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2019 Proxy Advisory Firm Voting Guidelines: Canadian Highlights

By Matthew Merkley and Patrick Severide
February 10, 2019

In preparation for the upcoming proxy season, issuers should familiarize themselves with the Canadian proxy voting guidelines recently published by Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co. (Glass Lewis), respectively. This bulletin addresses certain areas of the updated topics covered by the ISS benchmark policy recommendations and Glass Lewis’s proxy guidelines and shareholder initiatives guidelines, in each case regarding issuers listed on the Toronto Stock Exchange (TSX) for the 2019 proxy season.


Proxy advisory firms review and analyze matters put forward for consideration at shareholder meetings and make highly influential voting recommendations concerning such matters to their clients, who are typically institutional investors. The items considered range from routine matters, such as the appointment of auditors, to proxy contests and complex business acquisition transactions that involve a voting decision, covering both management initiatives and shareholder proposals. A voting recommendation is generally based on the issuer’s adherence to the practices and standards contained in the proxy advisory firm’s voting guidelines for that proxy season.


Gender Diversity

With the goal of increasing the representation of women on boards and in executive officer positions, and requiring issuers to disclose detailed policies related thereto, ISS and Glass Lewis have further revised their gender diversity policies for the 2019 proxy season.

In its 2018 guidelines, ISS stated that it will generally issue a “withhold” voting recommendation for the chair of the committee responsible for nominating candidates for election to the board, or board chair if no applicable committee or committee chair has been identified, of S&P/TSX Composite Index issuers that have not disclosed a formal written gender diversity policy and do not have any women directors on their boards. ISS noted that gender diversity policies of such issuers should include a clear commitment to increase board gender diversity within a reasonable time period, with measurable goals and/or targets, and that use of boilerplate or contradictory language may result in “withhold” voting recommendations for directors. ISS would also consider such issuers’ disclosed approach to considering gender diversity in executive officer positions when formulating a voting recommendation. The ISS 2019 guidelines have expanded the scope of the above policy beyond Standard and Poor (S&P)/TSX Composite Index issuers to also apply to other issuers that ISS designates as being “widely-held,” based on the number of ISS clients holding securities of the issuer.

For the 2019 proxy season, Glass Lewis has updated its board gender diversity policy to state that it will generally recommend a “withhold” vote for the chair of the nominating committee if an issuer has no female directors on its board. Further, Glass Lewis may recommend voting against the chair of the nominating committee if the board has not adopted a formal written diversity policy, though the lack of a formal policy may be mitigated by the presence of female directors on an issuer’s board. The recommendation may be extended to other nominating committee members depending on other factors, including: (i) the size of the issuer; (ii) the industry in which the issuer operates; and (iii) the governance profile of the issuer. However, Glass Lewis may not recommend a “withhold” vote where an issuer has provided sufficient rationale for not having any female board members, or where the issuer is outside the S&P/TSX Composite Index.

Overboarded Directors

As originally announced in advance of the 2018 proxy season, ISS has again significantly reformulated its director overboarding guidelines for directors of Canadian issuers. For the 2019 proxy season, ISS will generally issue a “withhold” voting recommendation in respect of electing a director where that individual is a CEO of a public issuer and sits on more than two outside public issuer boards, in addition to the issuer of which he/she is CEO (in 2018, one), or is not a CEO of a public issuer and sits on more than five total public issuer boards (in 2018, four). In the case of a CEO of a public issuer, the “withhold” voting recommendation would be made in respect of their outside boards only.

Accordingly, the requirement that a director must also have attended less than 75 per cent of his/her board and committee meetings held within the past year (without a valid reason) in order to be considered overboarded has been removed. ISS has further noted that in situations where an issuer’s CEO sits on boards of subsidiaries (greater than 50 per cent ownership) of the issuer, such subsidiary boards will be counted as separate boards for purposes of its overboarding guideline; however, ISS will not recommend a “withhold” vote for the CEO at the parent issuer board or at any of the controlled subsidiaries, but may do so in respect of the CEO sitting on the boards of investees that are less than 50 per cent controlled and at boards outside the parent/subsidiary relationship.

This change harmonizes ISS’s Canadian overboarding policy with its overboarding policy applicable to U.S. issuers. In both Canada and the U.S., ISS will continue to recommend a “withhold” votes for directors with poor attendance records, irrespective of whether such directors are overboarded.

For 2019, Glass Lewis has not made any significant changes to its current overboarding guideline; it will generally recommend that shareholders withhold their votes in respect of a director who is an executive officer of any public issuer while serving on a total of more than two public issuer boards, or any other director who serves on more than five public issuer boards.

Social and Environmental Issues

For the 2019 proxy season, ISS and Glass Lewis have revised their respective voting recommendations related to social and environmental shareholder proposals.

