Proxy season may get chilly
Advisory firms put governance in crosshairs
It may still be winter, but the next few months also carry another moniker that can give corporate managers chills: proxy season.
This is the time of year when Canadian companies meet their owners, the shareholders, and rarely does a proxy season go by without a series of incidents — largely governance- related — which if not carefully addressed have the potential to derail a company’s agenda.
This season promises to be no different, in part because the two proxy advisory firms — Institutional Shareholder Services Inc. and Glass Lewis & Co. — have recently published their proxy voting guidelines.
The views of those firms have grown in significance to their audience, the institutional investors. And to the extent that issuers align with those guidelines or proxy recommendations the annual meeting will, more than likely, be relatively lacklustre.
The recommendations/ policies have attracted considerable comment. For instance, Blakes, a national law firm, recently issued a report on three key areas where policy change has been made by the two firms, while Kingsdale Advisors, part of a proxy solicitation firm, has also weighed in.
On the matter of controlled issuers, Blakes said ISS has removed the requirement that “such issuers adopt a majority voting policy or publicly commit to doing so if they cease to be a controlled issuer.”
For t hose c ompanies where a vote shows support from a majority of the unaffiliated shareholders, Blakes said Glass Lewis wants the board to demonstrate “an appropriate level of responsiveness.” If not, that failure, “may be a contributing factor to it recommending that shareholders vote against management’s recommendation on such matters in the future.”
Kingsdale said this policy change means Glass Lewis “will bring to the forefront the voice of the minority shareholder.”
On the subject of advance notice requirements, in which shareholders are required to give the company a considerable period of time if they want to propose nominees to the board, Blakes said ISS has tightened up some “problematic” parts of the process. The two key changes relate to the nominee being required to attend the meeting and to situations in which the company gives no indication that it will pass on the information about the nominee.
Kingsdale said action on the first matter was expected given the guidance that was published by the TSX last March, while for the second matter, “additional information that goes beyond what is required under law or regulations,” didn’t make sense.
Cl i mate c hange was the third area of focus for Blakes. From now on, Glass Lewis will support shareholder resolutions that certain issuers (those in certain extractive or energy- intensive industries) “provide information to shareholders concerning their climate change scenario analyses and other climate changerelated considerations.”
It seems that as long as companies report in line with the disclosure recommendations developed by the Task Force on Climaterelated Financial Disclosure, Glass Lewis will sign off. But it has given itself some leeway as Blakes said “proposals requesting that issuers report in accordance with these recommendations on a case-by-case basis.”
While the two proxy advisory firms have identified the themes for 2018, they have also detailed some policies for 2019. For instance, in one year a new policy on over-boarding ( in effect the maximum number of boards a non- CEO can sit on) goes into effect: from then on, five (up from four) is the new maximum, a number that brings Canada in line with the U.S.
Gender diversity will also be a major focus for 2019, said Blakes, noting that ISS will generally issue a withhold recommendation against certain directors if “a formal written gender diversity policy” (has not been disclosed) or if there are no female directors.