Topic: Corporate Governance

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Board diversity: the latest metrics and government measures

The diversity of boards has become a target of greater scrutiny. This scrutiny has come not only from activist investors seeking higher returns and better governance, but from governments and various interest groups outside the corporation. It has homed in on a variety of director characteristics, including length of tenure, age, gender, and visible minority status. This post begins by discussing some of the latest metrics on board diversity in Canada. It then looks at some of the recent measures governments and regulators have been taking to increase diversity in the boardroom.

Length of tenure

According to a Financial Times Continue Reading

Majority voting and board diversity trends

As recently highlighted in the Harvard Law School Forum on Corporate Governance and Financial Regulation, a report (the Report) by Institutional Shareholder Services (ISS) found that majority voting practices and annual board elections, along with increases in board diversity, are the new norm.

The Report examined the public filings of Standard & Poor’s U.S. “Super 1,500” companies (S&P 1500)  comprised of the S&P 500, MidCap 400 and SmallCap 600 indices from the period of July 1, 2014 through June 30, 2015.

Majority Voting and Annual Elections

Majority voting is now the clear market standard amongst … Continue Reading

Updates to ISS proxy voting guidelines

Institutional Shareholder Services (ISS) is one of the leading proxy advisory firms that makes voting recommendations on public companies’ proxy resolutions. In Canada, ISS’ recommendations on transactions and governance issues can have a significant impact on many shareholders’ opinions, and particularly the opinions of institutional shareholders.

ISS publishes its proxy voting guidelines which explain the policies underlying its recommendations. For 2016, ISS updated certain items in guideline. The updates, as described below, are good indicators of investors’ views toward current issues in the corporate governance landscape.

Director Overboarding

In response to information about the average workload for directors … Continue Reading

The State of Proxy Access Reforms

With the rise of shareholder activism led by what some refer to as “constructivists”, “reluctavists” or “suggestivists” (and, yet others, those who commit “extortion”), shareholders have become increasingly distrustful of leaving matters of corporate governance to management and boards. One tool that investors can rely on is exercising rights pursuant to a proxy access by-law, or, in Canada, the statutory rights of certain shareholders.

Proxy access is about enabling shareholders to influence who governs a company, and by extension, how the company proceeds with its affairs. It expands the activist shareholder’s quiver of offensive … Continue Reading

Corporate governance at top of mind for investors

A recent article from IR Magazine, “Governance crucial factor for nine in ten Canadian investors” (the Article), highlights just how much emphasis Canadian investors place on good corporate governance. Canadian companies would be smart to take heed and ensure their corporate governance is in line with accepted good practices. The Article reports that, of the members of the Canadian buy side interviewed as part of the “IR Magazine Investor Perception Study – Canada 2016”, 86% cite corporate governance as being a crucial factor when making investment decisions.

While corporate governance is a broad term, the respondents indicate that … Continue Reading

How corporate governance reforms spread

Recent research on the adoption of majority voting rules provides some insight on how corporate governance reforms are adopted and change company behaviour, and suggests that reforms may have the greatest impact on firms that are late to adopt them.

The push for majority voting, which requires that directors receive a majority (rather than a plurality) of the votes cast in order to be elected, has been highly successful, with over 90% of S&P 500 companies adopting some form of majority voting by January 2014. Majority voting is intended to make boards more accountable to shareholders.  A recent paper by … Continue Reading

Better boards through better risk management practices

Prior to 2008, it was not uncommon for a bank to assign its risk oversight responsibilities to the audit committee of its board of directors, or in some cases, to even divide those tasks between a number of other committees. Since then, a number of policies and guidelines have been enacted (including, notably, the Basel Committee for Banking Supervision’s Corporate Governance Principles for Banks in July 2015) that set new standards and procedures with respect to how financial institutions are to monitor and moderate risk.

PricewaterhouseCoopers recently completed a study entitled Board Governance: Higher Expectations, but Better Practices?, which … Continue Reading

Top board priorities for 2016

With 2016 upon us, boards are likely to reflect on the organizational challenges they expect to face in the coming year, and to develop effective strategies to tackle these challenges. A recent EY publication anticipates that in developing these strategies, boards will focus their energies on addressing the following five critical challenges:

1. Board effectiveness, composition and refreshment

Boards are always looking for ways to self-improve. It is expected that 2016 will be no different in this respect. Boards will seek ways to attain the right mix of skills and experience and to enhance transparency and accountability. Particular attention will … Continue Reading

Glass Lewis’ 2016 Canada Policy Guidelines

Last week, Glass Lewis & Co. (Glass Lewis), a top governance analysis and proxy voting firm, released its 2016 proxy season guidelines for Canada and the United States, as well as its guidelines for evaluating shareholder initiatives.

