Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) have both released updates to their Canadian proxy voting recommendation guidelines for the 2016 proxy season.

The following summary outlines the significant changes made by ISS (ISS Updates) and Glass Lewis (Glass Lewis Updates) to their respective Canadian proxy advisory guidelines.


Definition of “Overboarded”. While existing overboarding thresholds will remain in place for 2016, the ISS Updates provide that beginning as of February 1, 2017, ISS will generally recommend a withhold vote for a director of a Toronto Stock Exchange (TSX) listed issuer (i) who serves as a CEO of any public company while serving on a total of more than one (down from the current two) public company boards (other than the board of the company he or she is CEO of) and any other director who serves on a total of more than four (down from the current six) public company boards; and (ii) has attended less than 75% of the board and committee meetings within the past year without a valid reason.

Externally-Managed Issuers. ISS’ current guidelines do not have a recommendation regarding externally-managed issuers. The ISS Updates set out a framework on how ISS will vote on say-on-pay resolutions or on individual directors, committee members or boards when an issuer is externally-managed and has provided inadequate disclosure about the relevant management services agreements and how senior management is compensated. The factors ISS may consider including the following:

  • the size and scope of the management services agreement;
  • comparison of executive compensation with peers;
  • overall performance;
  • related party transactions;
  • independence of board and committee;
  • existence and the process for managing of conflicts of interest;
  • disclosure and independence in the selection of the management services provider;
  • risk mitigating factors in the management services agreement such as fee recoupment mechanisms;
  • historical compensation concerns; and
  • executives’ responsibilities.

Equity Compensation Plans. The ISS Updates set out a new model for evaluating equity compensation plans of TSX listed issuers. Previously, ISS would recommend an against vote for an equity based compensation plan which had certain features which were against ISS guidelines. The new model used by ISS is a “scorecard” model that will consider a variety of positive and negative factors of the compensation plan leading to a score which will determine ISS’ recommendation. The factors considered are in three categories: Plan Cost, Plan Features and Grant Practices.

  • The Plan Cost aspect will assess the total estimated cost of the benefit plan relative to the issuer’s peers.
  • The Plan Features aspect will assess whether:
    • the plan contains change of control provisions which do not meet ISS standards;
    • the plan allows for financial assistance for the exercise of equity grants;
    • public disclosure of the full text of the benefit plan is available to shareholders; and
    • there is reasonable share dilution compared to market best practices.
  • The Grant Practices aspect considers how grants have been made in the past by the issuer including:
    • reasonable three year burn rate compared to market best practices;
    • meaningful time vesting requirements for the CEO’s most recent grant;
    • issuance of performance-based grants to the CEO;
    • a clawback provision for equity awards; and
    • post exercise or settlement shareholding requirements.

If the combination of these factors, as determined by an overall score, indicates that the plan is not in shareholders’ interests, ISS will generally recommend that shareholders vote against the plan.

ISS will continue to recommend generally that shareholders’ vote against a plan with:

  • discretionary or insufficiently limited non-employee director participation;
  • plan amendment provisions which are not in line with ISS requirements; and
  • a history of repricing options without shareholder approval.

We understand that ISS will be providing additional guidance to clarify how benefit plans will be evaluated under the new scorecard approach described in the ISS Updates.


Director Overboarding Policy – TSX Issuers.  While existing overboarding thresholds will remain in place for 2016, the Glass Lewis Updates provide that 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 (down from the current three) public company boards and any other director who serves on a total of more than five (down from the current six) public company boards.  While the lower thresholds do not come into effect until 2017, for meetings in 2016 Glass Lewis will note as a concern instances where directors do not meet the 2017 requirements.

A more lenient general threshold of up to nine boards continues to apply for directors of companies listed on the TSX Venture Exchange (TSXV) and other smaller exchanges.

Environmental and Social Risk Oversight.  The Glass Lewis Updates provide that Glass Lewis may recommend that shareholders vote against 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.  In considering whether to make such a recommendation, Glass Lewis will take into account the nature of the risk and the potential effect on shareholder value.

Exclusive Forum Provisions.  With respect to any bylaw or charter amendments seeking to adopt an exclusive forum provision, the Glass Lewis Updates provide that Glass Lewis will recommend that shareholders vote against such amendments unless the company:

  • provides a compelling argument on why the provision would directly benefit shareholders;
  • provides evidence of abuse of legal process in other, non-favoured jurisdictions; and
  • maintains a strong record of good corporate governance practices.

In cases where a board seeks shareholder approval of an exclusive forum provision that is bundled with other amendments, Glass Lewis will weigh the importance of the other bundled provisions when determining its vote recommendation on the proposal.

Nominating Committee Performance.  The Glass Lewis Updates provide that Glass Lewis may consider recommending that shareholders vote against the chair of the nominating committee where the board’s failure to ensure that the board has directors with relevant experience, either through periodic director assessment or board refreshment, has contributed to a company’s poor performance.

Proxy Access.  The Glass Lewis Updates provide that Glass Lewis generally supports affording shareholders the right to nominate director candidates for inclusion in the company’s proxy materials.  The factors that Glass Lewis will take into account when considering whether to support a proposal that a company adopt proxy access include the specified minimum ownership and holding requirement for shareholders to nominate one or more directors, as well as company size, performance and responsiveness to shareholders.

Audit Committee Over-Commitment for TSX Venture Issuers.  Glass Lewis has adopted a more lenient standard for over-commitment for audit committee members of companies listed on the TSXV.  While Glass Lewis advises that it will ultimately evaluate each director’s level of commitment on a case-by-case basis, the Glass Lewis Updates provide that, in the case of audit committee members of companies listed on the TSXV, it will generally consider four audit committees to be a reasonable limit, and five for directors with financial expertise.

Director Quorum Requirements.  Should a proposal to adopt or amend a company’s charter or bylaws be made, the Glass Lewis Updates provide that Glass Lewis will look for the requisite quorum for directors’ meetings to be a majority of the board.

Dual-Listed Companies.  Glass Lewis has also clarified its approach to companies whose shares trade on exchanges in multiple countries, and which may seek shareholder approval of proposals in accordance with varying exchange- and country-specific rules.  The Glass Lewis Updates provide that Glass Lewis will apply the country-specific governance standards most relevant in each situation, taking into account various factors including:

  • the nature of the proposals;
  • the primary exchange listing of the company;
  • the corporate governance structure of the company;
  • the regulatory/governance regime the company is subject to; and
  • the availability and completeness of the company’s proxy filings.