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.
As noted in the Globe and Mail’s recent article, “In Canada’s boardrooms, activist investors are striking out” (subscription to the Globe and Mail required), Canadian listed public companies have continued to have success against activist investors. In fact, since January 1, 2015, Canadian listed issuers have a perfect record against “professional” activists in formal proxy contests, having won all six such contests to make changes to the board which were initiated by hedge funds or institutional investors. This success may be driven, at least in part, by issuers’ increased emphasis on advance preparation, including shareholder engagement. If issuers are more attuned to the views of their shareholders, it stands to reason that they will be in a better position to assess the likelihood of successfully defending against an activist in a formal proxy contest and pre-emptively settle those situations that they do not believe they can win. This explanation, while compelling, may be incomplete. With that in mind, I offer the following five observations based on a review of the public record of unsuccessful contests recently initiated by “professional” activists.…
On August 22, 2016, a group of shareholders commenced a proxy contest to change the entire board of Hemostemix Inc. (Hemostemix), a widely-held, micro cap, clinical-stage biotechnology company (TSXV:HEM, OTCQX:HMTXF).
Hemostemix’s business activities focus on the development and planned future commercialization of ACP-01, a proprietary, blood-derived cell product designed to treat critical limb ischemia, a painful obstruction of the arteries that reduces blood flow to the extremities. Hemostemix had reached an agreement in 2014 with a contract research organization (CRO) to manage most aspects of the phase 2 clinical trial of ACP-01, but Hemostemix announced on June 28, 2016, that the CRO had terminated the agreement, and that phase 2 clinical trials would be placed on hold.…
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. …
Continue Reading 2016 ISS and Glass Lewis Updates
The Canadian Coalition for Good Governance (CCGG) has released a policy paper entitled “Shareholder Involvement in the Director Nomination Process: Enhanced Engagement and Proxy Access”.
In the policy paper, CCGG refers to “proxy access” as the ability of shareholders to have meaningful input into the director nomination process, whether by being able to…
A follow up to our ground-breaking 2013 Canadian Proxy Contest Study, our 2014 Update sheds additional light on some of the issues and trends that we previously identified and raises a few new issues for further thought. Among the highlights of last year’s Canadian market experience in proxy contests were the following:
- 2013 witnessed a
Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) have both released updates to their Canadian proxy voting recommendation guidelines for the 2014 proxy season. Glass Lewis released its updates on December 13, 2013 and ISS released its updates on November 21, 2013. The items updated include those pertaining to corporate governance standards, shareholder rights and executive compensation.
The following summary outlines the significant changes made by both ISS and Glass Lewis to their respective Canadian proxy advisory guidelines. These changes will apply to shareholder meetings held on or after February 1, 2014.
Director Over-boarding – TSX Companies
ISS will generally consider a director to be “over-boarded” when he or she is a CEO of a public company who sits on more than two additional outside public company boards, or where a director who is not a CEO of a public company sits on more than six public company boards. Based on feedback obtained, ISS has implemented a double-trigger overboarding policy pursuant to which it will generally recommend a withhold vote from an individual director nominee where the director is overboarded and has attended less than 75% of his or her respective board and committee meetings held within the past year without a valid reason.
Persistent Problematic Audit-Related Practices – TSX Companies
ISS will make case-by-case recommendations on members of an audit committee and, in some cases, the entire board if adverse accounting practices are identified and are determined to reach a “level of serious concern.” Some examples provided by ISS of such adverse accounting practices are: accounting fraud, misapplication of applicable accounting standards, or material weaknesses identified in the internal control process. ISS further notes that the analysis of the accounting practices should include a review of the severity, breadth, chronological sequence and duration, as well as efforts by the company to remediate the issue.
Director Independence – TSX and TSXV Companies…
Continue Reading 2014 Updates to Canadian Proxy Advisory Guidelines
On June 27, 2013, the Ontario Securities Commission (OSC) released OSC Staff Notice 11-768 Notice of Statement of Priorities for financial year to end March 31, 2014 (Statement of Priorities). The Statement of Priorities sets out the key regulatory priorities of the OSC for its 2013-2014 financial year.
While a number…
As reported in our Recent Developments with Respect to Notice-and-Access Procedure, Notice and Access Related Amendments to NI 54-101 and NI 51-102, and Implementing Notice-and-Access: What You Need to Know bulletins, the Canadian Securities Administrators (CSA) implemented a Notice and Access methodology for the electronic delivery of proxy materials by reporting issuers beginning…