Here, we summarize what’s new in Glass Lewis’ 2016 Canada Policy Guidelines (the Guidelines) for the upcoming 2016 proxy season:

  • Dual-listed Companies – when making recommendations in relation to companies listed on exchanges in more than one country, Glass Lewis will consider the location of the company’s primary exchange listing, its corporate governance and other features to determine
Continue Reading

ISS proposed proxy voting policy changes for 2016

Institutional Shareholder Services (ISS), one of the world’s most influential proxy advisory firms, recently released its draft proposed voting policies for 2016.  ISS is currently requesting feedback on new or potential changes to three voting policies in Canada covering the following areas: director overboarding, compensation-related votes at externally-managed issuers and the introduction of an equity plan scoreboard.

Lowering the Threshold for Overboarding

ISS has recognized the risk in directors sitting on an excessive number of boards, such that directors become over-committed and unable to dedicate the required time and energy to each board necessary to effectively represent shareholders’ … Continue Reading

Emerging trends: Activist shareholder bans

As a result of the rising tide of shareholder activism in Canada, a number of defensive tactics have been developed by corporate management. The newest innovation in management’s arsenal is the activist investor ban—an agreement between an issuer and a purchaser that restricts the purchaser from transferring its shares to activist investors.

Activist investor bans have recently become the norm in the realm of pharmaceutical mergers and acquisitions. Last month, for example, the Canadian drug maker Concordia Healthcare Corp. agreed to issue a 14% equity stake to a private equity firm, but not before putting an activist investor ban … Continue Reading

Managing risk: A primary concern for effective boards

In today’s economic climate the role of a board of directors is as dynamic as it is demanding. Boards are now forced to take on expanded roles to better guide their organizations through uncertain economic times. In addition, directors are expected to be proactive in understanding and managing risk, and capitalizing on the opportunities they present.

In a recent report, Boards and Internal Audit: Working Together (the EY study), EY addresses this issue of risk management and its growing importance to a board’s success. The study found that while 97% of organizations surveyed have made progress in linking their … Continue Reading

Management diversity: Do women in management lower a firm’s risk profile?

In an earlier post, we commented on the formal amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices and Form 58-101F1- Corporate Governance Disclosure imposing enhanced disclosure requirements with respect to female representation on the boards and in executive officer positions of TSX-listed issuers.  As we discussed earlier this year, the correlation between gender diversity on boards and company performance is compelling from an investment value perspective.

It is also beneficial for issuers to recruit women into upper management roles. In a recent academic study examining management diversity, “Do Women Stay Out of Trouble”, the … Continue Reading

The Dissatisfied Institutional Investor: Intervene or Exit?

Considering the role of institutional investors in influencing corporate governance is critical to effective corporate decision making. Broadly, dissatisfied institutional investors choosing to act can do one of the following: (a) intervene with management, either cooperatively or uncooperatively as dissident shareholders, or (b) exit by selling their shares. Many theories have been put forward to explain investor conduct, but who better explain the rationale behind it than investors themselves? In a new article entitled Behind the Scenes: The Corporate Governance Preferences of Institutional Investors[1] (Behind the Scenes), the authors survey 143 institutional investors worldwide to find out … Continue Reading

Female directors on the rise in the west

The University of Calgary’s Haskayne School of Business and the Alberta Securities Commission (ASC) released the results of the first-ever Alberta Women on Boards Index on September 22, 2015 (the Index). The Index is intended to be an annual study led by an advisory committee generally comprised of senior business leaders in the region.

The study, based on a survey of 453 companies from 2015 and 474 companies in 2014 for which the ASC is the principal regulator, found that in general, female corporate board members have been on the rise, with roughly 22% of all new … Continue Reading

Delaware Supreme Court provides guidance on the interpretation of advance notice bylaws

According to a recent Delaware Supreme Court decision, advance notice bylaws are to be interpreted by “their commonly accepted meaning unless the context clearly requires a different one or unless legal phrases having a special meaning are used.”[1] The plain meaning of “date”  means “the actual date of the meeting, not a possible future date” for the purpose of determining whether the shareholder has made a timely proposal or director nomination.

In Hill International, Inc. v. Opportunity Partners LP, Hill International, Inc. (Hill), a Delaware corporation, and its shareholder, Opportunity Partners L.P. (Opportunity), litigated whether … Continue Reading

Multiple activist campaigns on the rise as activists outnumber target companies

A corollary to the trend of rising shareholder activism is the increasing frequency with which target companies are facing multiple activist campaigns. Companies that have successfully defended activist campaigns in the past are not free to rest on their laurels – if the same issues persist, future attacks may be on the horizon.

