On November 16, 2017, Institutional Shareholder Services (ISS) released its 2018 Americas Proxy Voting Guidelines Updates (the Updates). These updates implement changes in a number of areas, with the most significant being a gender diversity policy and new criteria for determining when a director is “overboarded”. Except where indicated below, the changes are effective for meetings held on or after February 1, 2018.
The Updates implement ISS’s proposal, in its 2018 Benchmark Policy Consultation, to implement a gender diversity policy. For S&P/TSX Composite Index companies, ISS will generally recommend a withhold vote for the Chair of the Nominating Committee or Chair of the Committee responsible for director nominations, or the Chair of the Board if no nominating committee has been identified or no chair of the nominating committee has been identified, if:
- The company has not disclosed a formal written gender diversity policy; and
- There are zero female directors on the board of directors.
This ISS policy complements the requirements in National Instrument 58-101, which contains a “comply or explain” provision with respect to gender diversity. Canadian non-venture issuers must disclose whether they have adopted a written policy relating to the identification and nomination of women directors, and if not, why not. NI 58-101 also prescribes certain features for such policies.
ISS has indicated that it will devote significant attention to the content of these policies, stating that “boilerplate or contradictory language” may result in withhold recommendations with respect to director votes. It has also noted that in evaluating board diversity, it will scrutinize the approach taken to the board’s disclosed approach to diversity in executive officer positions.
While the policy will be effective for meetings held after February 1, 2018 only for S&P/TSX Composite Index companies, it will take effect in February of 2019 for all TSX issuers. The following types of issuers will be exempt:
- Newly publicly listed companies within the current or prior fiscal year;
- Companies that have transitioned from the TSXV within the current or prior fiscal year; or
- Companies with four or fewer directors.
The Updates implement ISS’s proposal, also in its 2018 Benchmark Policy Consultation, to change the criteria for considering a director “overboarded” – that is, to be serving on too many boards to carry out his/her responsibilities properly.
At present, ISS defines an “overboarded” director as “a CEO of a public company who sits on more than 1 outside public company board in addition to the company of which he/she is CEO, OR the director is not a CEO of a public company and sits on more than 4 public company boards in total.” It generally recommends a withhold vote where: (i) irrespective of whether the company has adopted a majority voting director resignation policy, the director is overboarded; and (ii) the individual director has attended less than 75 percent of his/her respective board and committee meetings held within the past year without a valid reason for these absences.
ISS will eliminate the attendance criterion, and now generally recommend a withhold vote for meetings on or after February 1, 2019 for TSX companies where:
- for a director who is a CEO of a public company, that director serves on more than two other public company boards; or
- for any other director, the director serves on more than five public company boards (withhold only at their outside boards).
While a CEO’s directorships at parent and subsidiary companies will count in determining the number of boards on which he or she serves, ISS will not recommend withhold votes for CEOs with respect to parent/subsidiary boards.
Other changes in the Guidelines include:
- When considering advance notice policies for TSX and TSXV companies, ISS will now consider it problematic if there is a requirement that any nominating shareholder provide representation that the nominating shareholder be present at the meeting in person or by proxy at which his or her nominee is standing for election for the nomination to be accepted, notwithstanding the number of votes obtained by such nominee.
- The voting guidelines on pay for TSX companies have been updated to reflect the incorporation of the Relative Financial Performance Assessment (RFPA) into ISS’s quantitative pay assessment. The RFPA compares the company’s rankings to a peer group with respect to: (i) CEO pay; and (ii) financial performance in three or four metrics (which will vary depending on industry), in each case as measured over three (3) years. Further details will be unveiled in a future white paper.
There are also a number of minor alterations , including changes to certain nomenclature to align terms across jurisdictions.
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