ISS: 2022 proxy season recommendations

On December 7, Institutional Shareholder Services (ISS) published its 2022 ISS Benchmark Policy Updates (Executive Summary).  The proxy voting updates will take effect for meetings held on or after February 1, 2022, unless otherwise noted.  The full updated proxy voting guidelines will be available in late December at www.issgovernance.com.

The following are the key areas of update for Canadian companies:

• board gender diversity;
• board responsiveness to “say-on-pay” votes;
• voting recommendations on management climate change plans and shareholder proposals; 
• overboarded directors of TSX-V issuers (in effect for meetings held on or after February 1, 2023);
• application of guidelines to NEO-Exchange listed companies; and
• voting recommendations for CSE-listed companies regarding compensation committees.

Board gender diversity

ISS will recommend voting “withhold” for the chair of the nominating committee (or chair of another committee with responsibility for compensation matters or the chair of the board of directors where no nominating committee) of all TSX-listed issuers where the issuer:

• does not have a formal written gender diversity policy; and
• has no women on its board of directors.

This recommendation has been expanded from being applicable to “widely held” TSX-listed issuers to all TSX-listed issuers.

S&P / TSX Composite Index issuers will be subject to a higher benchmark.  ISS will recommend voting against the chair of a nominating committee (or other chair as applicable) where women comprise less than 30% of the board and the issuer has not provided a clear commitment to achieve this target prior to the next annual general meeting.  This change was announced last year with a one-year grace period but has been further amended by requiring an issuer to commit to achieving the 30% target by its next AGM as opposed to “within a reasonable timeframe.”  Exemptions will continue to be available for newly listed TSX issuers and those transitioning from the TSX-V within the prior or current fiscal year. In addition, there is an exemption for issuers with four or fewer directors.

Board responsiveness to say-on-pay votes

ISS will evaluate the board’s responsiveness where a shareholder vote on executive compensation does not receive a 80% positive response.  The current threshold is set at 70%.  Most Canadian say-on-pay votes garner average shareholder approval in excess of 90%.  Board responsiveness generally includes disclosure of engagement activities, specified actions undertaken by the board and an analysis of the basis of the pay practices in question.

Say-on-climate votes and shareholder proposals

If an issuer asks shareholders to vote on its climate transition plan (a say-on-climate vote), ISS will recommend voting on a case-by-case basis.  The policy will list the main criteria for analyzing such plans.

ISS had previously indicated that in evaluating say-on-climate votes, it would consider looking at the following criteria among others:

• the completeness and rigor of the transition plan, including the disclosure being in line with the Task Force on Climate-related Disclosures (the TCFD) and other market practices;
• whether the disclosure includes operational and supply chain GHG emissions; 
• the completeness and rigor of short-, medium- and long-term targets to reduce operational and supply chain GHG emissions; 
• whether third-party approval of the plan has been sought or received; 
• whether the issuer has made a commitment to “net zero emissions” by 2050;
• whether the issuer has specific industry decarbonization challenges; 
• the issuer’s commitment, disclosure and performance compared to industry peers; and
• the commitment of the issuer to report in the future on the progress of the plan. 

Recommendations on shareholder proposals requesting an issuer to disclose its climate transition plan and seek a say-on-climate shareholder vote will also be voted for on a case-by-case basis.

Overboarded directors

Commencing in 2023, ISS will withhold from voting for an overboarded director for TSX-V issuers using the same definition of overboarding used for TSX-listed issuers. The 2021 ISS TSX standards recommend withhold voting for a non-CEO director nominee who sits on more than four outside public company boards or a CEO nominee director who sits on more than two outside public company boards (only in respect of outside boards).  As the new standards are stricter than the current TSX-V standards, a one-year grace period has been granted to allow issuers to make appropriate changes to their boards.

Application to NEO exchange 

ISS has updated its guidelines to explicitly provide that those applicable to TSX-listed issuers will apply to NEO Exchange-listed issuers.

CSE policy updates

For CSE-listed issuers, ISS is expanding its potential withhold vote recommendation to all board members where the company does not have a compensation committee and does not identify a board chair.