The COVID-19 pandemic coupled with the fight against anti-Black systemic racism has had a significant and potentially long-lasting impact on corporate governance.

In its report entitled "The New Abnormal: How 2020 Has Changed the Future of Corporate Governance" (the Report), Kingsdale Advisors (Kingsdale) notes that directors have faced a string of challenges in 2020 that have required innovative and agile leadership. The Report analyzes some key corporate governance trends, including the following:

  • Investors have higher expectations regarding Environmental, Social & Governance (ESG) disclosure. Institutional investors in particular are pushing for enhanced ESG-related disclosure and expect issuers to disclose targets and progress in connection with ESG initiatives. The "S" component of ESG has also come to the forefront.
  • Increased focus on diversity. An emphasis on diversity by shareholders is expected going forward. In addition to a continued focus on gender diversity, the recent movement to combat anti-Black systemic racism has prompted Canadian issuers to analyze and improve upon their existing diversity policies and practices to foster a culture of inclusion and diversity.
  • Shareholder Proposals. Issuers should expect to see an increase in shareholder proposals in 2021, including proposals pertaining to issues regarding climate change risk, ESG and sustainability disclosure, human capital management, diversity and inclusion beyond gender, employee health and safety, and cybersecurity and data privacy.
  • Issuers continue to encounter compensation-related issues. Voluntary say-on-pay (SOP) adoption was steady in 2020, with more Canadian issuers predicted to have SOP votes in 2021. Kingsdale anticipates that board discretion will have an increased role in post-COVID-19 incentive program decision making, since incorporating an element of board discretion in an issuer's overall incentive program leaves room for boards to react to significant unanticipated events.
  • Large institutional investors are increasingly focused on strengthening their internal proxy voting guidelines. This trend has seen large institutional investors adopt policies that are more rigorous than those imposed by Institutional Shareholder Services and Glass Lewis.
  • Virtual annual shareholder meetings are increasing and may be here to stay. The COVID-19 pandemic prompted many issuers to hold virtual annual shareholder meetings. Kingsdale notes that virtual and hybrid shareholder meetings can uphold shareholder democracy at a lower cost and with a reduced risk to public health, and expects that the technology, security and usage of these meetings will continue to develop.
  • Balance sheet restructuring is increasing. Raising capital has become more challenging. Distressed issuers are turning to at-market arrangements as a means of survival and the traditional methods such as subscriptions and rights offerings are being offered to an expanded class of investors.

The COVID-19 pandemic has brought about an unprecedented level of uncertainty, altering the way boards operate and requiring creative responses. These events have resulted in significant changes to corporate governance. In 2021, we will continue to see how issuers adapt to the "new normal".

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Originally Published by , January 2021

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