ISS and Glass Lewis updated 2020 proxy voting policy
Institutional Shareholders Services Inc. (ISS) and Glass Lewis have announced the changes to their 2020 voting policies for Canadian Issuers. ISS and Glass Lewis are two leading, independent proxy advisory firms who provide corporate governance analysis and make voting recommendations to their subscribers. ISS’s new policies apply to meetings held after February 1, 2020, while Glass Lewis policy changes will be applied to meetings held after January 1, 2020.
Key Policy Changes
The most significant change this year is to compensation. ISS has confirmed the use of EVA (Economic Value Add) measures in their secondary financial performance assessment (FAP) this change will impact ISS’s evaluation of executive compensation. While GAAP metrics will continue to be displayed, ISS will be taking into consideration four EVA metrics in making their recommendation on say-on-pay motions.
1. EVA Margin (EVA/Sales); 2. EVA Spread (EVA/Capital); 3. EVA Momentum (Change in EVA/Prior- Period Sales); 4. EVA Momentum (Change in EVA/Prior-Period Capital)
ISS has also added to the policy on equity compensation plans for venture issuers, they will generally recommend against evergreen plans. An Evergreen plan is a rolling equity plan that enables auto-replenishment of share reserves without requiring periodic shareholder approval of at least every three years
Glass Lewis has expanded and clarified its policy on director responsiveness to issuers that receive low say-on-pay proposals. Issuers with less than 80% support for a say-on-pay proposal, will need to demonstrate prior to the next annual meeting that they have been responsive to shareholders concern. The level of engagement expected will vary depending on the percentage of against votes and the number of years the issuer has received low support.
Glass Lewis has also identified additional compensation practices that they consider problematic, (i) excessive severance practices (ii) Excess change in control provisions as well as any single-trigger change-in-control arrangements, (iii) While making changes to employment agreements, not taking the opportunity to amend any exisitng concerning practices. (iv) Guaranteed bonuses or excessive sign on agreements.
ISS has clarified their policy on director attendance. ISS will generally recommend withhold on any director who attended fewer than 75% of board or key committee meetings, ISS has clarified, on a case by case basis, ISS may make an exception where nominees who served for only part of the fiscal year or newly publicly listed companies or companies that have recently graduated to the TSX, if
1) The company has not adopted a majority voting director resignation policy AND the individual director has attended less than 75 percent of the aggregate of their board and key committee meeting held within the past year without a valid reason for these absences; or
2) The company has adopted a majority voting director resignation policy AND the individual director has attended less than 75 percent of the aggregate of their board and key committee meetings held within the past year without a valid reason for the absences AND a pattern of low attendance exists based on prior years’ meeting attendance
ISS will continue to withhold on directors that they determine to be overboarded. However, ISS has clarified in their policy, they will not include in their calculation any board seats where a director has indicated they will step down from a board at the next annual meeting. This disclosure should be included in the management information circular. ISS will include in their calculation any board seats that a director is intending to join regardless if the vote has occurred yet.
ISS current policy will recommend a withhold policy for any former CEO/CFO in the last 5/3 years respectively that serves on the Audit/compensation committee. ISS has amened this poicy to include any CEO/CFO of an affiliate of the issuer or company acquired by the issuer in the last five years.
Glass Lewis has not changed their policy on director attendance and will continue to recommend withhold on directors that attend less than 75% of board or key committee meetings. Glass Lewis has has added to the 2020 policy, a recommendation to withhold on the governance committee chair, in instances where the issuer has not disclosed attendance on board and committee meetings, Glass Lewis has also advised in 2021, the governance committee chair will also receive a withhold recommendation, if there is no disclosure that the audit committee met at least 4 times during the year. In addition in 2021, Glass Lewis also intend to recommend withthold on the audit committee chair when the audit committee meets fewer than 4 times a year.
Ratification of Auditors
ISS existing policy generally recommends voting FOR a proposal to ratify the auditors unless Non-audit (“other”) fees paid to the auditor are greater than audit fees + audit-related fees + tax compliance/preparation fee. “Other” fees are significant one-time capital restructure events, and previously were limited to initial public offerings, emergence from bankruptcy, and spinoffs. The policy language has been changed from limiting other fees to these instances to examples of “Other” fees, allowing other one-time occurrences such as M&A transactions to be considered.
Depending on your shareholder composition, ISS and Glass Lewis can have a significant impact on your vote outcome. However, it is also important to keep in mind when determining the impact that Institutional investors have their own guidelines, that may stress other concerns that can differ from their proxy advisor.