Legal Updates

With the upcoming 2022 proxy season fast approaching, both issuers and investors should be aware of changes and developments in corporate governance and securities law. As is customary, 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, 2022, and ISS’ guidelines are effective for meetings held on or after February 1, 2022.

To assist with preparation for the 2022 proxy season, we have summarized below the more significant changes to each of the Glass Lewis and ISS Canadian proxy voting guidelines, as well as relevant amendments to the TSX Venture Exchange (“TSXV”) Policy 4.4 - Security Based Compensation.

Glass Lewis 2022 Updates

Board Gender Diversity

• Replaced all references in their guidelines to ‘female’ directors with the term ‘gender diverse directors’, defined as women as well as people that identify with a gender other than male or female.
• Glass Lewis Voting Recommendation: For issuers listed on the Toronto Stock Exchange (“TSX”), vote against the Chair of the nominating committee of a board with fewer than two gender diverse directors, or the entire nominating committee of a board with no gender diverse directors.
• For issuers listed on an exchange other than the TSX, including the TSXV, Glass Lewis will apply a policy requiring a minimum of one gender diverse director for all boards with six or fewer total directors.
• Glass Lewis may determine not to recommend voting against directors if the board has provided sufficient rationale or a plan to address the lack of diversity on the board.

Overall Approach to Environmental & Social (E&S) Risks

• Glass Lewis evaluates all E&S issues through the lens of long-term shareholder value.
• Material E&S factors should be considered by issuers in all aspects of their operations.
• Shareholders should be provided with disclosures that allow them to understand how these E&S factors are being considered and how risks are being mitigated.

Oversight of E&S Risks

• Glass Lewis will note as a concern when boards of issuers in the S&P/TSX Completion Index do not provide clear disclosure concerning the board-level oversight afforded to E&S issues.
• Glass Lewis Voting Recommendation: Vote against the governance committee Chair of issuers in the S&P/TSX 60 that fail to provide explicit disclosure concerning the board’s role in overseeing E&S issues.

Linking Executive Pay to E&S Criteria

• For qualitative E&S metrics, Glass Lewis expects issuers to provide a thorough explanation of how these E&S metrics will be or were assessed. Beyond that, Glass Lewis expects robust disclosure on the metrics selected, the rigor of performance targets and the determination of corresponding payout opportunities.

Multi-Class Share Structures with Unequal Voting Rights

• Glass Lewis Voting Recommendation: Vote against the Chair of the governance committee of issuers with a multi-class share structure and unequal voting rights when the issuer does not provide for a reasonable sunset of multi-class share structure (generally, seven years or fewer).

Size of Key Committees

• Glass Lewis Voting Recommendation: Vote against the compensation, nominating and/or governance committee Chairs if such committee consists of fewer than two members for the majority of the fiscal year.

Shareholder Proposals

• Glass Lewis is generally supportive of shareholder proposals that promote board accountability, shareholder rights and transparency but consider all shareholder proposals in the context of the issuer’s unique operations and risk profile.

Authorizations/Increases in Authorized Preferred Stock

• Glass Lewis Voting Recommendation: Vote against authorizations to create a class of preferred stock or increases in the authorized capital of such stock unless the issuer discloses a commitment to not use such stock as an anti-takeover defense or in a shareholder rights plan or discloses a commitment to submit any shareholder rights plan to a shareholder vote prior to its adoption.

Disclosure of Fees for Audit Services

• Glass Lewis Voting Recommendation: Vote against audit committee chairs where the issuer has not clearly disclosed the breakdown of fees paid to its external auditing firm for the most recent fiscal year.

ISS 2022 Updates

With respect to the ISS updates, please note that the TSX proxy voting guidelines now apply to NEO Exchange listed issuers as well.

Board of Directors – Gender Diversity (TSX Guidelines)

• ISS Voting Recommendation: In respect of S&P/TSX Composite Index issuers, vote withhold for the Chair of the nominating committee or other such committee with the responsibilities of the nominating committee where women comprise less than 30% of the board of directors and the issuer has not provided a formal, publicly disclosed, written commitment to achieve at least 30% representation of women on the board at or prior to the next annual general meeting.
• ISS Voting Recommendation: In respect of TSX issuers, which are not also S&P/TSX Composite Index constituents, vote withhold for the Chair of the nominating or similar committee where the issuer has not disclosed a formal written gender diversity policy and there are zero women on the board. However, this recommendation does not apply to newly listed issuers within the current or prior fiscal year, issuers that transitioned from the TSXV within the current or prior fiscal year, or issuers with four or fewer directors.
• Gender diversity policies should include measurable goals and/or targets denoting a firm commitment to increasing board gender diversity at or prior to the next annual general meeting.

E&S Issues – Say on Climate (“SoC”) Management Proposals

• ISS Voting Recommendation: Vote on a case-by-case basis for management proposals that request shareholders to approve the issuer’s climate transaction action plan, notably considering, among other things, both the completeness and rigor of the plan.

E&S Issues –SoC Shareholder Proposals

• ISS Voting Recommendation: Vote on a case-by-case basis for shareholder proposals that request the issuer disclose a report providing GHG emissions levels and reduction targets and/or its upcoming/approved climate transition action plan and provide shareholders the opportunity to express approval or disapproval of its GHG emissions reduction plan. ISS recommends considering, among other things, the completeness and rigor of the issuer’s climate-related disclosure, the issuer’s actual GHG emissions performance, whether the issuer has been the subject of recent, significant violations, fines, litigation or controversy related to GHG emissions and whether the proposal’s request is unduly burdensome (scope or timeframe) or overly prescriptive.

Compensation – Advisory Vote on Executive Compensation (Say-on-Pay) Management Proposals – Equity-Based Compensation Plans (TSXV Guidelines)

• ISS Voting Recommendation: Vote withhold for all board members if the issuer does not have a compensation committee and does not identify a board Chair.

TSX Venture Exchange Policy 4.4 – Incentive Stock Options

• The TSXV has released a bulletin announcing amendments to Exchange Policy 4.4 – Incentive Stock Options. Such amendments took effect immediately and formed the newly named Policy 4.4 – Security Based Compensation.
• Policy 4.4 – Security Based Compensation creates greater flexibility and opportunity to advance the interests of issuers by:
• expanding the old policy to include a wider variety of compensation securities;
• including two additional categories of security-based compensation plans;
• permitting the exercise of stock options on a “cashless” or net “exercise” basis; and
• codifying certain pre-existing unwritten rules of the TSXV governing security-based compensation plans and grants.

For more information regarding Policy 4.4 – Security Based Compensation, please see our update here.

If you have any questions with respect to the matters discussed above, please contact Troy Pocaluyko (troy@wildlaw.ca), Al Wiens (awiens@wildlaw.ca) or any other member of our Corporate Governance practice group. The authors gratefully acknowledge the assistance of articling student Alex Karlsen in the preparation of this update.

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.