The Wall Street Journal reports that 39 companies have dealt with more than one shareholder activist over the past year – a 95% increase since 2011. Companies that are underperforming seem to be a breeding ground for multiple shareholder activist activity, but there do not seem to … Continue Reading

Forum selection by-laws come to Canada

Norton Rose Fulbright Canada has recently been involved in the introduction and adoption of forum selection by-laws in Canada.  This article will provide a brief description of forum selection by-laws and their benefits and uses.  For a more in-depth analysis, we invite readers to watch the replay of the talk or reach out to the chairs of our Special Situations Team.

What is a forum selection by-law?

A forum selection by-law can be used by corporations to help ensure that lawsuits regarding the internal affairs of the corporation are limited to a single jurisdiction as chosen by the corporation … Continue Reading

Executive compensation and shareholder activism

Executive compensation has been a hot button issue as of late. Not only has executive compensation come under increased scrutiny from politicians, regulators and the public at large, it is an issue that is also top-of-mind for shareholders, analysts and proxy advisory firms. For example, the Financial Post published an article earlier this year entitled “Canadian shareholders increasingly aggressive on ‘say-on-pay’”, which reports that institutional investors and the public are taking an increasingly hard-nosed and critical approach to evaluating corporate compensation decisions.

Executive compensation can be a flashpoint between a company and its shareholders, and it is thus … Continue Reading

“Dead hand proxy puts” under scrutiny in Delaware

A decision of the Delaware Chancery Court last fall has set off a wave of books and records inspection demands by stockholders, as well as threatened litigation, for Delaware corporations that have entered into credit agreements containing “dead hand proxy put” provisions.  A “dead hand proxy put” allows the lender to demand immediate repayment of the outstanding debt if a majority of the borrower’s incumbent directors are replaced within a specified time period.  In Pontiac General Employees Retirement System v. Healthways, Inc.,  C.A. No. 9789-VCL (Del. Ch. Oct. 14, 2014) (transcript ruling), the Court declined to dismiss a breach … Continue Reading

Moving away from a mechanistic evaluation of board term limits

Earlier this month, Robert Pozen, senior lecturer at Harvard Business School contended that a simple reliance on board term limits as an evaluation tool of corporate performance is based on “faulty logic”.[1]

Concerns around extended tenure of directors typically include anxieties over compromised director independence and the development of a friendliness with management.

According to Spencer Stuart, the average tenure of directors in Canada rose from eight years in 2009 to nine years in 2014.

Mr. Pozen, however, highlights the disconnect in assuming that “lengthy director service means cozy relationships with management”.  He notes the high rate of … Continue Reading

The CCGG makes a push for enhanced proxy access

The Canadian Coalition for Good Governance (CCGG) recently released its much anticipated policy paper on “proxy access”, a term which refers to shareholders’ conceptual right  to nominate directors and have those nominees placed on management’s ballot. The CCGG takes the position that this right, which is supplemental to a shareholders right to elect directors, “is an essential component of shareholder democracy”. In a previous post, Kaitlind de Jong reported on the efforts the CCGG has undertaken to promote enhanced proxy access for shareholders in Canadian public companies prior to the release of its policy.

Current best practices in Canada … Continue Reading

Webinar: Important corporate governance development – Forum Selection By-law

webinar-mayOn May 14, 2015, Norton Rose Fulbright hosted a webinar on an important corporate governance development: Forum Selection By-law.  Walied Soliman and Orestes Pasparakis, co-chairs of Norton Rose Fulbright’s Special Situations Team, were joined by Cathy Singer and Ruth Wahl, senior partners at Norton Rose Fulbright, to discuss how this development works and how it protects the interests of companies and shareholders alike.

Overview of topics discussed:

  • What the Forum Selection By-law does and how it protects companies
  • The legal support for the implementation of the by-law
  • Whether this new by-law is appropriate for your company
  • Market reaction: What to
Continue Reading

Forum selection by-law

On May 14, 2015, Walied Soliman and Orestes Pasparakis, co-chairs of Norton Rose Fulbright’s Special Situations Team, were joined by Cathy Singer and Ruth Wahl, Senior Partners at Norton Rose Fulbright, to host a webinar, “Important Corporate Governance Development: Forum Selection By-law”.

As discussed during the webinar, proposed text for a forum selection by-law can be found here.  A copy of the webinar will be uploaded shortly.

Stay connected with Special Situations Law and subscribe to the blog today.Continue Reading

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