ISS Governance Announces Proposed Benchmark Policy Changes for 2024

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On November 21, 2023, Institutional Shareholder Services (“ISS”) Governance announced proposed changes to its benchmark voting policy for 2024 (the “Proposed Changes”). To ensure that a broad range of perspectives is considered, ISS is soliciting stakeholder feedback until November 30, 2023.

The Proposed Changes

ISS indicates that fewer changes are proposed for the 2024 proxy season than have been proposed in the last few years. Of the four Proposed Changes, only one applies to Canada.

As we discussed in a previous post, in 2022, a new board diversity policy was approved for Canadian S&P/TSX Composite Index constituents, applicable to shareholder meetings on or after February 1, 2024. As part of the Proposed Changes, ISS intends to remove the transition language that provided a one-year grace period and to reframe the language that provided an exception where a company makes a public commitment to appoint at least one racially and/or ethnically diverse member at or prior to the next annual general meeting (“AGM”).

The current and proposed new ISS policies are as follows:

Current ISS Policy Proposed New ISS Policy
General Recommendation: For meetings on or after February 1, 2024, for companies in the S&P/TSX Composite Index, generally vote against or withhold from the chair of the nominating committee or chair of the committee designated with the responsibility of a nominating committee, or the chair of the board of directors if no nominating committee has been identified or no chair of such committee has been identified, where the board has no apparent racially or ethnically diverse members*. An exception will be made if there was racial and/or ethnic diversity on the board at the preceding annual meeting and the board makes a firm public commitment to appoint at least one racial and/or ethnic diverse member at or prior to the next AGM.

Evaluate on a case-by-case basis whether against/withhold recommendations are warranted for additional directors at companies that fail to meet the policy over two years or more.

 

 General Recommendation: For companies in the S&P/TSX Composite Index, generally vote against or withhold from the chair of the nominating committee or chair of the committee designated with the responsibility of a nominating committee, or the chair of the board of directors if no nominating committee has been identified or no chair of such committee has been identified, where:
  • the board has no apparent racially or ethnically diverse members*; and
  • the company has not provided a formal, publicly-disclosed written commitment to add at least one racially or ethnically diverse director at or prior to the next AGM.
Evaluate on a case-by-case basis whether against/withhold recommendations are warranted for additional directors at companies that fail to meet the policy over two years or more.

*Racial and/or ethnic diversity is defined by the Government of Canada as: Aboriginal peoples (meaning persons who are Indigenous, Inuit or Métis) and members of visible minorities (meaning persons, other than Aboriginal peoples, who are non-Caucasian in race or non-white in colour).

The implementation of this benchmark policy, effective February 1, 2024, will align the ISS Canadian S&P/TSX Composite Index policy more closely with the ISS U.S. policy for Russell 3000 and/or S&P 1500 indices on racial/ethnic diversity.

ISS expects to release the final benchmark policy changes in or around mid-December 2023.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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