Environment, social and governance (ESG) and gender diversity remain in focus as Glass Lewis publishes Proxy Voting Guidelines for 2022; board composition, share structure and incentive awards also addressed, among others.

• Glass Lewis will recommend voting against the chair of the nominating committee of a board with fewer than two gender diverse directors, or the entire nominating committee of a board with no gender diverse directors.
• For companies not listed on the TSX, and all companies with six or fewer total directors, Glass Lewis will recommend voting against the nominating committee chair if there are no gender diverse directors.
• Glass Lewis will recommend voting against the governance committee chair at companies in the S&P/TSX 60 that fail to provide explicit disclosure concerning the board’s role in overseeing material environmental and social issues.
• If a company does not provide for a reasonable sunset, Glass Lewis will recommend voting against the chair of the governance committee with a multi-class share structure and unequal voting rights.
• Glass Lewis will generally recommend voting against preferred stock authorizations or increases, unless the company discloses a commitment to not use such shares as an anti-takeover defense or in a shareholder rights plan, or discloses a commitment to submit any shareholder rights plan to a shareholder vote prior to its adoption.

Board Gender Diversity

Gender diversity remains a focal point of another set of voting policies for 2022. With respect to TSX-listed issuers, Glass Lewis will generally recommend voting against:

• the chair of the nominating committee of a board with fewer than two gender diverse directors, or;
• the entire nominating committee of a board with no gender diverse directors.

For companies not listed on the TSX, and all companies with six or fewer total directors, Glass Lewis will recommend voting against the nominating committee chair if there are no gender diverse directors.

When making voting recommendations on gender diversity, Glass Lewis will carefully review a company’s disclosure of its diversity considerations and may refrain from recommending that shareholders vote against directors when boards have provided a sufficient rationale or plan to address the lack of diversity on the board. “Gender diverse directors” are defined as women and directors that identify with a gender other than male or female.

In addition, beginning with shareholder meetings held after January 1, 2023:

• Glass Lewis will transition from a fixed numerical approach to assessing board gender diversity and will generally recommend voting against the nominating committee chair of a board that is not at least 30% gender diverse for companies listed on the TSX.
• For issuers listed outside the TSX (including TSXV-listed issuers), and all boards with six or fewer total directors, Glass Lewis will apply a policy requiring a minimum of one gender diverse director in 2022.

Institutional Shareholder Services (ISS) recently published its updated 2022 benchmark proxy voting policies, which also recommends an against vote for a number of gender-related metrics effective February 2022. Unlike Glass Lewis, ISS’ thresholds apply exclusively to women on boards, in comparison to Glass Lewis’ inclusion of all gender diverse directors. Whereas Glass Lewis applies a numerical requirement of two gender diverse directors, ISS applies a percentage threshold, recommending an against vote for the chair of the nominating committee for S&P/TSX Composite Index companies where women comprise less than 30% of the board, and the company has not provided a formal written commitment to achieve a 30% target at or prior to the company’s next AGM. Unlike Glass Lewis, ISS will not recommend voting against the entire nominating committee of a TSX-listed company for having no female directors. For other TSX issuers, ISS will also recommend voting against the chair of the nominating committee where there are no women on the board, and additionally, where the company has not disclosed a formal written gender diversity policy. This is similar to Glass Lewis’ threshold for non-TSX listed issuers but with the added opportunity to adopt an appropriate policy in order to avoid the against vote recommendation. For an in-depth discussion of the updated ISS diversity policies and other ISS policy updates for 2022, please see here.

As we’ve discussed, in November 2021, the CSA published Multilateral Staff Notice 58-313 Review of Disclosure Regarding Women on Boards and in Executive Officer Positions (the Review) representing the 7^th consecutive year of data being published regarding women on boards and in executive officer positions since the comply or explain rules came into force. The CSA’s Review found a correlation between issuers adopting board refreshment and/or renewal measures and the proportion of board seats held by women. Where issuers had adopted targets with respect to the representation of women on their boards (32%), a greater proportion of the board (28%) was comprised of women as compared to issuers without board targets (18%). The results of board representation are as follows:

Further detailed discussion of the Review can be found here.

ESG

For 2022, Glass Lewis has also included a number of new recommendations surrounding ESG governance, compensation and disclosure.

Overall Approach to ESG

Glass Lewis has expanded its discussion of ESG initiatives for 2022, and will be evaluating all environmental and social issues through the lens of long-term shareholder value. Glass Lewis believes companies should be:

• considering material environmental and social factors in all aspects of their operations;
• providing shareholders with disclosures that allow them to understand how these factors are being considered; and
• providing shareholders with disclosures that allow them to understand how attendant risks are being mitigated.

Additional information about Glass Lewis’ approach to ESG initiatives can be found in Glass Lewis’ 2022 Policy Guidelines – Environmental, Social & Governance Initiatives.

