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Preparing for the 2019 Proxy Season – Noteworthy Developments in Canadian Public Issuer Governance and Disclosure

Once again, we have rounded up the key developments in corporate governance and disclosure requirements impacting Canadian public issuers from the past year. Issuers should familiarize themselves with the changes that have occurred over the last year and understand changes that may impact them in the near future. In this post, we discuss noteworthy developments in the following areas:

  • Proxy Advisory Firm Guidance
  • Non-GAAP Financial Measures
  • Board and Executive Gender Diversity
  • Environmental, Social and Governance Disclosure
  • Social Media Disclosure
  • Director and Audit Committee Independence
  • Industry-Specific Disclosure: Fintech and Cannabis
  • Virtual Shareholder Meetings
  • Executive Compensation
  • Amendments to the Canada Business Corporations Act (“CBCA”)
  • Considerations for Reducing the Regulatory Burden for Issuers
  • Board Skills
  • Overboarding

Proxy Advisory Firm Guidance

Proxy advisory firms, such as Institutional Shareholder Services (“ISS”) and Glass Lewis & Co., LLC (“Glass Lewis”), can influence how institutional shareholders vote. Each year ISS and Glass Lewis release voting guidelines that issuers should familiarize themselves with. Here are links to the most recent voting guidelines:

We discuss some of the key updates to these guidelines under the topic headings below.


Non-GAAP Financial Measures

The securities commissions continued to express concern with disclosure practices surrounding non-GAAP financial measures in 2018, prompting the release of proposed National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure and its related companion policy (“NI 52-112”). NI 52-112 would replace, formalize and expand on existing guidance, including under Staff Notice 52-306, with the objective of ensuring that the use of non-GAAP financial measures and other financial measures do not mislead investors. The proposed NI 52-112 was open for comment until early December of last year, so we expect an update from the Canadian Securities Administrators (the “CSA”) in the near future. The CSA have continued to express industry-specific concerns as well. The real estate industry was of particular focus in 2018, resulting in a review by the CSA of non-GAAP disclosure in this industry and the release of CSA Staff Notice 52-329 – Distribution Disclosures and Non-GAAP Financial Measures in the Real Estate Industry.

The Canadian Coalition for Good Governance (“CCGG”) has observed that many issuers use adjusted financial measures for executive compensation decisions. In their 2018 Best Practices guidance, CCGG encourages issuers to indicate the types of such adjustments made to the most comparable GAAP financial measure.

Board and Executive Gender Diversity

In September of last year, the CSA issued its fourth annual review of disclosure regarding women on boards and in executive officer positions (CSA Multilateral Staff Notice 58-310 – Report on Fourth Staff Review of Disclosure regarding Women on Boards and in Executive Officer Positions). This review revealed that there have been some improvements in gender diversity, but that despite existing comply or explain disclosure requirements, progress remains slow and the representation of women on boards and in executive officer positions remains low overall. Of the reporting issuers surveyed, 15% of board seats overall were occupied by women and 34% of issuers did not have any women in executive officer positions. As a result, the CSA is considering whether change to the disclosure requirements or the introduction of new or supplemental guidelines is warranted (and the OSC has made this consideration a priority for the current fiscal year).

Last year, ISS announced that it would recommend withhold votes against the chair of the nominating committee (or the committee responsible for nominations, or, if neither of those can be identified, the chair of the board) where:

  1. the issuer has not disclosed a formal written gender diversity policy; and
  2. there are no female directors on the board.

This policy previously applied only to S&P/TSX Composite Index issuers. For meetings after February 1, 2019, it will apply to all widely held TSX-listed issuers. “Widely held” here means S&P/TSX Composite Index companies and other companies that ISS designates based on the number of ISS clients holding securities of the company. It will not apply to (i) companies that have been publicly listed within the current or prior fiscal year, (ii) companies that have transitioned from the TSXV within the current or prior fiscal year, or (iii) companies with four or fewer directors.

In addition, the previously announced board diversity policy update for Glass Lewis is now in effect. The Glass Lewis policy is more stringent than the ISS policy insofar as it will generally recommend voting against the nominating committee chair of a board where either:

  1. the company does not have a formal, written gender diversity policy; or
  2. there are no female directors on the board.

However, Glass Lewis provides that it may refrain from recommending that shareholders vote against directors of companies outside the S&P/TSX Composite index, companies which have provided a sufficient explanation as to why they do not currently have any female board members, or companies which have disclosed a plan to address the lack of diversity on the board.


