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Tuesday, April 13, 2021

With the upcoming 2021 proxy season fast approaching, both issuers and investors should be aware of changes and developments in several areas of corporate governance and securities law. As in past years, proxy advisory firms Glass, Lewis & Co. (“Glass Lewis”) and Institutional Shareholder Services (“ISS”) have updated their Canadian proxy voting guidelines for the upcoming proxy season, the full versions of which are available here and here, respectively. Glass Lewis’ guidelines are effective for meetings held on or after January 1, 2021, and ISS’ guidelines are effective for meetings held on or after February 1, 2021. Additionally, ISS has published guidance on the impact of the COVID-19 pandemic, which is available here. In this update, we have summarized key developments in corporate governance and securities law, including certain proposed amendments to the Canada Business Corporations Act (the “CBCA”), and the more significant changes to each of Glass Lewis and ISS’ Canadian guidelines.

Glass Lewis 2021 Updates

Diversity and Inclusion

Glass Lewis has expanded its policy on board gender diversity for Toronto Stock Exchange (“TSX”)-listed issuers. Beginning in 2021, a board consisting of fewer than two female directors will be noted as a concern. Voting recommendations in 2021 will continue to be based on Glass Lewis’ current recommendation of at least one female board member. However, beginning with shareholder meetings held after January 1, 2022, Glass Lewis will generally recommend voting against the chair of a nominating committee where the board has put forward fewer than two female director candidates. For boards with six or fewer total members, the exist­ing voting policy requiring a minimum of one female director will remain in place. Glass Lewis may not recommend that shareholders vote against directors if the board has provided a sufficient rationale or plan to address the lack of diver­sity. Interestingly, in contrast with the typical percentage threshold (generally 30%) that has been set by other investor advocacy groups such as ISS, the Glass Lewis recommendations specify an absolute number irrespective of the size of the board (apart from the exception for boards comprised of six or fewer directors).  

Board Skills

Glass Lewis has updated its guidelines to reflect the fact that it may recommend voting against the chair of the nomination committee if a board has not addressed certain concerns, including the com­position, mix of skills, and experience of the non-executive element of the board.

Board Refreshments

Beginning in 2021, Glass Lewis will note as a potential concern instances where the average tenure of non-executive directors is 10 years or more and no new independent directors have joined the board in the past five years. Insufficient board refreshment may be a contributing factor in the nature of recommendations when other board-related concerns have also been identified.

Environmental and Social Risk Oversight

Beginning in 2021, Glass Lewis will note as a concern when boards of companies in the S&P/TSX 60 index do not provide clear disclosure concerning the board-level oversight afforded to environmental and/or social issues. After January 1, 2022, Glass Lewis will generally recommend voting against the governance committee chair of a board in the aforementioned index which fails to provide explicit disclo­sure concerning the board’s role in overseeing these issues. Glass Lewis has clarified that this oversight can be conducted by specific directors, the entire board, a separate committee, or may be combined with the responsibili­ties of a key committee.

Financial Expertise

Glass Lewis will increase its scrutiny of the level of professional expertise on audit committees, which it recommends should have at least one member with experience as a certified public accountant, chief financial officer or corporate control­ler of similar experience, or demonstrably meaningful experience overseeing such functions as senior execu­tive officers. This is a slightly stricter definition than the Canadian Securities Administrators’ “financial literacy” require­ment and would be closer to that of the Securities Exchange Commission requirement for “audit committee financial expertise.” Beginning in 2021 for TSX companies, Glass Lewis will flag as a concern such shortfalls in audit committee member professional experience.

Director Attendance/Committee Meeting Disclosures

In 2021, Glass Lewis will begin recommending against the re-election of the governance committee chair when: (i) records for board and committee meeting attendance are not disclosed; and (ii) the number of au­dit committee meetings that took place during the most recent year is not disclosed. Additionally, Glass Lewis will recommend against the re-election of the audit committee chair if the audit committee did not meet at least four times during the year.

Exclusive Forum Provisions

In response to an increase in proposals to adopt “exclusive forum” provisions (which have the effect of restricting lawsuits to a specific provincial jurisdiction), Glass Lewis has implemented a policy regarding adoptions of such exclusive forum provisions. Pursuant to that policy, Glass Lewis recommends that shareholders vote against any amendments to the by-laws or articles seek­ing to adopt an exclusive forum provision unless the company: (i) provides a compelling argument as to why the provision would directly benefit shareholders; (ii) provides evidence of abuse of legal process in other, non-favoured jurisdictions; (iii) narrowly tailors such provision to the risks involved; and (iv) maintains a strong record of good corporate governance practices.

Change of Continuance

Glass Lewis has expanded its discussion around governance structure and has included a policy on proposals to “continue” its corporate existence to another jurisdiction. Where such a move is presented before shareholders at an annual or special meeting, Glass Lewis expects shareholders to be presented with a comparison of the substantive changes between the two jurisdictions allowing shareholders to make an informed decision regarding the advantages, disadvantages and overall effect on the governance of the company and shareholder rights. Glass Lewis will analyze each change individually and recommend whether the proposed continuance, on balance, is in the best interests of the company and its shareholders.

