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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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Canada | Publication | December 10, 2021
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:
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:
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.
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.
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:
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.
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.
ISS has updated its guidelines to explicitly provide that those applicable to TSX-listed issuers will apply to NEO Exchange-listed issuers.
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.
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