On December 21, 2018 the Canada Pension Plan Investment Board (“CPPIB”) announced a new policy to vote against the chair of the board committee responsible for director nominations at its investee public companies if there are no women directors. The CPPIB states that it cast votes at shareholder meetings of 45 Canadian companies with no female directors in 2017 and made an effort to engage with those companies. A year later, almost half of those companies appointed a female director.


Environmental, Social and Governance Disclosure

Investors and regulators are seeking increased and enhanced disclosure on environmental, social and governance matters. Recently, the CSA reviewed disclosure surrounding the risks and financial impacts associated with climate change and released CSA Staff Notice 51-354 – Report on Climate change-related Disclosure Project. The CCGG also recently published The Directors’ E&S Guidebook to assist directors in assessing and overseeing environmental and social factors.

Glass Lewis has now formalized its approach for reviewing how boards oversee environmental and social issues. For large cap companies and where Glass Lewis identifies material oversight issues, it will review the company’s overall governance practices and who has been charged with the responsibility of environmental and social risk oversight. Where companies have clearly not properly managed or mitigated environmental or social risks and this has a detrimental impact on shareholder value or threatens shareholder value, Glass Lewis may consider recommending that shareholders vote against members of the board responsible for the oversight of environmental and social risks.

Social Media Disclosure

Social media is a popular venue for companies to communicate with customers, shareholders and other stakeholders. In last year’s CSA Staff Notice 51-355 – Continuous Disclosure Review Program Activities for the fiscal years ended March 31, 2018 and March 31, 2017, the CSA reported on the 840 continuous disclosure reviews it completed in fiscal 2018, noting, amongst other things, issues with social media disclosure. In the staff notice, the CSA indicates that issuers should:

  • consider having a robust social media governance policy that includes, among other things, (i) who is authorized to post, (ii) what type of information they can post, and (iii) which social media websites they can post on;
  • be aware of commonly observed pitfalls in social media disclosure, such as the selective disclosure of forward looking information; and
  • consider that it may be difficult to provide balanced disclosure on social media due to length restrictions on social media posts and should provide a link to additional information if they encounter such restrictions.

Issuers are also reminded to comply with the related guidance in CSA Staff Notice 51 438 –  Staff’s Review of Social Media Used by Reporting Issuers, National Policy 51-201 – Disclosure Standards and the TSX’s Electronic Communications Disclosure Guidelines.

Director and Audit Committee Independence

In 2017, the CSA published for comment CSA Consultation Paper 52-404 – Approach to Director and Audit Committee Member Independence. This opened up the discussion on director and audit committee independence. After receiving 27 comment letters from market participants, the CSA determined that they would not make any changes to the approach already in place. See our previous post on this topic here.

Industry-Specific Disclosure: Fintech and Cannabis


The securities regulators continue to monitor developments in the ever-evolving area of Fintech. In its Statement of Priorities for 2018-2019 the OSC has identified innovation, including Fintech regulation, as a priority of the OSC this year. As part of this priority the CSA published CSA Staff Notice 46-308 – Securities Law Implications for Offerings of Tokens to provide additional guidance on the application of securities laws to token offerings. For additional information on this guidance see our previous article. As well, the OSC reminded issuers in its 2017-2018 Corporate Finance Branch report that those in the blockchain and crypto-asset sector need to provide investors with sufficient information to understand their businesses and that disclosure must comply with National Policy 51-201 – Disclosure Standards (see our previous post on the Corporate Finance Branch report).


With the recent legalization of cannabis in Canada, there have been a number of new issuers that have come to the market. Consequently, the securities regulators have been focused on this new sector. The CSA issued CSA Staff Notice 51-352 (Revised) – Issuers with U.S. Marijuana-Related Activities to provide guidance for issuers with cannabis activities in the United States. For further information on this topic, see our previous post. The OSC’s Corporate Finance Branch report for 2017-2018 provided some additional disclosure guidance for cannabis issuers operating in Canada, the U.S. or foreign jurisdictions. Given the expected shift from retail to institutional investors with legalization and the novelty of this industry, we anticipate disclosure in this industry will evolve and that the securities commissions will continue to review and weigh-in on disclosure requirements. 

Virtual Shareholder Meetings

As we noted last year, a growing number of U.S. issuers are adding a virtual component to their annual shareholder meetings, or are going virtual-only. See last year’s discussion here. Broadridge Financial Solutions, Inc. reported that during the first six months of 2018, 212 virtual meeting were held (compared to 180 over the same period in 2017) in the U.S. In Canada, we have not seen any significant uptake of these methods.

