This update summarizes current trends on governance and executive compensation. It also includes recommendations on key issues when preparing for the upcoming proxy season. This update takes into account comments made by representatives of institutional investors and governance organizations at a webinar we held recently.

ESG at the forefront 

ESG oversight 

As discussed in a recent update, many investors and proxy advisors are taking a firm stance in keeping boards accountable on environmental, social and governance (ESG) matters. Some intend to vote against the chair or members of the board or its committees who fail in this respect, and Glass Lewis has announced that, come 2022, it will recommend voting against any governance committee chair of a company included in the S&P/TSX Composite index that fails to adequately disclose the board’s role in ESG oversight. This policy should apply to all TSX-listed companies as of 2023.

In addition, the Canadian Securities Administrators (the CSA) recently proposed new climate disclosure rules in National Instrument 51-107 – Disclosure of Climate-related Matters (the Climate Disclosure Proposed Rules) that, if adopted, would require issuers to provide more complete disclosure of the roles of both management and the board of directors in assessing, managing and overseeing environmental risks and opportunities.

Recommendation: Review your board and committee charters and provide disclosure regarding ESG oversight.

ESG reporting: climate is top of mind

For 2022, the main ESG priority for various institutional investors and their advisors will remain climate-related issues. Many will thus support proposals seeking disclosure on material environmental information such as carbon emissions, energy and natural resource use, and waste and pollution management.1

A number of foreign initiatives were recently taken on climate-related reporting. In our summer update, we referred to the United Kingdom’s Prudential Regulation Authority disclosure regime, as well as the US Securities and Exchange Commission’s intention to develop one. Two significant developments have occurred more recently:

  • On October 18, 2021, the CSA published its Climate Disclosure Proposed Rules. Largely based on the Task Force on Climate-related Financial Disclosure’s recommendations, the Climate Disclosure Proposed Rules focus issuers’ climate-related disclosure on four areas: governance, strategy, risk management, and metrics and targets (including metrics and targets relating to Scope 1, Scope 2 and/or Scope 3 greenhouse gas emissions). The Climate Disclosure Proposed Rules can be found here and are open for a public comment period expiring on February 16. Please refer to our recent publication for more information.
  • On November 3, 2021, at COP26, the IFRS Foundation announced the formation of the International Sustainability Standards Board, an organization mandated with developing a climate reporting disclosure prototype. Please refer to our recent publication for more information.

When considering disclosure in that respect, issuers should take into account potential risks of liability.

Recommendations: Think about how climate risks affect your business. Proactively prepare for a new regulatory environment. When releasing ESG-related statements, consider potential liability.

Diversity and inclusion: being proactive is key

Proxy advisory firms tightening things up

One of the key changes for the upcoming proxy season is the coming into force of revised voting guidelines on diversity from proxy advisory firms. Refer to our recent updates for details on the main changes to the Glass Lewis and ISS voting guidelines.

Glass Lewis will now generally recommend voting against the chair of the nominating committee of TSX-listed companies if there are fewer than two women on the board, provided the board has seven or more directors (the minimum requirement falls to one woman for boards with fewer than seven directors). Glass Lewis will also recommend voting against the entire nominating committee of TSX-listed companies if there are no women on the board. Looking ahead to 2023, Glass Lewis will require a minimum of 30% gender diversity on boards2, rather than stating a fixed number of directors.

Likewise, ISS is moving to a 30% minimum threshold in 2022, though only for S&P/TSX Composite issuers, provided that it will generally not recommend voting “withhold” for the chair of the nominating committee if the issuer has a formal written gender diversity policy that includes a commitment to achieve at least 30% women on the board at or prior to the next annual meeting. For TSX-listed issuers that are not part of the index, ISS will generally recommend a withhold vote if there are no women on the board and there is no formal policy that includes measurable goals or targets denoting a commitment to increase board gender diversity at or prior to the next annual meeting. 

Uneven progress at the board and senior executive levels

Growing pressure from proxy advisory firms, but also from regulators and institutional shareholders, is pushing Canadian issuers to have more diverse boards and senior management. There are signs of progress on a number of fronts, as shown in new reports from the CSA and Corporations Canada, which we analyzed in a recent update. As an overview:

Representation of women on boards  Significant progress, especially among major issuers (e.g., average representation increased from 11% in 2015 to 22% in 2021)
Representation of women in senior management positions  Marginal gains (e.g., 67% of TSX-listed issuers had at least one woman in an executive officer position in 2021, up from 60% in 2015) 
Representation of other diverse groups  Marginal gains (e.g., average representation of 7.1% in 2021 for TSX 60 issuers, compared to 3.8% in 2020) 
Adoption of gender diversity policies  Significant progress (e.g., 60% of TSX-listed issuers have adopted a formal policy, up from only 15% in 2015) 
Adoption of diversity targets 

Significant progress among major issuers (e.g., 61.9% of TSX 60 issuers chose to adopt at least one diversity target in 2021, compared to 47.6% in 2020)

Marginal gains among other issuers (e.g., the majority of Canadian issuers have not yet adopted targets for the representation of diverse groups on their boards or executive teams) 

Beyond representation, it seems that disclosure related to diversity also improved since the new federal rules on diversity disclosure came into force for CBCA corporations in January 2020. For example, 25 of the 220 (11.4%) companies evaluated at the Globe and Mail’s Board Games this year received marks for disclosing information on diversity beyond gender, as compared to only four of 211 (1.9%) in 2020. In preparing their meeting materials for the upcoming proxy season, issuers should note that both the CSA and Corporations Canada have released guidance on how to disclose diversity-related data (the CSA guidance begins at page 10 here and the Corporations Canada guidance is available here).