Poor Disclosure

Glass Lewis will enact a stricter voting policy for companies where disclosure standards are poor, unclear, outdated or contradictory. Included under this assessment will be the quality and clarity of CBCA companies disclosing the rate of representation of certain groups at the board and management level. Glass Lewis intends to hold the chair of the governance committee responsible for poor disclosure standards.

Independence Classification

Glass Lewis has clarified that it considers employees of significant shareholders and explicit designees of such shareholders to be affiliated and will consider employees of a company’s ongoing major beneficial shareholder or party of interest through a material financial relationship to be affiliated for three years after they cease to be employed by such party, so long as the party continues to have a relationship with the company.

Compensation Committee Performance

Glass Lewis has emphasized that compensation committee member re-election at an annual meeting will receive particularly close scrutiny where the board of directors of the company does not provide shareholders with an advisory vote on executive compensation.

Short-Term Incentives

Glass Lewis has codified additional factors to be considered when assessing a company’s short-term incentive plan, including clearly disclosed justifications to accompany any significant changes to a company’s short-term incentive plan structure, as well as any instances in which performance goals have been lowered from the previous year. Additionally, Glass Lewis expanded its description of the application of upward discretion to include instances of retroactively prorated performance periods.

Long-Term Incentives

Glass Lewis has also codified additional factors to be considered when assessing long-term incentive plan structure. In particular, Glass Lewis has defined inappropriate performance-based award allocation as a criterion which may, in the presence of other major concerns, contribute to a negative recommendation. Additionally, any decision to significantly roll back performance-based award allocation will be reviewed as a regression of best practices that outside of exceptional circumstances, may lead to a negative recommendation. Additionally, clearly disclosed explanations are expected to accompany long-term incentive equity granting practices, as well as any significant structural program changes or any use of upward discretion.

Option Exchanges and Repricing

Glass Lewis has added language clarifying its approach in evaluating option exchanges and repricing proposals, which emphasizes the importance of the exclusion of officers and board members from the program, and that the program be value-neutral or value-creative, in driving any exceptions to Glass Lewis’ general opposition to such proposals.

Peer Group Methodology

Glass Lewis has clarified that in determining the peer groups used in its A-F pay-for-performance letter grades, Glass Lewis utilizes a proprietary methodology, as previously announced in 2019. In forming this proprietary peer group, Glass Lewis will consider both country-based and sector-based peers, along with each company’s network of self-disclosed peers. Each component is considered on a weighted basis and is subject to size-based ranking and screening.

ISS 2021 Updates

Board of Directors

ISS has also addressed gender diversity on board of directors. For S&P/TSX Composite Index companies, effective February 2022, ISS recommends withholding votes for the Chair of the Nominating Committee or Chair of the committee designated with the responsibility of a nominating committee, or Chair of the board of directors if no nominating committee has been identified or no chair of such committee has been identified, where women comprise less than 30% of the board of directors, and: (i) the company has not disclosed a written gender diversity policy; or (ii) the company’s formal written gender diversity policy does not include a commitment to achieve at least 30% women on the board over a reasonable timeframe.

The gender diversity policy should include an explicit percentage or numerical target for women’s representation that is at least 30% of the board. Where such target has not been attained, a reasonable timeframe should be provided under which the company commits to achieving a representation of 30%.

Exclusive Forum Proposals

ISS has  provided that its recommendation will be on a case-by-case basis on proposals to adopt an exclusive forum by-law or to amend by-laws to add an exclusive forum provision, taking the following into consideration: (i) jurisdiction of incorporation; (ii) board rationale for adopting exclusive forum; (iii) legal actions subject to the exclusive forum provision; (iv) evidence of past harm as a result of shareholder legal action against the company originating outside of the jurisdiction of incorporation; (v) company corporate governance provisions and shareholder rights; and (vi) any other problematic provisions that raise concerns about shareholder rights.

Impact of COVID-19 Pandemic – ISS Policy Guidance

ISS has provided policy guidance on the impact of COVID-19 in order to provide stakeholders with some specific guidance on a number of voting policy issues that are likely to be directly implicated by the pandemic and the global response to it. This guidance has remained unchanged since its initial release.

Virtual-Only Meetings

While in prior years many institutional investors and ISS policies have tended to favor a “hybrid” structure (physical meeting combined with online virtual participation) over “virtual-only” meetings, ISS has acknowledged the risks created by the COVID-19 pandemic and the need for social distancing and other measures that prevent such gatherings, and that “virtual-only” meetings may be both necessary and desirable.

If boards opt to hold “virtual-only” meetings, ISS encourages clear disclosure of the reasons for the decision (i.e., that it is related to the COVID-19 pandemic) and to strive to provide shareholders with a meaningful opportunity to participate as fully as possible, including being able to ask questions of directors and senior management and to engage in dialogue if they wish. Boards are encouraged to commit to return to in-person or “hybrid” meetings (or to put that matter to shareholders to decide) as soon as practicable.