Issuers considering holding a virtual-only meeting should consider any restrictions under their governing corporate statute or under their articles or by-laws. We remind issuers that Glass Lewis’ policy regarding virtual-only shareholder meetings is now in effect. Under this policy, Glass Lewis may recommend voting against members of the board’s governance committee if the board is planning to hold a virtual-only shareholder meeting and does not provide disclosure confirming that shareholders attending virtually will be given the same rights and opportunities to participate that they would have had at an in-person meeting.

Executive Compensation

Clawback Provisions

Glass Lewis has noted in their 2019 policy guidelines that they are increasingly focusing attention on the terms of recoupment provisions (or clawback provisions) and that more expansive policies go beyond recoupment in the case of financial restatement to include misconduct that results in reputational harm to the company. While Glass Lewis’ review of clawback provisions will not directly impact its recommendations, they do form a part of the overall view of a company’s compensation program. Given the increased number of high profile allegations of misconduct against top executives in recent years, companies may want to consider whether their clawback policies should be expanded in scope.

Contractual Payments and Arrangements

Glass Lewis extended its policy in 2019 regarding contractual payments and arrangements as part of its analysis of executive compensation and clarified terms that help drive a negative recommendation. The following are some of the key things to note in the new policy:

  • Sign-on arrangements should be clearly disclosed with a meaningful explanation of the payments and the process by which the amounts were reached;
  • Sign-on awards that are excessive may support or drive a negative recommendation;
  • Employment agreements with a minimum payout (or guaranteed bonus) are not necessarily problematic in the short term, but multi-year guarantees may drive a negative recommendation; and
  • Companies should abide by predetermined payouts with respect to severance and only deviate in limited circumstances with a meaningful explanation provided for any additional or increased severance benefits.

Glass Lewis will consider general Canadian market practice, the size and design of entitlements when evaluating severance and sign-on arrangements.

Grants of Front-Loaded Awards

Many companies use annual grants of cash and equity awards, however Glass Lewis noted that some companies have chosen to instead provide larger grants that are intended to serve as compensation for multiple years. In its 2019 policy, Glass Lewis notes there are certain risks associated with grants of front-loaded awards and that shareholders should be wary of this approach. When evaluating such awards, Glass Lewis will consider the quantum, design and the rationale behind the grants.

Amendments to CBCA

Bill C-25 received Royal Assent on May 1, 2018, however a number of the most significant governance and disclosure-related amendments have not yet come into effect, including amendments providing for:

  • A majority voting requirement for directors of public companies;
  • A reduction of the maximum director terms for public companies from three years to one year;
  • A requirement that shareholders vote on individual director candidates instead of a slate;
  • Amendments allowing distributing corporations to use notice-and-access to make proxy circulars and financial statements available to shareholders; and
  • Changes to diversity disclosure requirements for public companies (including, but not limited to, gender).

See our previous post providing an update on the Bill C-25 amendments.

Considerations for Reducing the Regulatory Burden for Issuers

Reducing the regulatory burden on non-investment fund reporting issuers continues to be a priority of the securities commissions. The Ontario Securities Commission (the “OSC”) explicitly acknowledged this priority in its 2018-2019 Statement of Priorities (see our previous post on the Statement of Priorities here). In March of last year, the CSA issued Staff Notice 51-353 – Update on CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers (Staff Notice), which reported on a previously released consultation paper identifying areas of securities legislation where the regulatory burden could be reduced. Considerations include (i) removing or modifying the criteria to file a business acquisition report, (ii) removing or modifying certain other continuous disclosure requirements, and (iii) enhancing the electronic delivery of documents. For more detailed information on this staff notice, see our previous post.

Board Skills

Beginning in 2019, Glass Lewis will include board skills matrices in its analysis of director elections at S&P/TSX 60 index companies. Glass Lewis believes that issuers should disclose sufficient information to allow for a meaningful assessment of a board’s skills and competencies and will use board skills matrices in its assessment of a board’s competencies and skills.


The previously announced changes to the director overboarding policy of ISS will be in effect for meetings on or after February 1, 2019. Under this new policy, the ISS will generally recommend withholding votes for: (1) Non-CEO nominees who sit on more than five public company boards; or (2) CEO nominees who sit on more than two public company boards besides the company on which they serve as CEO (with the withhold recommendation being for their outside boards).


Glass Lewis proxy guidelines Canada 2019 ISS proxy guidelines Canada 2019



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