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Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) have both released updates to their Canadian proxy voting recommendation guidelines for the 2018 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.

ISS

Definition of Independence.  ISS has updated its definitions relating to director independence.  Previously, ISS categorized each director as an Inside Executive Director, Affiliated Outside Director or Independent Director.  The new categories are Executive Director, Non-Independent, Non-Executive Director (including former CEOs, controlling shareholders, Non-CEO executives, relatives of executives and persons with professional/financial relationships, among other things) or Independent Director.

Board Gender Diversity.  Beginning February 2019, ISS will generally recommend withholding votes for the chair of the nominating committee, or board chair if no nominating committee chair, where a company has not disclosed a formal written gender diversity policy and has no female directors.  ISS indicates that a written policy should include measurable goals or targets and clear commitments to increasing gender diversity within a reasonable period of time.  The ISS Updates also state that boilerplate or contradictory language may result in withhold recommendations.  The ISS policy will apply to all TSX companies, except companies first listed or graduated from the TSXV within two fiscal years or companies with four or fewer directors.


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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

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OSC and BCSC on Defensive Private Placements Under the New Take-Over Bids Regime

As discussed in our previous post, the first hostile take-over bid under the new Canadian take-over bid rules was launched by Hecla Mining Company (Hecla) in July 2016 for the purchase of all of the outstanding shares of Dolly Varden Silver Corporation (Dolly), a TSX Venture Exchange listed issuer. Since our initial post, this take-over bid has become of particular interest to capital market participants because applications were made by each of Hecla and Dolly to the Ontario Securities Commission (OSC) and the British Columbia Securities Commission (BCSC) related to the take-over bid and the subsequent private placement announced by Dolly. Many hoped that the OSC and BCSC (collectively, the Commissions) in deciding these applications would bring additional clarity on how regulators would review alleged defensive tactics in light of the new take-over bid rules.

A simultaneous hearing in front of the OSC and the BCSC was held on July 20 and 21, 2016 and while the applicable orders were rendered on July 22, 2016 by each of the Commissions, the highly anticipated joint reasons were not issued until October 24, 2016. In their reasons, the Commissions concluded that the question of whether a private placement is an abusive defensive tactic requiring regulator intervention is a fact-dependent balance between policy considerations and bona fide corporate objectives and outlined a two-step test for regulators to weigh the relevant factors.

Defensive Private Placements

The most anticipated portion of the Commissions’ reasons relates to Hecla’s application to cease-trade the private placement Dolly announced after Hecla announced its take-over bid. In its application, Hecla argued that the private placement should be cease-traded either as an abusive defensive tactic under National Policy 62-202 Take-Over Bids – Defensive Tactics (NP 62-202) or under the Commissions’ broader public interest mandate.


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The various Canadian regulatory authorities recently overhauled how prospectus exempt rights offerings are to be conducted going forward, including allowing for larger financings to be completed in a shorter time frame with less extensive offering documents. As a result of these amendments (Amendments) which came into force on December 8, 2015, reporting issuers

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.

ISS

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.

GLASS LEWIS

Director Overboarding Policy – TSX Issuers. 
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On April 16, 2015, the securities regulators in British Columbia, New Brunswick and Saskatchewan published for comment Multilateral CSA Notice 45-315 – Proposed Prospectus Exemption for Certain Distributions through an Investment Dealer whereby the regulators proposed a new prospectus exemption that, if approved, would greatly increase the potential private placement investor base for a listed

Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) have both released updates to their Canadian proxy voting recommendation guidelines for the 2015 proxy season. The items updated include those pertaining to the definition of independence, advance notice requirements, by-law amendments, private placements, treatment of majority voting policies, shareholder rights plans and advance notice policies.

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

ISS

Definition of Independence. The current guidelines recommend that votes be withheld for any “insider” or “affiliated outside director” where the board does not have a majority of independent directors or the board lacks a separate compensation or nominating committee.  The ISS Updates provide that an assessment as to independence will be made on a case-by-case basis.  ISS will deem a former CEO to be independent for the purposes of serving on the board or any key committee, including the audit committee, after a five year cooling off period unless certain factors indicate otherwise.  Specifically, the ISS Updates include a provision that deems any director nominee who has any material relationship with the issuer or with any one or more members of management of the issuer not to be independent.  A material relationship is defined as a relationship (financial, personal or otherwise) that a reasonable person might conclude could potentially influence one’s objectivity in the boardroom in a manner that would have a meaningful impact on an individual’s ability to satisfy requisite fiduciary standards on behalf of shareholders.  ISS will also recommend a withhold vote from any director who has served as the CEO of the issuer within the past five years and is a member of the audit or compensation committee.

Advance Notice Policies. With respect to Advance Notice Policies, ISS will generally recommend that investors withhold votes from individual directors, committee members, or the entire board as appropriate in situations where an Advance Notice Policy has been adopted by the board but has not been included on the voting agenda at the next shareholders’ meeting.  The rationale behind the recommendation is that certain problematic provisions included within these bylaws/policies could potentially interfere with a shareholder’s ability to nominate directors.  ISS is of the view that the ability for shareholders to put forward potential nominees is a fundamental right and should not be amended by management or the board without shareholders’ approval.  ISS considers the following features problematic:

  • for a notice of annual meeting given not less than 50 days prior to the meeting date, the notification timeframe within the advance notice requirement should allow shareholders the ability to provide notice of director nominations at any time not less than 30 days prior to the meeting.  The notification timeframe should not be subject to any maximum notice period for annual meetings.  If notice of annual meeting is given less than 50 days prior to the meeting date, a provision to require shareholder notice by close of business on the 10th day following first public announcement of the annual meeting is supportable.  In the case of a special meeting, a requirement that a nominating shareholder must provide notice by close of business on the 15th day following first public announcement of the special shareholders’ meeting is also acceptable;
  • the board’s inability to waive all sections of the advance notice policy, in its sole discretion;
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On November 27, 2014, the Canadian Securities Administrators (CSA) published for comment proposed amendments to various National Instruments which, if adopted, would overhaul how rights offerings under the rights offering prospectus exemption are conducted. The amendments would also have minor revisions to the requirements of rights offerings conducted by way of prospectus.  The CSA indicate that the amendments are meant to make the rights offering exemption more accessible by streamlining the process.

A rights offering is a financing where the issuer grants to its current securityholders one right per security held. The right or a certain number of rights would then be exercisable prior to the expiry date to purchase an additional security of the issuer at a certain subscription price. The issuer can issue these rights under a prospectus or by using a prospectus exemption.

The proposed amendments include amendments to National Instrument 41-101 General Prospectus Requirements (NI 41-101), National Instrument 44-101 Short Form Prospectus Distributions, National Instrument 45-102 Resale Restrictions, Companion Policy 45-106CP to NI 45-106 and Companion Policy 41-101CP to National Instrument 44-101.

Summary of Amendments

Currently, National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) provides a specific prospectus exemption (Current Exemption) for rights offerings which comply with National Instrument 45-101 Rights Offerings (NI 45-101). However, the CSA note that the Current Exemption is not commonly utilized because rights offerings complying with the Current Exemption are time consuming and costly. Under the proposed amendments, NI 45-101 would be repealed and the Current Exemption would be replaced by a new exemption in NI 45-106 (New Exemption) that would substantially change the requirements for a prospectus exempt rights offering.

Below is a summary of the major changes under the New Exemption:

  • Availability: Only reporting issuers, other than certain investment funds, would be able to utilize the New Exemption. In addition, the Current Exemption would be repealed, meaning there would no longer be an ability for non-reporting issuers to undertake a rights offering under a specific rights offering prospectus exemption.
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