Recommendation: Consider how the content and disclosure of your diversity policies and processes align with evolving expectations voiced by regulators, shareholders and proxy advisory firms.

Virtual meetings

In a recent seminar we held, representatives of institutional shareholders stated that they will continue to support virtual meetings until the pandemic is over, provided that certain “detrimental” practices are avoided. According to ISS’ global benchmark policy survey released in October 2021,3 institutional shareholders are most concerned about the following three practices:

  • management unreasonably curating questions,
  • the inability to ask live questions at the meeting, and
  • Q&A opportunities not provided.

Against this background, both ISS and Glass Lewis continue to encourage issuers to provide better shareholder engagement opportunities so as to ensure that shareholders have the same rights and opportunities to participate as they would at an in-person meeting, as well as to provide better disclosure in the circular regarding such safeguards.

The CSA also keeps a close eye on virtual-only meetings and has consulted market participants in this regard. At the beginning of the pandemic, in the spirit of protecting investors’ rights to participate in and vote at meetings, the CSA published guidance4 on conducting virtual annual general meetings during the COVID-19 outbreak, which continues to be relevant.

Finally, please remember that certain corporate statutes require the corporation’s by-laws to expressly include provisions to allow for virtual-only meetings, as described in our update on the matter. This past year, amendments to the Alberta and BC corporate statutes allowed issuers incorporated in those jurisdictions to hold meetings entirely by electronic means unless the organization’s constating documents expressly provide otherwise. Ontario has taken a different approach, with temporary provisions (in effect at least until September 30, 2022) allowing OBCA issuers to hold virtual shareholder meetings despite any provision in constating documents that provides otherwise.

Recommendation: Make sure your AGM is free from problematic practices and review corporate by-laws as needed.

Compensation still in the spotlight (be careful with adjustments)

Issuers should still keep in mind “6Ps” when designing or reviewing their compensation mix:

1- Policy infrastructure (use a mix of compensation tools that support your strategy, implement minimum equity requirements for executives, double-trigger provisions for change-of-control payouts, clawback policies, etc.);

2- Performance-based awards (align total compensation with performance, including ESG performance5);

3- Peer-adjusted package (take into account horizontal benchmarking – i.e., compare compensation figures to companies of similar size and scope, or related industries);

4- Proportionate (do not lose sight of vertical benchmarking and internal pay equity perceptions – i.e., CEO compensation is not disproportionate compared to direct reports and average employee compensation); 

5- Problematic awards (i.e., avoid paying overly generous severance packages and special awards, especially if recurrent; justify any special payment); and

6- Pandemic-adapted practices (you will be judged by how you adapted to the pandemic and the adjustments you made). 

Again this year, many institutional investors will monitor the adjustments made to the compensation mix and targets and be skeptical about them when such adjustments are not aligned with return to shareholders. ISS has been encouraging issuers since April 2020 to disclose the rationale behind any such adjustments.6  

Recommendations: Don’t lose sight of the 6Ps in your compensation design and policies. Bear the increased scrutiny in mind and ensure any adjustments are reasonable and appropriately and accurately explained. 

Other rules and initiatives to keep on your radar

In addition to Climate Disclosure Proposed Rules, issuers should keep on their radar new rules related to non-GAAP financial measures and coming changes to 51-102.

Non-GAAP financial measures

In preparing their continuous disclosure documentation, issuers should be mindful of National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure adopted by the CSA in 2021.7 The instrument imposes legally binding obligations regarding disclosure of non-GAAP financial measures, non-GAAP ratios, and other financial measures. It addresses the CSA’s concern that disclosure regarding non-GAAP and other financial measures varies significantly between industries and issuers as they do not have standardized meanings under a financial reporting framework and may lack context when disclosed outside of the financial statements.

Coming changes to 51-102

In May 2021, the CSA proposed major changes to National Instrument 51-102 – Continuous Disclosure Obligations (the 51-102 Proposals).8 The 51-102 Proposals, when enacted will:

  • consolidate certain disclosure documents (the annual financial statements, annual MD&A and, if applicable, AIF will be combined in one reporting document called the Annual Disclosure Statement and the interim financial statements and MD&A (or for certain venture issuers the quarterly highlights) will be combined into one reporting document called the Interim Disclosure Statement);
  • eliminate and streamline disclosure obligations; and
  • introduce housekeeping changes to update references in other rules, policies and Instruments.

The 51-102 Proposals are currently expected to be effective December 15, 2023.


Senior Partner, Canadian Head of Corporate Governance
Managing Partner, Ottawa Office
Managing Partner, Québec Office
Partner, Director of Knowledge

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