2016 Proxy Advisory Firm Voting Guidelines: Canadian Highlights

As an early step in preparing 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). This bulletin briefly addresses certain of the updated topics covered by the ISS benchmark policy recommendations and Glass Lewis proxy guidelines with respect to issuers listed on the Toronto Stock Exchange (TSX) for the 2016 proxy season.

These proxy voting guidelines are the first to be released since the adoption of National Policy 25-201 Guidance for Proxy Advisory Firms by the Canadian Securities Administrators (see our May 2015 Blakes Bulletin: Issuers’ Comments on Proxy Advisory Firm Regulation Fall on Deaf Ears).


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


Proxy Access 

Proxy access made Canadian headlines in 2015 with the release by the Canadian Coalition for Good Governance of its publication Shareholder Involvement in the Director Nomination Process: Enhanced Engagement and Proxy Access, wherein enhanced proxy access was proposed to facilitate shareholders’ nomination of directors for Canadian public companies (see our September 2015 Blakes Bulletin: Canadian Coalition for Good Governance Advocates More Proxy Access).

In its 2016 Canadian proxy voting guidelines, Glass Lewis has added a new provision concerning proxy access, noting that it “generally supports affording shareholders the right to nominate director candidates to management’s proxy” and, when reviewing proposals requesting proxy access, it will consider several factors including “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.”

ISS’ voting guidelines for the 2016 proxy season note its support for proxy access “as an important shareholder right, one that is complementary to other best-practice corporate governance features.” However, in the absence of a uniform market standard in Canada, ISS has determined not to set specific parameters and instead “take a case-by-case approach in evaluating [proxy access] proposals” (unlike its U.S. proxy voting guidelines and related FAQ, which provide specific thresholds and limits concerning aspects of such policies).

Diversity and Mechanisms for Board Renewal

In September 2015, the Canadian Securities Administrators released CSA Multilateral Staff Notice 58-307– Staff Review of Women on Boards and in Executive Officer Positions – Compliance with NI 58-101 Disclosure of Corporate Governance Practices, which summarizes the findings concerning corporate governance disclosures of issuers related to gender diversity policies and mechanisms for board renewal (see our October 2015 Blakes Bulletin: ​Director Term Limits Not Common and Blakes Bulletin: ​CSA Findings from Gender Diversity Disclosure Requirements Review Released).

In its 2016 Canadian proxy voting guidelines, Glass Lewis has included expanded language regarding board diversity, noting that “boards should have diverse backgrounds and members with a breadth and depth of relevant experience” and that “shareholders are best served when boards make an effort to ensure a constituency that is not only reasonably diverse on the basis of age, race, gender and ethnicity, but also on the basis of geographic knowledge, industry experience, board tenure and culture.” While Glass Lewis has not articulated a direct consequence concerning the application of this new guideline, it has added that a withhold recommendation may be issued in respect of the chair of an issuer’s nominating committee where “the board’s failure to ensure the board has directors with relevant experience, either through periodic director assessment or board refreshment, has contributed to a company’s poor performance.”

As in past years, ISS’ 2016 TSX-listed company benchmark voting policies do not specifically address diversity and board tenure (although ISS’ QuickScore 3.0 measures how many women are on an issuer’s board and calculates “lengthy tenure” by non-executive directors based on a nine-year service threshold).

Director Overboarding

Governance commentators continue to be concerned about director “overboarding” and, in this regard, ISS notes that “[d]irectors need sufficient time and energy in order to be effective representatives of shareholders’ interests.” Accordingly, for the 2017 proxy season, ISS and Glass Lewis have both pre-emptively announced new policies concerning director overboarding.

Commencing with shareholder meetings occurring in February 2017, ISS will generally issue a withhold recommendation for a director where that individual:

  1. Is a CEO of a public company and sits on more than one outside public company board in addition to the company of which he/she is CEO (2016: two) or is not a CEO of a public company and sits on more than four total public company boards (2016: six), and
  2. Attended fewer than 75 per cent of his or her board and key committee meetings held within the past year without a valid reason

Effective for the 2016 proxy season, ISS has clarified that attendance will be measured across board and “key” committee meetings, with “key” committees being noted as including audit, compensation and nominating committees.

Beginning in 2017, Glass Lewis will generally recommend that shareholders withhold their votes in respect of (i) a director who is an executive officer of any public company while serving on a total of more than two public company boards (2016: three) and (ii) any other director who serves on a total of more than five public company boards (2016: six).


