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Institutional Shareholder Services Inc. (ISS) and Glass Lewis have issued their Canadian proxy voting guidelines for the upcoming proxy season. The ISS Proxy Voting Guideline Updates are generally applicable to shareholder meetings of TSX and TSX-V issuers held on or after February 1, 2016.
This year ISS addresses the following key issues: director overboarding, externally managed issuers and equity compensation plans. The Glass Lewis 2016 Proxy Paper Guidelines address updates to director overboarding, audit committee overcommitment, nominating committee performance, director quorum requirements, exclusive forum provisions, proxy access, environmental and social risk oversight and dual-listed companies.
ISS and Glass Lewis recommendations can have a substantial effect on the outcome of shareholder meetings, particularly for issuers with a significant institutional investor shareholder base. Issuers are encouraged to review the ISS and Glass Lewis updates with their advisors and legal counsel to prevent any potential negative voting recommendations at their upcoming meetings.
Overboarded Directors (TSX). ISS has changed its definition of overboarded to mean:
ISS generally recommends withholding voting for a director of a TSX-listed company who is overboarded and whose attendance record at board and committee meetings is less than 75%. ISS will provide cautionary language in its reports where directors are overboarded, regardless of attendance. The new definition of overboarded will take effect in February 2017.
Externally Managed Issuers (EMIs) (TSX/TSX(V)). EMIs pay outside firms for management services and, in most cases, some or all of the executives are directly employed and compensated by the external management firm. ISS is concerned about board accountability where there is limited or insufficient disclosure on the management services agreement and executive compensation. ISS will look at EMIs on a case-by-case basis and make recommendations on say-on-pay resolutions and director nominations after considering the following factors:
Equity Compensation Plans (TSX). ISS will continue to make recommendations regarding equity compensation plans on a case-by-case basis, but is adopting an equity plan “scorecard” similar to the one introduced last year in the US. The new factors that will be considered in the scorecard, both positive and negative, fall under three categories:
The scorecard model will use two index groups to determine the thresholds and factor weightings: S&P/TSX Composite Index and Non-Composite TSX-listed issuers.
ISS will recommend generally voting against a plan proposal if its overall score indicates that the plan is not in shareholders’ interests. In addition to the scorecard approach, ISS will recommend voting against a plan if any of the following unacceptable factors have been identified.
Overboarded Directors (TSX). Glass Lewis has amended its definition of “overboarded” to mean:
Glass Lewis generally recommends withholding voting for a director of a TSX-listed company who is overboarded. The new definition of overboarded will result in a note of concern for meetings held in 2016 and a withhold vote for meetings held in 2017.
Glass Lewis generally permits directors of TSXV-listed companies to sit on up to 9 boards.
Audit Committee Overcommitment (TSXV). Glass Lewis is introducing a more lenient standard in determining whether audit committee members of TSXV-listed issuers are over-committed by virtue of sitting on multiple public company audit committees. Generally a director who sits on 4 audit committees (3 for TSX-listed companies), or, if he or she has financial expertise, 5 audit committees (4 for TSX-listed companies) will be considered overcommitted. Factors that will be considered include the size of the companies, their geographical distribution and the director’s expertise and commitments.
Nominating Committee Performance. Glass Lewis may recommend withholding a vote for the chair of the nominating committee where the board has failed to ensure that it has directors with relevant experience, either through board assessment or refreshment, which has contributed to a company’s poor performance.
Director Quorum Requirements. When assessing the adoption of, or amendments to, a company’s charter or by laws, Glass Lewis will look for a requisite quorum of a majority of the directors of the board to ensure broad representation.
Exclusive Forum Provisions. Glass Lewis will generally recommend voting against any by-law or charter amendment seeking to adopt an exclusive forum provision, as limiting shareholders’ legal venue may not be in the shareholders’ best interest. They may however support such a provision if the company:
Proxy Access. Proxy access would allow certain shareholders to nominate directors to the board and have them included on the company’s ballot. The following factors will be considered on a case-by-case basis when evaluating whether to support a company’s proposal to implement a shareholder request for proxy access:
Environmental and Social Risk Oversight. Glass Lewis will recommend withholding a vote for directors responsible for risk oversight in cases where the board or management has failed to sufficiently identify and manage a material environmental or social risk that did or could negatively impact shareholder value.
Dual-Listed Companies. In considering proposals by companies whose shares trade on exchanges in multiple countries, Glass Lewis will consider a number of factors in determining which Glass Lewis country-specific policy to apply.
Copies of the guidelines can be accessed below.
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