Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) have both released updates to their Canadian proxy voting recommendation guidelines for the 2017 proxy season.
The following summary outlines the significant changes made by ISS (ISS Policy Updates) and Glass Lewis (Glass Lewis Guideline Updates) to their respective Canadian proxy advisory guidelines.
Audit Related. The voting guidelines regarding auditors, which currently recommend voting against ratifying auditors and withholding for individual directors on the audit committee if the non-audit related fees are greater than audit-related fees, have been updated slightly such that an against recommendation for a vote ratifying an auditor and a withhold recommendation for each director on the audit comment will be given if non-audit fees are greater than the aggregate of the audit fees, the audit related fees and tax compliance/preparation fees. This change recognizes that tax compliance and preparation services are more efficiently provided if completed by the auditor and brings the Canadian guidelines in line with ISS’ guidelines in other jurisdictions. However, unless issuers provide a breakdown of tax related services, all tax fess will be considered by ISS to be non-audit fees.
Board of Directors – Voting in Uncontested Elections. The ISS definition of independence for directors has been clarified to expressly indicate that the terms “currently”, “is” and “has” as they relate to transactional, professional, financial and charitable relationships are defined as having been provided at any time during the most recently completed fiscal year and/or having been identified at any time prior to or at the annual shareholders’ meeting.
Shareholder Rights and Defenses. ISS has revised its guidance relating to shareholder rights plans to take into account the recent amendments to the Canadian take-over bid regime. Whereas the previous ISS policy called for votes against rights plans with a minimum permitted bid period of greater than 60 days, the updated policy calls for votes against rights plans with a minimum permitted bid period of greater than 105 days to correspond with the timelines provided for in the amendments to the Canadian take-over bid regime.
Director Compensation – TSX only. ISS will generally recommend withholding votes from the committee responsible for director compensation (or if no such committee exists, the board chair or whole board) where directors compensation practices pose a risk of compromising directors’ independence. ISS has identified the following particular areas of concern: (a) excessive inducement grants for new directors absent a satisfactory rationale for such grants; and (b) performance based grants to non-employee directors which could pose a risk of aligning directors’ interests away from those of shareholders and towards those of management.
Director Overboarding Policy – TSX Issuers. As indicated in its 2016 guidance, beginning in 2017 Glass Lewis will generally recommend voting against a director who serves as an executive officer of any public company while serving on a total of more than two public company boards and voting against any other director who serves on a total of more than five public company boards.
Glass Lewis has indicated that it would generally not recommend that shareholders vote against an overcommitted director at the company where they also serve as an executive.
However, Glass Lewis notes that it will not apply a bright-line test in arriving at these recommendations but will also take into account contextual factors. Such contextual factors may include the size and location of the companies on which a director serves, the director’s board roles on the other companies, whether the director serves on the board of any large privately-held companies, the director’s tenure on the boards in question and the director’s attendance record at all companies.
Glass Lewis may also refrain from recommending against certain directors that otherwise qualify for “overboarding” if the company provides a rationale for the director’s continued service which allows shareholders to evaluate the scope of the director’s commitment and contributions to the board including their specialized knowledge of the company’s industry, strategy and key markets.
A more lenient threshold of up to nine boards continues to apply for directors of companies listed on the TSX Venture Exchange.
Shareholder Rights Plans. Glass Lewis has revised its guidance relating to shareholder rights plans to take into account recent amendments to the Canadian take-over bid regime. In its previous guidance, Glass Lewis advised that it would not support rights plans that require offers to remain open for more than 90 days. Under its new guidance, Glass Lewis has confirmed that it will not support rights plans that require offers to remain open for more than 105 days to correspond with the timelines provided for in the amendments to the Canadian take-over bid regime.
Board Responsiveness to Failed Advisory Vote. While acknowledging that advisory votes on executive compensation in Canada remain voluntary, where such a vote has been provided, Glass Lewis may recommend voting against members of a company’s compensation committee if the committee fails to address shareholder concerns following a company’s failure to secure majority approval in a say-on-pay proposal.
Equity Compensation Plans. Glass Lewis has advised that it will generally not support full value award plans (such as RSUs or Performance Units) which would exceed a rolling maximum of 5% of the company’s issued and outstanding shares.