ISS and Glass Lewis 2025 Canadian Benchmark Policy Guidelines
Institutional Shareholder Services (“ISS”) and Glass Lewis have published their Canadian benchmark policy guidelines for the 2025 proxy season. Key updates focus on the board’s oversight of artificial intelligence (“AI”), shareholder meeting format, board diversity, disclosure of directors and nominees’ professional skills and experience and the proxy advisors’ approaches to analyzing executive pay programs.
ISS Updates for 2025
ISS has made the following changes to its proxy voting guidelines for 2025.
Independence
When assessing board independence, ISS has clarified that former Chief Executive Officers (“CEOs”) will be deemed non-independent unless there are exceptional circumstances to reassess this classification after a minimum cooling-off period of five years. ISS will continue to recommend against any director who has served as a former CEO and is a member of the audit or compensation committee (unless ISS classifies such director as independent following the cooling-off period).
Board gender diversity
While ISS generally requires that boards of S&P/TSX Composite Index companies be comprised of at least 30% women, it has amended one of the exemptions to this policy. Assuming there is a publicly disclosed written commitment to achieve 30% representation of women on the board at or prior to the subsequent annual general meeting (“AGM”), an exception will be made for companies that have fallen below the 30% threshold after achieving such level at the preceding AGM. Previously companies were only able to avail themselves of this exemption if they fell below the 30% threshold due to an extraordinary circumstance. ISS has removed the requirement to disclose the circumstances behind the change to provide greater transparency and predictability as to how the policy will be applied and to harmonize the U.S. and Canadian approaches.
Board racial/ethnic diversity
ISS requires that boards of S&P/TSX Composite Index companies have at least one racially or ethnically diverse member. ISS has removed the transitional language which exempted companies from this requirement where they made a formal, publicly-disclosed written commitment to add at least one racially or ethnically diverse director at or prior to the next AGM. ISS has included new exemptions to this policy for companies that recently joined the S&P/TSX Composite Index and were not previously subject to the racial/ethnic board requirement and companies that have fallen below the minimum requirement after achieving such level of representation at the preceding AGM.
Pay-for-performance evaluation
ISS has indicated that in exceptional circumstances, it may elect to use a named executive officer other than the CEO in its pay-for-performance evaluation if doing so would provide a more appropriate assessment (i.e. if such NEO’s compensation is regularly significantly higher than that of the CEO).
Virtual-only shareholder meetings
ISS will generally recommend voting against proposals to adopt or amend articles or by-laws that include a provision that provides the board with discretion to hold shareholder meetings in a virtual-only format without compelling rationale.
Glass Lewis Updates for 2025
Glass Lewis has made the following changes to its benchmark policy guidelines for 2025.
Board oversight of AI
Glass Lewis expects boards to be cognizant of, and take steps to mitigate exposure to, any material risks that could arise from their use or development of AI. Companies that use or develop AI systems should adopt internal frameworks to ensure that there is sufficient oversight of AI which may include continued board education and/or appointing directors with AI expertise. Clear disclosure relating to the board’s oversight of AI should be provided to shareholders.
In the absence of material incidents relating to AI, Glass Lewis will generally not make voting recommendations on the basis of a company’s oversight of, or disclosure concerning, AI. Where this is evidence that insufficient oversight of AI technologies resulted in material harm to shareholders, Glass Lewis may recommend that shareholders vote against accountable directors.
Shareholder meeting format
Glass Lewis has clarified its expectations that companies should engage with their shareholders when determining the format for their annual shareholder meetings. When in-person attendance is not permitted, companies must provide rationale for this choice. While Glass Lewis does not currently have a policy based solely on shareholder meeting format, it may recommend against the chair of the governance committee or another relevant director where the board has failed to sufficiently respond to legitimate shareholder concerns regarding meeting format.
Disclosure of professional skills and experience
Companies should provide substantive disclosure about the experience and expertise of board nominees. Where the disclosure of a S&P/TSX 60 company does not allow for a meaningful assessment of the key skills and experience of incumbent directors and board nominees, Glass Lewis may recommend voting against the chair of the nominating committee (or equivalent).
Approach to executive pay program
Glass Lewis takes a holistic approach when analyzing executive compensation programs and does not use a pre-determined scorecard approach when considering individual features. Unfavourable factors in a pay program are reviewed in the context of rationale, overall structure, overall disclosure quality, the program’s ability to align pay with performance and the trajectory of the program as a result of changes introduced by the compensation committee.
Governance committee meetings
Glass Lewis has clarified that it will generally recommend against the chair of the governance committee of companies listed on the Toronto Stock Exchange (or in the absence of a chair, the senior member) if the committee fails to meet at least once during the year.
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