Glass Lewis publishes proxy voting guidelines for 2022 AGMs

Glass Lewis has published its Canadian proxy voting guidelines for 2022. The key changes for the upcoming shareholder meeting season relate to board gender diversity, board committee composition, environmental and social risk oversight and multi-class share structures.

Board gender diversity

Both Glass Lewis and Institutional Shareholder Services (ISS) announced amendments to their board gender diversity policies last year that will take effect in 2022. And both are going beyond those previously announced changes with additional requirements for next year.

As was previously announced, Glass Lewis will generally recommend voting against the chair of the nominating committee of TSX-listed companies if there are fewer than two women on the board, provided the board has seven or more total directors (with a minimum requirement of one woman for boards with fewer than seven directors). For companies listed on the TSXV, CSE or NEO exchanges, the requirement is for a minimum of one woman on the board. Another change for 2022, which was not previously announced, is that Glass Lewis may recommend voting against the entire nominating committee of TSX-listed companies if there are no women on the board.

We note that Glass Lewis has also expanded its concept of gender diversity on boards to include not only women, but also directors that identify with a gender other than male or female.

Looking ahead to 2023, Glass Lewis will require a minimum of 30% gender diversity on boards, rather than stating fixed numbers of directors. ISS is moving to a 30% minimum requirement in 2022, but only for S&P/TSX Composite issuers, provided that it will generally not recommend a negative vote if the company has a formal written gender diversity policy that includes a commitment to achieve at least 30% women on the board at or prior to the next AGM.

Board committee composition

Glass Lewis will recommend a negative vote against the chairs of the board’s key committees if those committees have fewer than two members for the majority of the year. This policy will apply to the compensation, nominating and governance committees and will apply for all listed companies (not just those listed on the TSX).

Environmental and social risk oversight

This past year, Glass Lewis began noting its concerns where S&P/TSX 60 index companies did not provide adequate disclosure concerning director oversight of E&S issues. In 2022, these warnings will turn into a recommendation to vote against the governance committee chair. Glass Lewis is also expanding these guidelines to apply to all companies in the S&P/TSX Composite index. For those outside the S&P/TSX 60, concerns will be noted in 2022 (with the negative voting recommendations being applied in 2023).

Dual-class / multi-class share structures

In the wake of the Rogers litigation, Glass Lewis has updated its guidelines for companies that have a multi-class share structure with unequal voting rights. Beginning in 2022, it will recommend voting against the chair of the governance committee of such companies if they do not provide for a “reasonable” sunset of the structure, which Glass Lewis clarifies generally means seven years or less. 

Interestingly, ISS has proposed to update its voting guidelines in the US (not Canada) to begin to make similar negative vote recommendations starting in 2023 (therefore providing affected companies with a one-year grace period).

“Clarifying” amendments

Glass Lewis has made clarifying amendments by formalizing certain existing policies and expanding its discussion on others. These include the following:

• Fees Paid to Auditors: When assessing the decisions and actions of an audit committee, Glass Lewis will recommend a negative vote against the chair of the audit committee where the company has not clearly disclosed the breakdown of fees paid to its external auditors for audit and non-audit services.
• Executive Short-Term Incentives: Glass Lewis continues to believe that short-term bonuses or incentives should be clearly tied to performance. It has clarified that where companies use non-GAAP metrics in their incentives, there should be a clear reconciliation back to the GAAP measure in the audited financial statements. Glass Lewis may consider adjustments to GAAP financial results in its compensation analysis.
• Grants of Front-Loaded Awards: Glass Lewis generally scrutinizes larger up-front awards that are meant to provide compensation over multiple years more so than annual awards. While it considers the quantum of front-loaded awards on an annualized basis (rather than as a lump sum), Glass Lewis has clarified that for equity-based awards it may consider the total potential dilutive effect of such award on shareholders.
• E&S Metrics in Executive Compensation: Glass Lewis does not require companies to include environmental and social metrics in their executive compensation decisions. However, where such metrics are used, they should be based on the company’s specific situation, taking into consideration factors such as its industry, size, risk profile, maturity, performance and financial condition. Further, Glass Lewis expects companies to adequately disclose why the metrics were selected and how they are assessed.
• Executive Severance Arrangements: If Glass Lewis believes that a predetermined severance payout is particularly problematic, it may result in a negative recommendation on a say-on-pay vote.
• Blank-Check Preferred Stock: Glass Lewis is generally against the authorization of preferred shares that allow the board to determine their rights and limitations at a later date, on the basis that they could end up adversely affecting the voting power or other rights of common shareholders. Accordingly, Glass Lewis will generally recommend voting against a proposal to authorize or increase the number of authorized shares, unless the company commits that it will not use such shares as an anti-takeover defense.
• Shareholder Proposals: Glass Lewis has codified its approach to reviewing shareholder proposals. In general, these are decided case by case through a lens of long-term shareholder value.
• ESG Considerations: Glass Lewis has expanded its discussion regarding environmental, social and governance considerations. At its core, Glass Lewis requires companies to clearly articulate material ESG-related risks and to adequately explain how the board oversees those risks and how the company mitigates them. When evaluating a company’s environmental and social issues, Glass Lewis has clarified that it examines the following:
  • financial exposure to direct environmental and social risks associated with the company’s operations (ex: spills, explosions, inadequate human rights policies);
  • risk due to changes in legislation and regulation that may affect current and planned operations;
  • legal and reputational risk; and
  • governance risk stemming from inadequate oversight of environmental and social issues.

We anticipate that ISS will publish its 2022 proxy voting guidelines by the end of the month. The Glass Lewis guidelines are available here.