ISS publishes 2024 proxy season updates

Institutional Shareholder Services (ISS) has published its proxy voting policy updates for the 2024 proxy season (the ISS Updates). The ISS Updates follow the release of Glass Lewis’s 2024 benchmark policy guidelines in November 2023 (the GL Updates). The ISS Updates apply to meetings held on or after February 1, 2024.

ISS Updates

The updates mainly focus on voting recommendations that address the goal of greater board diversity. Changes have also been made to voting recommendations for executive compensation plan proposals. The changes are as follows:

• Board diversity (S&P/TSX Composite Index issuers). The ISS Updates formalize ISS’s proposed guidance announced in 2023 with respect to board diversity. ISS will generally recommend voting against or withholding votes from the chair 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-listed issuer if:
  • the board has no apparent racially or ethnically diverse directors, and;
  • the issuer has not publicly announced a written commitment to add at least one racially or ethnically diverse director at or prior to the next annual meeting.

The new guideline reflects a similar policy in place in the US since 2021. The formalized guidance is more lenient than originally proposed as it now provides issuers that have no racially or ethnically diverse directors the ability to not be off-side the recommendation if they publicly announce their intention to diversify. The ISS Updates follow the 2020 amendments to the Canada Business Corporations Act that broadened disclosure of board diversity beyond gender. The Canadian securities regulators are currently considering enhanced disclosure of board diversity.

• Equity-based compensation plans (venture issuers). The ISS Updates revise ISS’s voting recommendation policy on equity compensation plans of venture issuers (which includes both TSX-V and Canadian Stock Exchange (CSE) issuers). ISS will recommend voting against the compensation committee members (or the chair of the board of directors or all of the board if no compensation committee is identified) where a share-based compensation plan has been adopted but the issuer is not seeking or has not sought approval of the plan at the next AGM following adoption. CSE-listed issuers should take note of this change as they are currently only required under the CSE listing rules to seek shareholder approval of an evergreen plan (i.e., a “rolling plan”) within three years of initiation of the plan and every three years thereafter.
• Equity-based compensation plan/individual grants to non-executive directors (NEDs) (TSX issuers). The ISS Updates remove the ISS recommendation to vote against plans/grants to NEDs where the amounts under such plans or grants exceed certain thresholds that are based on a percentage of outstanding common shares. The requirement has been removed as it no longer reflects market practice. Existing thresholds on dollar amounts of such grants remain.

GL Updates

The GL Updates are broader than the ISS Updates and introduce key amendments, including board oversight of climate-related disclosure, human capital management and cyber risk. In addition, the GL Updates address board composition and governance issues, including conflicts of interest of interlocking directors and increased expectations of audit committee members. A full description of these changes can be found in our earlier update Glass Lewis publishes 2024 proxy season updates.