Environmental and Social Risk Oversight

Beginning in 2022, Glass Lewis will recommend voting against the governance committee chair at companies in the S&P/TSX 60 that fail to provide explicit disclosure concerning the board’s role in overseeing material environmental and social issues. For issuers in the S&P/TSX Completion Index, this will be noted as a concern in 2022 and will garner an against recommendation beginning in 2023, meaning that this policy will be applied to all members of the S&P/TSX Composite Index in 2023.

Glass Lewis believes that it is important that these issues are overseen at the board level and that shareholders are afforded meaningful disclosure of these oversight responsibilities. Companies should ensure that boards maintain clear oversight of material risks to their operations, including those that are environmental and social in nature (e.g. matters related to climate change, human capital management, diversity, stakeholder relations, and health, safety & environment).

Board oversight of climate-related risks and opportunities is also one of the central themes of the Canadian Securities Administrators’ (CSA’s) proposed climate-related disclosure obligations. Under the proposal, governance-related climate disclosure would be included annually in an issuer’s management information circular, or AIF or annual management’s discussion and analysis (MD&A) where an issuer does not send a management information circular to its securityholders. This would include disclosure of a board’s oversight of climate-related risks and opportunities and management’s role in assessing and managing climate-related risks and opportunities. In addition, proposed climate disclosure related to strategy, risk management and metrics and targets would be included in an issuer’s AIF (or annual MD&A if no AIF is filed).

For a further discussion of the CSA’s proposed climate disclosure requirements, please see here.

Glass Lewis is of the view that ESG oversight can be effectively conducted by specific directors, the entire board, a separate committee, or combined with the responsibilities of a key committee. For TSX-listed issuers, Glass Lewis will recommend the following:

• Where Glass Lewis identifies material oversight concerns, Glass Lewis will review a company’s overall governance practices and identify which directors or board-level committees have been charged with oversight of environmental and/or social issues.
• Where a company has not properly managed or mitigated material environmental or social risks to the detriment of shareholder value, or when such mismanagement has threatened shareholder value, Glass Lewis may recommend that shareholders vote against the members of the board who are responsible for oversight of environmental and social risk.
• In the absence of explicit board oversight of environmental and social issues, Glass Lewis may recommend that shareholders vote against members of the audit committee.

Executive Compensation and ESG

Glass Lewis highlights the use of E&S metrics in the variable incentive programs for named executive officers in its analysis of the advisory vote on executive compensation. However, it does not maintain a policy on the inclusion of such metrics or whether these metrics should be used in either a company’s short- or long-term incentive program. Where E&S metrics are used, Glass Lewis expects to see:

• robust disclosure on the metrics selected;
• rigorous performance targets; and
• determination of corresponding payout opportunities.

For qualitative E&S metrics, the company should provide shareholders with a thorough understanding of how these metrics will be or were assessed.

Awards and Share Structure

• Short-Term and Long-Term Incentives. Glass Lewis has clarified that it will consider adjustments to GAAP financial results in its assessment of an incentive’s effectiveness at tying executive pay to performance. Glass Lewis’ analysis of long-term grants also considers the basis for any adjustments to metrics or results.
• Front-Loaded Awards. Glass Lewis has clarified its guidance with respect to front-loaded incentive awards – while Glass Lewis will continue to examine the quantum of an award on an annualized basis for the full vesting period of the awards, it will also consider the impact of the overall size of awards on dilution of shareholder wealth.
• Multi-Class Share Structures with Unequal Voting Rights. Glass Lewis has updated its approach to companies that have multi-class share structures with unequal voting rights. Beginning in 2022, Glass Lewis will recommend voting against the chair of the governance committee at companies with a multi-class share structure and unequal voting rights when the company does not provide for a reasonable sunset of the multi-class share structure (generally seven years or less).
• Authorizations/Increases in Authorized Preferred Stock. Glass Lewis will generally recommend voting against preferred stock authorizations or increases, unless the company discloses a commitment to not use such shares as an anti-takeover defense or in a shareholder rights plan, or discloses a commitment to submit any shareholder rights plan to a shareholder vote prior to its adoption.

Other Notable Updates

• Size of Key Committees. Beginning in 2022, Glass Lewis will recommend that shareholders vote against the compensation, nominating and/or governance committee chair if the committee consists of fewer than two members for the majority of the fiscal year.
• Shareholder Proposals. Glass Lewis will evaluate all shareholder proposals on a case-by-case basis with a view to promoting long-term shareholder value. Glass Lewis is generally supportive of proposals that promote board accountability, shareholder rights and transparency, but will consider all proposals in the context of a company’s unique operations and risk profile.

Disclosure of Fees for Audit Services. Glass Lewis will recommend voting against the audit committee chair where a company has not clearly disclosed the breakdown of fees paid to its external auditing firm for the most recent fiscal year.