vote against an equity
compensation plan if the plan is a rolling equity plan that enables
auto-replenishment of share reserves without requiring periodic
shareholder approval at least every three years (i.e., an evergreen
- ISS issued new guidance that, for
meetings on or after February 1, 2021, ISS will generally vote
withhold for the continuing compensation committee members (or in
cases where compensation committee members have not been identified
and the entire board fulfills the role of compensation committee,
vote withhold for the board chair), if the company (i) maintains an
evergreen plan, (ii) has not sought shareholder approval in the
past two years and (iii) does not seek shareholder approval of the
plan at the meeting.
- GL clarified that it expects
comprehensive disclosure regarding mid-year adjustments to
short-term incentive plans. Where management has received a
short-term bonus where goals were lowered mid-year or calculated
payouts were increased, GL will expect a robust discussion of why
the decision was necessary.
- GL clarified its approach to
analyzing both ongoing and new contractual payments and executive
entitlements/arrangements. In general, GL disfavours contractual
agreements that are excessively restrictive in favour of the
executive. In its 2019 guidance, GL identified inadequately
explained or excessive sign-on arrangements and guaranteed
multi-year bonuses as factors that may support a negative voting
recommendation. In its 2020 guidance, GL added as problematic
factors: (i) excessive severance payments, (ii) new or renewed
single-trigger change-in-control arrangements, and (iii) a failure
to remedy problematic provisions in a revised or renewed
Other changes / guidance
- Former CEO/CFO on
Audit/Compensation Committee: ISS will continue to
recommend withholding votes from any audit or compensation
committee member of a TSX-listed company who has served as CEO of
the company or its affiliates within the past five years, or as CEO
of a company acquired within the past five years, and is a member
of the audit or compensation committee. ISS will continue to
evaluate on a case-by-case basis whether support is warranted for
any former CEO on the audit or compensation committee following a
five-year period after leaving as a CEO. ISS will generally
recommend withholding votes for any director who has served as the
CFO of a TSX-listed company and/or its affiliates within the past
three years, or of a company acquired within the past three years,
and is a member of the audit or compensation committee.
- Board Skills: GL
announced in 2019 that it was codifying its assessment of board
skills as an integral part of the analysis of proposals to elect
directors. In its 2020 guidance, GL clarified its expectation that
companies provide meaningful disclosure in line with developing
best practice standards. Issuers are encouraged to refer to
GL's Board Skills Appendix for an overview of the
skills that GL considers in relation to certain key industry
sectors in its analysis of director elections at large-cap TSX
issuers; we note there were no changes to GL's Board Skills
Matrices from 2019.
- GL bolstered its description of focus
areas of its review of say-on-pay proposals, by adding the
following areas: (i) the selection and challenging nature of
performance metrics, and (ii) the implementation and effectiveness
of the company's executive compensation programs, including pay
mix and use of performance metrics in determining pay levels.
- GL clarified that its review of
significant changes and modifications will involve consideration of
post-fiscal year-end changes and one-time awards, particularly
where changes touch upon issues that are material to GL
- GL has added to its list of practices
that are indicative of problematic pay practices: (i) targeting
overall levels of compensation at higher than median without
adequate justification, (ii) discretionary bonuses paid when short-
or long-term incentive plan targets were not met, and (iii)
insufficient response to low shareholder support.
- Company Responsiveness to
Say-on-Pay Proposals: GL expanded its discussion of what
it considers to be an appropriate response following low
shareholder support for a say-on-pay proposal at the previous
annual meeting (i.e., where 20% or more of shareholders opposed
management's proposal), including different levels of
responsiveness depending on the severity and persistence of
shareholder opposition. GL expects a robust disclosure of
engagement activities and specific changes (to a company's
compensation program) made in response to shareholder feedback.
Absent such disclosure, GL may consider recommending against an
upcoming say-on-pay proposal.
- Pay for Performance:
GL clarified that its measurement of the compensation and
performance of an issuer against a peer group of appropriate
companies will involve both quantitative and qualitative
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 2020 Americas Proxy Voting
Guidelines updates can be accessed here and the GL 2020 Proxy Paper Guidelines
Recommendations (Canada) can be accessed here.
1. The ISS guidelines are effective for meetings held on
or after February 1, 2020, and the GL guidelines are effective for
meetings held on or after January 1, 2020.
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