Equity Compensation Plans

Similar to the model introduced in the United States for the 2015 proxy season, ISS has adopted a “scorecard” model for its evaluation of equity plan proposals by TSX-listed issuers in 2016 “in order to provide for a more nuanced consideration” of such proposals. Under this approach, ISS intends to conduct an overall assessment of various features and practices related to such plans, with positively-assessed factors and negatively-assessed factors contributing to an overall score.

Scorecard factors will fall under three categories:

  1. Plan cost (as measured pursuant to shareholder value transfer relative to peer issuers)
  2. Plan features (including public disclosure of the full plan document, reasonable share dilution and the absence of problematic change in control provisions and financial assistance for plan participants)
  3. Grant practices (including a reasonable three-year average burn rate, performance and meaningful time vesting requirements for grants to the CEO, a clawback provision applicable to equity awards, and — for issuers in the S&P/TSX Composite Index — post-exercise or post-settlement share-holding requirements)

ISS will generally recommend that shareholders vote against the plan proposal if the score indicates that the plan is not in shareholders’ interests. Further, ISS will recommend that shareholders vote against the plan if certain unacceptable factors are present. ISS has published a related Frequently Asked Questions document concerning its equity plan scorecard.

Externally-Managed Issuers

In its 2016 Canadian proxy voting guidelines, ISS has added a provision concerning externally-managed issuers in order to “[p]rovide a framework for reviewing board accountability” at such issuers. According to the new policy, ISS will issue voting recommendations regarding say-on-pay resolutions, where provided, or on the election of individual directors, committee members, or the entire board, as appropriate, of externally-managed issuers that have provided “minimal or no disclosure about their management services agreements and how senior management is compensated.”

Factors ISS will consider include, among others:

  • The size and scope of the management services agreement
  • Executive compensation in comparison to peers and/or similarly structured issuers
  • Overall performance
  • Related party transactions
  • Board and committee independence
  • The process for effectively managing conflicts of interest and risk mitigating factors included within the management services agreement, such as fee recoupment mechanisms

Transitional Awards

In its updated Canadian voting guidelines, Glass Lewis has included a new discussion regarding its beliefs that an issuer should disclose the details of any executive sign-on arrangements and provide:

  1. A meaningful explanation of the payments and the process by which the amounts have been determined
  2. The details of, and basis for, any payments made as compensation for forfeited awards from a previous employer
  3. Disclosure of if and how the executive’s regular compensation arrangements will be affected by the additional grants


For the 2016 proxy season, Glass Lewis will generally recommend that shareholders vote against the adoption of an exclusive forum provision. Glass Lewis notes in its Canadian voting guidelines that “provisions limiting a shareholder’s choice of legal venue are not in the best interests of shareholders” and “[s]uch clauses may effectively discourage the use of shareholder derivative claims by increasing their associated costs and making them more difficult to pursue.” However, in certain cases Glass Lewis provides that it may support such a provision if the company:

  1. Provides a compelling argument on why the provision would directly benefit shareholders
  2. Provides evidence of abuse of legal process in other, non-favoured jurisdictions
  3. Narrowly tailors such provision to the risks involved
  4. Maintains a strong record of good corporate governance practices


  • Consistent with ISS’ Canadian proxy guidelines, the Glass Lewis voting policy now provides that the quorum for a meeting of directors should be a majority of the directors of the board
  • Although not highlighted as a policy change by ISS, its proxy voting guidelines have been clarified to provide that the enumerated director independence parameters concerning relationships with a TSX-listed issuer will now be measured by reference to relationships with affiliates of the issuer as well (e.g., relative of current executive officer of the company or its affiliates)
  • 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, Glass Lewis will now recommend shareholders vote against directors responsible for risk oversight in consideration of the nature of the risk and the potential effect on shareholder value
  • Glass Lewis will now consider a number of factors in determining which country-specific policy to apply to dual-listed issuers for each proposal, including but not limited to: the company’s corporate governance structure and features, including whether the board structure is unique to a particular market; the nature of the proposals; the location of the company’s primary listing, if one can be determined; the regulatory/governance reporting regime; and the availability and completeness of the company’s proxy filings
  • ISS now notes that “performance-based equity grants are not considered to be an appropriate form of director compensation”

For further information, please contact:

Matthew Merkley                    416-863-3328

or any other member of our Capital Markets group.

Blakes and Blakes Business Class communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue.

We would be pleased to provide additional details or advice about specific situations if desired.

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