Both Glass, Lewis & Co (Glass Lewis) and Institutional Shareholder Services (ISS) have released updates to Canada’s voting guidelines for the 2023 voting season. The Glass Lewis update applies to shareholder meetings of listed Canadian companies held on or after January 1, 2023, while the ISS update generally applies to shareholder meetings held on or after February 1, 2023. Applies to
Recommendations from proxy advisors such as ISS and Glass Lewis can have a significant impact on business outcomes at shareholder meetings, especially if institutional investors make up a large share of a company’s shareholder base. Canadian publicly traded companies should review the latest information with their legal counsel to determine the impact on their disclosure and governance practices and take steps to mitigate potential downvote recommendations from ISS or Glass Lewis. I have.
The most significant changes in Glass Lewis and ISS policies relate to board diversity, environmental and climate-related issues, and executive compensation. These changes are summarized below.
Gender Diversity (Glass Lewis & ISS)
ISS and Glass Lewis have updated their Board Diversity Policy.
As announced in 2022, Glass Lewis is moving from a fixed numerical approach to board gender diversity to a percentage-based approach. For meetings held on or after January 1, 2023, Glass Lewis will generally serve as Chairman of the Nominating Committee of the Board of Directors of a TSX company that is not more than 30% gender diverse, or a Director with no gender-diverse directors. We recommend that you vote against the entire nominating committee of the Board. As in past years, Glass Lewis may refrain from making negative recommendations if the board provides sufficient rationale or a plan to address the lack of diversity on the board. .
ISS has made similar updates to its gender diversity policy. Effective February 1, 2023, ISS will vote against the chairman (or equivalent) of her S&P/TSX composite company’s nominating committee where women make up less than 30% of her board of directors recommended. ISS will make an exception for the following companies:
- Participated in the S&P/TSX Composite Index and was not previously subject to the 30% women board requirement.Also
- After achieving such a level of representation at the last Annual Meeting, unusual circumstances caused it to fall below the 30% threshold.
In such cases, the company must also have provided a publicly disclosed written commitment to achieve at least 30% women on the board at or before the next annual general meeting.
For TSX companies that are not constituents of the S&P/TSX Composite Index, ISS generally withholds the vote of the chair (or equivalent) of the nominating committee if there are no women on the board. ISS does not require companies that are newly listed in the current or previous fiscal year, that have graduated from the TSX Venture Exchange in the current or previous fiscal year, or that have less than four directors to disclose information publicly disclosed by the company. does not apply the policy. We commit to adding at least one more woman to our board of directors at or before our next annual general meeting.
Ethnic/Racial Diversity (ISS)
In particular, ISS has announced that it will expand Canada’s policy on diversity beyond gender to include racial and/or ethnic diversity.1 requirement.
Beginning in 2024, ISS will generally vote against the Chairman (or equivalent) of the nominating committee of an S&P/TSX Composite Index company whose racially or ethnically diverse members are not apparent to the Board. is recommended. ISS has racially and/or ethnically diverse members on the Board at the previous Annual Meeting and the Board has elected at least one racially and/or ethnically diverse member at or before the next Annual Meeting. We make exceptions when we have made a public commitment to appoint a member.
ISS is the first leading proxy voting advisor in the Canadian market to extend its diversity policy beyond gender. The new requirement is Canadian Business Company Act (CBCA) entered into force on January 1, 2020. These CBCA amendments expand disclosure requirements under the CBCA for board diversity of publicly traded companies beyond gender. See previous insight for more details. New Diversity Disclosure Requirements for Public CBCA Entities.
Oversight of the Board of Directors
Environmental and social risk monitoring (Glass Lewis)
Following the 2022 update on board-level oversight of environmental and social issues, Glass Lewis will typically chair the S&P/TSX Composite’s Corporate Governance Committee for meetings held after January 1, 2023. We recommend that you vote against Disclosure on the Board’s role in oversight of environmental and social issues. Glass-Lewis continues to hold the view that companies should determine the optimal structure for this oversight.
Director of Climate-Related Issues (Glass Lewis & ISS)
Both ISS and Glass Lewis have added new sections specifically related to climate risk and related disclosures.
