ISS and Glass Lewis 2025 proxy season updates

Institutional Shareholder Services and Glass Lewis have published their proxy voting guidelines for 2025, with key updates related to board diversity and independence, artificial intelligence, virtual AGMs and executive compensation.

Institutional Shareholder Services (ISS) and Glass Lewis (GL) have each published their benchmark proxy voting guidelines for shareholder meetings held in 2025. In the case of ISS, the updates will take effect for meetings held on or after February 1, 2025. The voting guideline updates apply to issuers listed on a Canadian exchange as set out below. The key updates include the following:

Institutional Shareholder Services updates

Board gender diversity (TSX) – The current ISS recommendation is to vote against or withhold voting for the chair of the nominating committee or the chair of a committee with the responsibility of the nominating committee, or the chair of the board of directors where no nominating committee or chair of such committee is identified, of (i) a S&P/TSX Composite Index issuer where women comprise less than 30% of the board of directors; or (ii) a TSX non-Composite Index-listed issuer where there are zero women on the board. There is an exemption if an issuer falls below the relevant gender equity threshold after meeting the threshold in the previous year. Although the exception previously only applied if the issuer fell below the threshold due to “an extraordinary circumstance,” this requirement has been removed.

Board racial / ethnic diversity (TSX) – ISS has clarified the exception to its recommendation, which was introduced last year, to vote against or withhold voting for the chair of the nominating committee or the chair of a committee with the responsibility of the nominating committee, or the chair of the board of directors where no nominating committee or chair of such committee is identified, of an S&P/TSX Composite Index issuer where the board has no apparent racially or ethnically diverse members. Where a public and written commitment has been made to add a racially or ethnically diverse director at or prior to the subsequent AGM, an exception will be made for an issuer that (i) joined the S&P/TSX Composite Index and had not previously been subject to the racial/ethnic board requirement as an S&P/TSX issuer in the past; or (ii) has fallen below the minimum racial or ethnic representation on the board after achieving such level of representation at the preceding AGM.

Clarifying the definition of independence for former CEOs (TSX) – The five-year cooling-off period, after which a former CEO or a former interim CEO will be considered independent, has been removed. Now after five years, a former CEO will by default continue to be deemed non-independent, although ISS may reassess such non-independence based on exceptional circumstances.

Former CEO being a member of audit/compensation committee (TSX) – ISS will continue to recommend voting against or withhold voting for a former CEO who sits on the audit and/or compensation committee who is “non-independent,” but the recommendation has been amended to reflect the removal of five-year cooling-off period described above.

Pay-for-performance valuation (TSX) – This policy applies at all S&P/TSX Composite Index issuers and for all say-on-pay resolutions. The 2025 amendment allows ISS to use, in exceptional circumstances, a non-CEO named executive officer’s compensation in its pay-for-performance evaluation, if doing so would provide a more appropriate basis for the alignment of pay for performance. An example would be where there is another named executive officer who consistently makes more than the CEO.

Virtual-only meetings (all) – The 2025 updates codify ISS’s prior policy to vote against proposals to amend the company’s articles or bylaws to include a provision that grants discretion to directors to hold virtual-only meetings in the absence of compelling reasons.

Glass Lewis updates

Artificial intelligence (all) – Similar to updates made in 2023 related to oversight of cyber risk, GL has dedicated a new section of its guidelines to the topic of board oversight of artificial intelligence. GL believes issuers that use or develop AI technologies should adopt strong internal frameworks that include ethical considerations and ensure effective oversight of AI. GL expects clear disclosure on how boards are overseeing AI and expanding their collective expertise and understanding in this area. If there is evidence that insufficient management of AI tech has resulted in “material harm” to shareholders, GL may recommend that shareholders vote against the re-election of accountable directors.

Virtual meetings (all) – GL has significantly updated its discussion on shareholder meeting formats, but has not yet set a benchmark policy voting recommendation based solely on meeting format. GL continues to expect clear disclosure as to how the issuer ensures shareholders’ ability to meaningfully participate in a virtual-only meeting format. GL also expects issuers to actively engage with shareholders on this topic and to provide a rationale to shareholders if there is no in-person attendance option. GL has clarified that it may recommend that shareholders vote against the chair of the governance committee in egregious cases where a board has failed to sufficiently respond to legitimate shareholder concerns regarding the meeting format.

Disclosure of professional skills and experience (TSX) – GL has augmented its discussion regarding board composition and diversity to highlight the importance of providing sufficient disclosure to permit shareholders to meaningfully assess the board’s skills and competencies. New for 2025, GL may recommend voting against the chair of the nominating committee where an S&P/TSX60 issuer fails to provide adequate disclosure.

Governance committee performance (TSX) – GL has clarified its expectations regarding governance committees of TSX boards. If a governance committee fails to meet at least once during the year, GL will generally recommend voting against the chair of the committee. GL may also recommend voting against the committee chair where there is a related-party transaction involving a director and the issuer fails to disclose the amount received by the director.

Say-on-pay (TSX) – When evaluating executive compensation programs, GL has clarified its approach as involving a holistic review of qualitative and quantitative factors. Rather than utilising a scorecard approach, GL will review all factors related to named executive officer compensation, including the issuer’s stated rationale for particular pay decisions as well as the issuer’s ability to align executive pay with performance and shareholder experience. GL has also augmented its list of problematic pay practices to include excessive perquisites and adjustments to performance results that lead to problematic pay outcomes.

Change in control provisions (all) – Where the provisions of a stock option or other compensation plan allow for board or committee discretion over the treatment of unvested awards in the event of a change of control, GL believes that issuers should commit to providing clear rationale for how such awards are ultimately treated if there is a change of control.