Changes to the Boards of Directors or Senior Management

If a board needs to fill vacancies due to the disability or incapacity of a director or need to urgently add critical expertise in order to address concerns created by the COVID-19 pandemic, case-by-case consideration will be given, assessing any explanation provided by the company regarding the changes to the boardroom roster. A similar approach applies in cases where board members may need to fill senior executive roles on an interim basis. ISS has stated that boards should have broad discretion during the COVID-19 pandemic in this respect, and that they will adjust the application of their policies as appropriate for these exceptional circumstances.

Compensation Issues

Given that many boards are likely to announce plans to materially change the performance metrics, goals or targets used in their short-term compensation plans in response to the COVID-19 pandemic, boards are encouraged to provide contemporaneous disclosure to shareholders of their rationales for making such changes in addition to addressing these changes at their 2021 annual general meeting.

Capital Structure and Payouts


The COVID-19 pandemic-related market downturn and the need to manage cash in an uncertain economic environment are causing some boards to question the appropriateness of continuing to pay dividends at previously anticipated levels. Where some of ISS’ policies ordinarily expect dividend payout ratios to be within a certain range (based on earnings for the prior year), ISS will now support broad discretion for boards that seek to set payout ratios that may fall below historic levels or customary market practice. In analyzing such proposals, ISS will look at whether boards disclose plans to use any preserved cash from dividend reductions to support and protect their business and workforce.

Share Repurchases

During the COVID-19 pandemic, many companies have decided to put share buyback programs on hold to conserve cash. ISS has indicated that directors will need to consider the reputational, regulatory and business risks that exercising repurchase authority might create before proceeding with any repurchases even if approved by shareholders. While ISS will, in the absence of regulation or serious concerns related to the company, generally continue to recommend in favour of repurchase programs within customary limits for each market, the board’s actions related to any repurchases that are undertaken will be reviewed to consider if the directors managed risks in a responsible fashion.

Capital Raising

Economic fallout from the pandemic will lead many companies to require additional sources of financing. The ISS benchmark voting policies generally provide for case-by-case recommendations on proposals to increase the number of shares of common or preferred stock authorized for issuance. ISS has provided that its existing policy framework will be applied to general authorization and share issuance requests, but will also be adapted to consider any local market regulatory relaxations or new guidance due to the COVID-19 pandemic.

In exceptional circumstances and based on clear and compelling justification by the board of a company’s underlying need for capital in the current economic environment, ISS policies allow for case-by-case analysis and “For” recommendations for proposals that exceed any normal market-specific limits on size and potential dilution. ISS has confirmed that the COVID-19 pandemic constitutes such exceptional circumstances.

CBCA Amendments

Well-Being & Remuneration Disclosure and Mandatory Say-on-Pay Vote

Bill C-97 disclosure amendments to the CBCA that are currently awaiting proclamation, mandate an annual advisory “say-on-pay” and publication of the results. If adopted, this will affect all TSX-listed companies, although it is unlikely to be in force until 2022 at the earliest. Disclosure on an annual basis of “the recovery of incentive benefits or other benefits,” more commonly referred to as a “clawback,” also forms a part of the Bill C-97 requirements. Additionally, the proposed amendments include a requirement to make annual disclosure related to the well-being of employees, retirees and pensioners.

Election and Appointment of Directors

As highlighted in our previous legal updates here and here, Bill C-25 amendments to the CBCA that are expected to come into force on July 1, 2021 will require that public companies use majority voting standards for uncontested elections. A candidate is elected only if the “for” votes represent a majority of the votes cast at the meeting. The form of proxy will permit a vote “for” or “against” (instead of “withhold”). An incumbent director that fails to be re-elected may, if required to satisfy Canadian residency and other prescribed requirements, continue in office until the earlier of (a) the 90th day after the day of election, and (b) the day on which his/her successor is appointed or elected.

Directors will need to be elected on an individual and annual basis. The TSX already requires that TSX-listed companies have a substantially similar majority voting policy. However, the amendments will result in a change for some TSX Venture Exchange and Canadian Securities Exchange-listed issuers, as those stock exchanges currently permit staggered elections and slate voting provided that shareholder consent is obtained.

Shareholder Communications

“Notice-and-access” rules allow certain shareholder meeting materials to be made accessible online rather than physically mailed to shareholders. Although securities legislation was amended in 2013 to introduce notice-and-access, the CBCA was not entirely compatible with those amendments. As a result, CBCA corporations needed to seek an exemption to be able to implement notice-and-access. The Bill C-25 amendments will permit full use of notice-and-access by CBCA corporations. The Bill C-25 amendments and draft regulations also change the timeframe for a shareholder to submit proposals to a CBCA corporation to between 90 to 150 days before the anniversary of the last annual shareholder meeting.

If you have any questions with respect to this legal update, please contact Troy Pocaluyko (, Al Wiens (, Brendan Wu (, Katie Drury ( or any member of our Corporate Governance practice group.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.

If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.

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