ISS previously stated its voting recommendations on such proposals would be made on a case-by-case basis, taking into consideration whether the implementation of the proposal was likely to enhance or protect shareholder value. Such a determination considered several factors, including whether the issuer had already responded in an appropriate and sufficient manner to the issue(s) raised in the proposal, and whether the proposal’s request was unduly burdensome to the issuer. ISS’s 2019 guidelines clarify that the enhancement or protection of shareholder value should be the primary concern, and included “whether there are significant controversies, fines, penalties, or litigation associated with the company’s environmental or social practices” as an additional factor to consider. Notably, this criterion was added to ISS’s guidelines in other jurisdictions, including the U.S., signalling that investors continue to engage with social and environmental concerns and issuers’ policies related thereto.

Glass Lewis’s 2019 guidelines formalize its approach in reviewing how boards oversee social and environmental issues. For large cap companies, Glass Lewis seeks to identify which directors or board-level committees have oversight of social and environmental issues. In instances where issuers have mismanaged risks to the detriment of shareholders, Glass Lewis may recommend voting against board members who are responsible for such issues. In making these determinations, Glass Lewis will review the situation, its effect on shareholder value, as well as any response made by the company in order to take corrective action. Where it is unclear which directors have oversight of social and environmental issues, Glass Lewis may recommend voting against members of an issuer’s audit committee.

Virtual-Only Shareholder Meetings

Glass Lewis has expanded its policy on virtual-only shareholder meetings by clarifying that it may recommend voting against members of an issuer’s governance committee if the issuer is planning to hold a virtual-only shareholder meeting, and does not provide adequate disclosure to assure shareholders that they will be afforded the same rights and opportunities as they would at an in-person meeting. Effective disclosure should discuss shareholders’ ability to ask questions, procedures for posting questions and the issuer’s process for responding and technical and logistical issues.

Other 2019 Policy Changes

  • Director Nominees of Controlling Shareholders: On a case-by-case basis, ISS may support director nominees who are or who are provided by a controlling shareholder of a company if such company meets certain independence and governance criteria. For the 2019 proxy season, ISS has clarified and revised the criteria related to audit and nominating committees of controlled companies, stating that a majority of such committees should be composed of “either independent directors or in addition to at least one independent director, may be directors who are related to the controlling shareholder.” In 2018, they stated that a majority of such committees should be composed of “either independent directors or related directors who are independent of management.” Glass Lewis has also clarified that while it allows for exceptions for significant shareholders or their provided nominees to sit on a company’s compensation and nominating and/or governance committees, such exceptions do not extend to audit committee memberships nor members or affiliates of management seeking appointment to a company’s compensation committee.
  • Executive Compensation: Glass Lewis has expanded its policy on executive compensation in the areas of contractual payments and arrangements, grants of front-loaded awards, and recoupment provisions (clawbacks). Contractual payments must be clearly disclosed, including rationale, and excessive severance or sign-on bonuses may result in an adverse voting recommendation. Glass Lewis cautions against the use of front-loaded awards and will consider quantum, design and rationale when evaluating such awards. Glass Lewis supports the use of clawback provisions, and the suitability of the terms of a clawback provision may affect the overall view of an issuer’s compensation program. Glass Lewis has further disclosed that for 2019, it will commence a more detailed review of clawback provisions, including their repayment triggers and scope of application.
  • Board Skills: Glass Lewis will now include board skills matrices in its analyses of director nominees at S&P/TSX 60 Index companies to assist its clients in assessing a board’s competencies and identifying any potential skills gaps.
  • Ratification of Auditor: Glass Lewis has codified additional factors for considering auditor ratification proposals, including the auditor’s tenure, a pattern of inaccurate audits and any ongoing litigation or events that call into question an auditor’s effectiveness. These factors may contribute to a recommendation against re-appointment of an auditor.
  • Director and Officer Indemnification: Glass Lewis has clarified its approach to director and officer indemnification for the 2019 proxy season. While Glass Lewis maintains that directors and officers should be held to the highest standard in carrying out their duties, a degree of protection from liability is viewed as being reasonable to ensure effective and measured risk-taking in the best interests of shareholders.


Federally-incorporated issuers are reminded that, when implemented, the proposed changes to the Canada Business Corporations Act (CBCA) that were part of Bill C-25 will introduce substantial amendments to corporate governance requirements, including with respect to board diversity, director elections and notice-and-access communications with shareholders. See our January 2017 Blakes Bulletin: Proposed Regulations for Revised CBCA Provide Structure to Changes Proposed in Bill C-25. Bill C-25 received royal assent on May 1, 2018, but many of the key amendments have yet to be proclaimed into force.

For further information, please contact:

Matthew Merkley                       416-863-3328

or any other member of our Capital Markets group.