Proxy season 2018: ISS and Glass Lewis issue guidelines

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Publication December 2017

Institutional Shareholder Services (ISS) and Glass Lewis (GL) have both updated their proxy voting guidelines for the 2018 proxy season. Key changes to the guidelines relate to director overboarding and gender diversity. The guidelines are generally stated to be applicable to meetings held in 2018, but the implementation of some changes (as set out below) is delayed until the 2019 proxy season.

Director Overboarding
Current Guideline(s) Changes to or Clarification of Guideline(s)
  • ISS guideline applicable to TSX-listed companies only
  • ISS current guideline will apply in the 2018 proxy season. New guideline will be applicable to TSX-listed companies for meetings held on or after February 1, 2019
  • whether or not a company has a majority voting policy, ISS recommends voting against directors who are “overboarded”
  • ISS will continue to recommend voting against “overboarded” directors in new guideline
  • ISS definition of overboarded is two tier:
    • CEO director who sits on more than one outside public company board or non-CEO director who sits on more than four public company boards; and
    • director has attended less than 75% of his or her respective board and key committee meetings in last year without valid reason (the attendance trigger)
  • ISS will amend the definition of overboarded for meetings held on or after February 1, 2019, to mean:
    • a CEO director who sits on more than two outside public company boards; and
    • a non-CEO director who serves on more than five public company boards
  • attendance trigger will be removed for proxy season 2019, which will harmonize Canadian and US standards
  • ISS withhold recommendation will only apply to CEO director with respect to outside boards
  • ISS withhold recommendation will only apply to CEO director with respect to outside boards. Although subsidiary boards (>50% ownership) will be counted as separate boards, they will not be considered outside boards to which the withhold recommendation applies
  • GL defines an overboarded director as a director:
    • who is an executive officer who sits on more than two 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 has not changed its director overboarding policy but has clarified that when determining whether non-CEO executive directors are overboarded, GL will look at specific duties and responsibilities of executive in determining if an exemption is warranted
Board Gender Diversity
Current Guideline(s) Changes to or Clarification of Guideline(s)
  • neither ISS nor GL currently has formal gender diversity guidelines
  • since 2015, the Canadian Securities Administrators have required disclosure by TSX-listed issuers as to whether they have adopted a written policy relating to the nomination of women directors and executive officers and, if so, how the board or its nominating committee measures the effectiveness of such policy and, if not, why not
  • ISS is introducing a gender diversity guideline applicable to S&P/TSX Composite Index companies in the 2018 proxy season
  • ISS gender diversity guideline will be applicable to all TSX-listed companies in the 2019 proxy season
  • ISS recommends withholding voting for the chair of the nominating committee (or, if no nominating committee, the chair of the committee with the closest responsibility to the nominating committee or, if no nominating committee or other committee identified, the board chairman) if company has:
    • no female directors; and
    • no robust gender diversity policy in place (which should include measurable goals/targets)
  • exemption from ISS gender diversity guideline for:
    • newly publicly listed companies within the current or prior fiscal year;
    • companies who have graduated from the TSX-V within the current or prior fiscal year; and
    • issuers with four or fewer directors
  • GL has not adopted a voting recommendation regarding gender diversity for the 2018 proxy season but has added a discussion as to its considerations on gender diversity
  • GL will continue to review the composition of boards and note concern where a board lacks representation of diverse candidates
  • GL will introduce a gender diversity voting recommendation for the 2019 proxy season that will generally recommend voting against the chair of the nominating committee if company has:
    • no female directors; or
    • no formal written diversity policy in place
  • GL may refrain from making a recommendation for companies outside the S&P/TSX Composite Index, or if company has provided sufficient rationale for not having any female directors
  • both ISS and GL have publicly acknowledged concerns regarding boilerplate gender diversity disclosure and are looking for an issuer’s clear commitment to increase gender diversity on its board, which should include goals/targets

Virtual Shareholder Meetings
Current Guideline(s) Changes to or Clarification of Guideline(s)
  • no current guidelines in Canada regarding meetings held by virtual means only as in other jurisdictions
  • both ISS and GL have publicly supported hybrid meetings (expanding participation in “in-person” meetings electronically to persons who cannot attend in person)
  • concern regarding virtual-only meetings that such meetings may restrict ability of shareholders to participate
  • no ISS or GL recommendation for 2018 season but GL will be looking for robust disclosure as to how the issue of shareholder participation will be addressed
  • in 2019, GL will generally recommend voting against members of the governance committee where the board is intending to hold a virtual-only meeting and does not provide robust disclosure in the circular that assures shareholders they will be afforded the same rights at a virtual meeting as they would have at an in-person meeting
Board Responsiveness
Current Guideline(s) Changes to or Clarification of Guideline(s)
  • ISS will generally recommend withholding votes for continuing directors where the board failed to act on shareholder proposal that received majority shareholder support at the previous shareholder meeting
  • GL may recommend voting against compensation committee members if the committee fails to address shareholder concerns on failed say-on-pay proposals
  • current GL guideline that when 25% or more of shareholders withhold votes from a director nominee, vote against a management proposal or vote for a shareholder proposal, the board should respond to such concerns
  • GL has amended its guideline to provide that a board of directors has an imperative to respond where 20% or more shareholders withhold votes from a nominee director, vote against a management proposal or for a shareholder proposal. GL further notes that in dual-share structure companies, it will examine the level of support of non-affiliated shareholders

Other Changes/Guidance
Current Guideline(s) Changes to or Clarification of Guideline(s)
  • Pay for Performance
    • ISS guideline applicable to TSX issuers where there is significant long-term misalignment between CEO pay and company performance
    • GL pay-for-performance model in place
  • Pay for Performance
    • ISS guideline for pay for performance still in place but ISS has updated its quantitative screen methodology to incorporate a three-year Relative Financial Performance Assessment that measures the alignment of pay and financial performance in peer group
    • no amendments to GL methodology re. pay-for-performance model but GL has clarified grading system by stating that a C grade means a company’s pay and performance percentage rankings to peers is generally aligned
  •  Advance Notice Guidelines
    • advance notice guidelines in place for both ISS and GL for TSX group companies
  • Advance Notice Guidelines
    • no substantive changes to advance notice guidelines but ISS has made amendments to bring guideline in line with 2017 TSX notice that requiring nominating shareholder presence at the meeting where nominee is proposed for the nomination to be accepted would not be consistent with TSX director election requirements

Depending on their institutional shareholder base, issuers will also want to consider any voting recommendations issued by such institutional shareholders that may, in some instances, exceed the ISS and GL guidelines. Copies of the ISS 2018 Benchmark Proxy Guidelines can be accessed here and the GL Proxy Paper Guideline Recommendations can be accessed here.


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