Proxy advisory firms Institutional Shareholder Services and Glass Lewis have published their 2026 proxy voting guidelines, which indicate how they will advise institutional shareholders to vote during the coming shareholder meeting season. While the scope and volume of changes are more subdued than in previous years, reflecting in part a changed political environment, there are a number of updates and clarifications that Canadian publicly listed companies should be aware of.
Institutional Shareholder Services (ISS)
- Advance notice provisions (all): ISS has long considered requests for disclosure about nominating shareholders or nominees under advance notice bylaws/policies to be problematic if they exceed requirements under applicable corporate or securities law. The updated guideline adds that disclosure requests pursuant to director questionnaires that have not been made publicly available may trigger a negative vote recommendation.
- Equity compensation plan amendments (TSX): ISS has clarified that shareholder approval must be explicitly required in equity compensation plan amendment provisions for both reductions in exercise price and for cancelations and reissuances of options or other entitlements.
- Non-employee director deferred share unit (DSU) plans (all): ISS has clarified that DSU plans must explicitly state that DSUs may only be granted in lieu of cash fees on a value-for-value basis. Without such a statement, ISS will assume that discretionary or other grants are permitted under the plan, which may trigger a negative vote recommendation.
- Environmental and social (E&S) related shareholder proposals (all): In considering a shareholder proposal related to environmental or social matters, in addition to the existing factors it looks at, ISS has added consideration of whether the proposal addresses substantive matters that may impact shareholders’ interests, including how the proposal may impact shareholders’ rights.
Glass Lewis (GL)
- Executive compensation (S&P/TSX Composite index): GL has updated its pay-for-performance scoring framework for assessing alignment between executive pay and shareholder outcomes. The new model does away with A-F letter grades in favour of numerical scores and “concern” levels. It utilizes six weighted tests, which include a new “realized pay” component and a longer five-year weighted average measurement period for total shareholder return (TSR) (instead of three years). The tests are: (i) granted CEO pay vs. TSR; (ii) granted CEO pay vs. financial performance; (iii) CEO short-term incentive plan payouts vs. one-year TSR; (iv) total granted named executive officer pay vs. TSR and financial performance; and (v) realized CEO pay vs. TSR and (vi) structure and disclosure qualitative factors. The qualitative test is meant to account for divergences from commonly accepted best practices in the Canadian market, with divergences resulting in a downward score modifier.
- Say-on-pay (S&P/TSX Composite index): When analyzing a company’s compensation program, GL has clarified that its contextual case-by-case assessment includes a review of not just the company’s industry, size, financial condition and historic pay for performance practices, but also its maturity and performance. GL continues to emphasize the importance of providing clear and complete disclosure of all key terms of compensation arrangements, stating this year that while regulatory disclosure rules may condone omitting key executive compensation information, in GL’s view companies should provide sufficient information to enable shareholders to vote in an informed manner.
- Front-loaded award to a large shareholder (all): A front-loaded award refers to a larger grant of cash or equity given up front that is intended to serve as compensation for multiple years. GL has removed the discussion applicable to the situation where the recipient of a front-loaded award is a large shareholder (which it had introduced in its 2024 guidelines), with the implication that it no longer requires companies in such a situation to obtain approval of the disinterested shareholders.
- Financial restatements (all): The standards for assessing the performance of an audit committee have been updated for circumstances where the company’s financial statements had to be restated. GL has expanded the list of factors that may cause a negative vote recommendation against the members of the audit committee. Instead of just negligence or fraud, a restatement involving manipulation by insiders or that involves a regulatory investigation, revenue recognition or a certain level of materiality may also trigger a negative vote recommendation. The materiality threshold is a restatement resulting in an adjustment greater than (i) 5% to costs of goods sold, operating expense or operating cash flows, (ii) 5% to net income or (iii) 10% to assets, shareholder equity or cash flows from financing or investing activities. GL has also clarified that the policy applies to both the restatement of annual financial statements as well as the restatement of more than one set of interim financial statements.
- Shareholder proposals (all): GL generally expects boards to respond appropriately when 20% or more of shares are voted against a director nominee or a management-sponsored proposal. However, the expectation that boards respond when 20% or more of the vote is in favour of a shareholder proposal has been removed. GL will still consider recommending a vote against the members of the governance committee if the board fails to implement a shareholder proposal approved by a majority of shareholder votes. But the shareholder proposal no longer has to have a direct and substantial impact on shareholders and their rights to attract a negative vote recommendation.
- Environmental and social issues (all): While GL’s policies related to board oversight of E&S issues and overall approach to such issues remain largely the same as last year, it has made a few key updates and clarifications for 2026. GL continues to believe each company should determine the best structure for oversight of E&S issues, whether by the board as a whole or a committee of the board, but now specifies that the oversight responsibility should be formally designated and codified in the appropriate committee terms of reference or other governing documents.
(S&P/TSX 60 index) GL has de-emphasized the risk of climate-related issues, changing its statement that climate risk is a material risk for all companies to a statement that climate risk can present a material risk for companies. While it will continue to review climate-related disclosures of companies in the TSX 60 index with “material exposure to climate risk stemming from their own operations,” GL has removed the specific list of industries to which this policy will apply. In addition, GL has broadened the list of frameworks by which a company may make its disclosure to include not just TCFD and IFRS S2, but also other “equivalent” climate reporting frameworks.
- Majority voting (all): GL has updated its policy on majority voting for electing directors to better explain its policy rationale. Although GL has not made any changes to its policy that companies should receive a majority of votes cast to be elected, it has added the observation that most directors who fail to receive a majority vote do not step down, underscoring the need in GL’s view for true majority voting (instead of majority voting along with a policy requiring the director to submit a conditional resignation to the board).
- Dual-listed companies (S&P/TSX Composite index): GL has clarified that where a company is not included in a stock index because of its status as a dual-listed or foreign-incorporated company, but its market capitalization is comparable to those in the index, GL will generally apply its policies as though the company were included in the index.
- Reframing of guidelines (all): GL has redrafted its guidelines to present them in a more objective light based on regulatory policies, third-party good governance principles, general investor sentiment and prevailing market practice, rather than on GL’s views or beliefs.
We conclude by noting GL’s announcement that by 2027 it plans to cease offering benchmark proxy voting guidelines, focussing instead on customized voting frameworks for individual clients. As rationale for this significant change in approach, GL has cited advances in AI technology and diverging investor priorities that are driving differences in approaches to fiduciary duty, engagement strategies, and sustainability commitments across regions.
While ISS has not made a similar announcement, the recent introduction of new customized voting recommendation offerings point to it moving in a similar direction.
