What’s new for 2019 proxy season: ISS and Glass Lewis updates

Recent battles between investors and boards have seen dramatic results and changes of corporate direction.

Mining has come in particular focus with contested meetings at Canadian companies. Recommendations from proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis continue to impact the outcome of shareholder meetings and the firms’ updated proxy voting guidelines for 2019 are now in effect. Here are some key aspects of the updated guidelines Canadian mining companies should know.

Gender diversity

ISS’ gender diversity policy has been expanded to apply to all “widely held” companies. This is defined as S&P/TSX Composite Index companies and other TSX-listed companies designated by ISS, based on the number of their clients holding securities in the company. ISS will generally recommend a withhold vote if a formal gender diversity policy has not been adopted and if no female directors serve on its board.

Glass Lewis will generally recommend a withhold vote for the chair of the nominating committee if a company does not have at least one woman on the board. It may also recommend voting against the chair of the nominating committee if the board has not adopted a formal written diversity policy.

Environmental and social risk oversight

ISS will continue making voting recommendations on a caseby- case basis on environmental and social (E&S) shareholder proposals. In addition to considering whether there are significant controversies, fines, penalties or litigation associated with the company’s existing E&S practices, it will also assess the following factors when evaluating the likelihood that a proposal will protect or enhance shareholder value:

• whether the issue(s) presented are more appropriately dealt with through legislation or government regulation;
• whether a company has already responded appropriately to the issue(s); and
• whether a proposal is unduly burdensome or inordinately inflexible on the company.

Glass Lewis has formalized its approach to reviewing how boards oversee E&S issues. Its new policy requires that largecap companies make annual, fulsome disclosure of relevant E&S risks and to clearly identify directors or board-level committees charged with oversight. If Glass Lewis determines that the mismanagement of E&S issues has resulted in a detriment to shareholder value, it will recommend that shareholders vote against directors responsible for overseeing the identified issue.

Director overboarding

ISS increased the number of permissible directorships that a director may hold without being “overboarded.” An individual director nominee is considered to be overboarded if:

• in the case of a CEO, they sit on the board of more than two public companies (including the one they lead as CEO); or
• in the case of directors other than the CEO, they sit on more than five public company boards.

While ISS previously issued a withhold recommendation for an “overboarded” director if they attended less than 75% of board and committee meetings in the past year without a valid reason, it no longer considers attendance a relevant factor.

Executive compensation

Glass Lewis expanded its discussion of several executive compensation topics and how these factor into its voting recommendations, including:

• contractual payments and arrangements;
• grants of front-loaded awards; and
• “claw-back” provisions.

It says a single factor is unlikely to result in a negative recommendation on a company’s say-on-pay proposal.

Virtual shareholder meeting

Glass Lewis will not make voting recommendations solely on the basis that a company holds virtual-only meetings. It has, however, expanded on its policy by specifying that the following factors will be reviewed when determining whether effective disclosure has been provided for in a company’s circular:

• addressing the ability of shareholders to ask questions during the meeting;
• procedures for posting appropriate questions received during the meeting, and the company’s answers, on the investor page of its website as soon as is practical after the meeting;
• addressing technical and logistical issues related to accessing the virtual meeting platform.

Glass Lewis also provided updates to their 2019 Canadian proxy voting guidelines in the areas of board skills, director and officer indemnification and auditor ratification.

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SANDER A.J.R. GRIEVE is a Toronto-based partner and co-head of mining at Bennett Jones LLP. Based in the Calgary office, Jon C. Truswell is a partner, John E. Piasta is a partner, and co-leader of corporate finance and M&A, and Hind L. Masri is an associate.

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