On November 6, 2014, Institutional Shareholder Services (ISS) released updates to its Canadian proxy voting guidelines for the 2015 proxy season.  The voting guidelines are effective for meetings held on or after February 1, 2015.  The following is a summary of the most significant changes.

Director Elections

  • Director Independence: ISS has made several changes to their definition of “independence” including:
    • that former CEOs will now be subject to a five year “cooling off” period, after which ISS will classify him/her, on a case-by-case basis, to be independent unless other relationships exist with the issuer or executive officer. Factors taken into consideration may include: management/board turnover, current or recent involvement in the company, whether the former CEO is or has been Executive Chairman of the board or a company founder, length of service, any related party transactions, consulting arrangements, and any other factors that may reasonably be deemed to affect the independence of the former CEO; and
    • that ISS will deem any director(s) who have “material” relationships with the company or members of management to be affiliated with the company, although ISS has not explicitly defined the threshold for materiality.
  • Former CEO on Audit/Compensation Committee: ISS will no longer recommend that shareholders WITHHOLD votes from former CEOs who served on the audit or compensation committee, so long as the former CEO has not served on those committees within the past five years.

Shareholder Rights and Defenses:

  • Unilateral Adoption of Advance Notice Provisions: ISS will now recommend that shareholders WITHHOLD votes from individual directors, committee members or the entire board in situations where an advance notice policy has been adopted without being put to a shareholder vote at the next scheduled meeting of shareholders. It is unclear which directors will receive WITHHOLD votes, although, according to Kingsdale Shareholder Services, ISS will likely target members of the governance or nominating committees, the chairman, or in certain cases the entire board.
  • Advance Notice Requirement: ISS will now take a case-by-case approach to evaluating advance notice policies, but will recommend a vote AGAINST the policy if it contains any provisions that will have a negative impact on the interest of shareholders.  In the summer of 2014, Norton Rose Fulbright successfully litigated a decision concerning this type of provision.

Other key updates to ISS’s policy towards advance notice provisions include:

  • No maximum upper limit set for the notice period: in cases where notice of the meeting is more than 50 days prior to the meeting date, the policy should allow shareholders to provide notice of nominations at any time not less than 30 days prior to the meeting with no maximum period, scrapping the current 65 day maximum period.
  • ISS will begin to recommend AGAINST advance notice provisions restricting the notification period to that established for the originally scheduled meeting in the event that the meeting has been adjourned or postponed.
  • Article/Bylaw amendments: ISS will now recommend a vote AGAINST:
    • Issuers that do not disclose the full text of their bylaws or articles.
    • Introduction or amendment of advance notice requirements in any form that includes problematic provisions.

Capital Structure

  • ISS has adopted a “clearly defined case-by-case” approach they will use when considering private placement issuances, taking into account: (i) bundled resolutions, (ii) rationale, (iii) shareholder dilution, (iv) issuances representing no more than 30% outstanding shares (non-diluted), (v) discount/premium in issuance, (vi) market reaction.