In Glass Lewis’ view, companies with significant exposure to climate risks, such as those identified by Climate Action 100+, should ensure that such risks are adequately managed, including how such risks are mitigated and monitored. You must provide a clear and comprehensive disclosure about In line with this view, Glass Lewis recommends that companies that have material exposure to climate risks arising from their operations should provide shareholders with full climate-related disclosures in line with the recommendations of the Task Force on Climate-related Financial Disclosures. I believe it is. Glass Lewis also believes that the boards of these companies should have clear and well-defined oversight responsibilities for climate-related issues.
Beginning January 1, 2023, Glass Lewis will serve as chair of the committee (or board of directors) responsible for oversight of climate-related issues, or, if there is no committee responsible for such oversight, the chair of the governance committee. may recommend that you vote against We found that either climate risk or oversight, or both, were absent or severely lacking. Glass Lewis may extend its nominations to additional members of the responsible committee in certain circumstances.
In contrast, ISS’s policy is targeted at companies that are large emitters of greenhouse gases (GHG), with a greater focus on disclosure.
Effective February 1, 2023, ISS will generally vote against the Chairman (or other board member, as the case may be) of a Corporate Responsibility Committee that is a significant emitter of GHGs (through its operations or value chain). , recommends that you withhold your vote. ), failing to take the minimum steps necessary to understand, assess and mitigate the risks associated with climate change.
At a minimum, ISS will require companies to (1) make detailed disclosures of their climate-related risks, including board governance measures, corporate strategy, risk management analysis, metrics and targets, in line with the recommendations of the Task Force on Climate-related Financial Disclosures; We hope to provide. (2) appropriate GHG emission reduction targets; In ISS’ view, a medium-term GHG reduction target or a net zero GHG reduction target by 2050 related to company operations (scope 1) and electricity use (scope 2) would fulfill the second step. Both of these minimum standards must be met in order to comply with ISS policy.
Shareholder Proposals—Social and Environmental Issues (ISS)
ISS has clarified its approach to evaluating social and environmental proposals by codifying the specific criteria that ISS considers when evaluating social and environmental proposals. Beginning in 2023, ISS will (1) consider whether the issues presented in the proposal are appropriate; to be (2) Whether there are significant controversies, fines, penalties or lawsuits related to the Company’s practices; related to the issues raised in the proposalThe first change considers whether regulation or legislation is likely, and the second makes clear that only controversies related to the issues raised in the proposal will be considered relevant.
Long-Term Encouragement Award (Glass Lewis)
In line with market trends, Glass Lewis has increased the minimum percentage threshold for performance-based long-term incentives from 33% to 50%.
Beginning January 1, 2023, Glass Lewis points to concerns about executive compensation programs in which less than half of executive long-term incentive awards are subject to performance-based vesting conditions. Glass Lewis may withhold negative recommendations unless there are other significant problems with the design or operation of the program, but if the performance-based reward is withdrawn or removed from the company’s long-term incentive plan , which may result in an unfavorable recommendation. .
Non-employee Directors Deferred Stock Unit Plan (ISS)
To align its policy with shareholder expectations, ISS has updated its policy for TSX-listed companies related to non-employee director (NED) deferred share unit plans. In these types of plans, shares are issued only to the NED and only in lieu of directors’ compensation otherwise paid in cash. ISS believes that such a plan could help align NED’s interests with those of its shareholders by developing equity commensurate with the directors’ established compensation structure.
After February 1, 2023, ISS recommends voting for the NED Deferred Compensation Plan.
- Deferred Stock Units (DSUs) are granted only for value consideration in lieu of cash compensation (discretionary or other grants are not permitted).When
- (cash Allow arbitrary grants (not just in lieu of rewards). , the plan’s shareholder value transfer (SVT) costs do not exceed the company’s acceptable limits; participation in the NED is permissibly limited; In addition, shareholder approval is required for certain amendments to the Plan, such as changes in eligibility, increases in the number of shares reserved for issuance, or amendments to Plan Amendment Provisions.
Advanced Award (Glass Lewis)
Glass Lewis has expanded guidance related to prepaid award practices. This update sees increased use of “mega-grant” (oversized, up-front rewards for certain individuals), increased restraints faced by boards in responding to unforeseen factors, and difficulty using front-loaded rewards I am dealing with a situation. Intended to cover only the time-based or performance-based portion of executive long-term incentive awards.
The company said it would consider “large grants” under further scrutiny. If a “substantial grant” has been granted and there are concerns that the compensation is excessive, lacks sufficient performance conditions, and/or is excessively diluted, Glass Lewis will advise the Compensation Committee We may recommend that you withhold a vote from the Chair.