2017 was a year of significant developments in governance and disclosure requirements and guidelines. Many of these developments will have an impact on Canadian public issuers during the 2018 proxy season. Issuers need to understand, and in many cases must comply, with the changes that have occurred over the last year. Equally, issuers need to understand the changes that are expected in the near future.

This post summarizes some of last year’s most noteworthy developments in governance and disclosure requirements and guidelines, including developments in the following areas:

  • Proxy Advisory Firm Guidance
  • Majority Voting
  • Board and Executive Gender Diversity
  • Virtual Shareholder Meetings
  • Non-GAAP Financial Measures
  • Website and Security-Based Compensation Arrangement Disclosure
  • Social Media Disclosure
  • Cybersecurity Risk Disclosure
  • Overboarding
  • Proxy Access
  • Director and Audit Committee Independence
  • Advance Notice Requirements

Proxy Advisory Firm Guidance

Issuers seeking to understand the perspectives of their institutional shareholders should familiarize themselves with the voting guidelines of proxy advisory firms like Institutional Shareholder Services (ISS) (Canada Proxy Voting Guidelines for TSX-Listed Companies) and Glass Lewis & Co., LLC (Glass Lewis) (2018 Proxy Paper – Guidelines – An Overview of the Glass Lewis Approach to Proxy Advice – Canada).

These organizations can influence how institutional shareholders vote through a variety of mechanisms including voting recommendations and other services they provide to institutional investor clients.

Majority Voting

The Toronto Stock Exchange (TSX) introduced new rules in 2014 requiring all corporations listed on the TSX whose articles or by-laws do not already contain majority voting provisions to adopt a written majority voting policy. These policies must provide that for uncontested meetings (i.e. where the number of directors nominated for election is the same as the number of board seats available), a director must immediately tender his or her resignation if he or she is not elected by at least a majority of the votes cast and that the board of directors must determine to accept or refuse (but only in exceptional circumstances) a tendered resignation within 90 days of the relevant meeting.

In 2017, the TSX published Staff Notice 2017-0001, noting a number of deficiencies and inconsistencies with the policy objectives of the majority voting requirements based on its review of 200 majority voting policies. One of the key findings from the report was that some majority voting policies did not have the effect of requiring a director to tender his or her resignation immediately if they were not elected by a majority. The TSX also found that the use of “exceptional circumstances” in many cases was inconsistent with the objectives of the majority voting policy and emphasized that “exceptional circumstances” is a high threshold. Where an issuer determines not to accept the resignation of a director based on “exceptional circumstances”, the TSX has noted that it will contact issuers to discuss the exceptional circumstances and will review each situation on a case-by-case basis. The TSX expects that the issuer will take active steps in the following year to resolve the exceptional circumstances. See our previous post for more on the TSX review.

If Bill C-25 becomes law, majority voting will become a requirement for issuers governed by the Canada Business Corporations Act (CBCA), but not listed on the TSX (and therefore not subject to the TSX majority voting rules), by enshrining majority voting into the CBCA. See our previous post for more on Bill C-25.

Board and Executive Gender Diversity

Gender diversity at the board level has been a high profile issue for a few years. In 2017, the Canadian Securities Administrators (CSA) published Staff Notice 58-309 summarizing the results of its third review of gender diversity of boards and executive officer positions for issuers across Canada (see our previous post). The CSA’s review indicates that over the last three years, there has been little movement on board and executive gender diversity. Following this staff notice, the Ontario Securities Commission (OSC) held a roundtable to discuss the results of the review and potential policy changes (the roundtable transcript can be read here).

Proxy advisory firms ISS and Glass Lewis have also taken notice of the pace of change in this area and are implementing the following new policies to address this issue:


Beginning in 2018 for S&P/TSX Composite Index issuers, and beginning in 2019 for all issuers, ISS will 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 the following is true:

1. the issuer has not disclosed a formal written gender diversity policy; and

2. there are zero female directors on the board of directors.

Some exceptions apply for boards of fewer than four, and issuers recently listed on the TSX.

Glass Lewis

In 2018, Glass Lewis will not make voting recommendations solely on the basis of the diversity of the board.

Beginning in 2019 for all issuers, Glass Lewis will generally recommend voting against the nominating committee chair of a board where the following is true:

· the company does not have a formal, written gender diversity policy; or

· there are zero female directors on the board of directors.

Depending on other factors (e.g. industry), Glass Lewis may extend the recommendation to other nominating committee members.

Additionally, Bill C-25 and Bill 101 (which proposes to amend the Ontario Business Corporations Act) propose to enshrine board and executive officer gender and non-gender diversity disclosure.

Virtual Shareholder Meetings

A small but growing number of companies, primarily in the U.S., are adding a virtual component to their annual shareholder meetings, or are going virtual-only. According to data from Broadridge, a virtual meeting technology supplier, the number of companies solely hosting virtual shareholder meetings increased almost 40 per cent in the U.S. last year. At least 212 companies held online-only meetings in 2017, up from 155 in 2016. Whether or not an issuer is able to do so will depend on a variety of factors, including the issuer’s jurisdiction of formation and constating documents. Some Canadian issuers that have recently gone virtual or hybrid have engaged firms specializing in shareholder meeting technology to assist with implementation including the provision of streaming services, monitoring attendance and tabulating votes.

Although virtual meetings are thought to increase efficiency, access and participation, drawbacks to virtual meetings have led to scrutiny of several major companies having implemented them, primarily as a result of limiting shareholder opportunities for communication. Glass Lewis’ recent guidelines stated that virtual meetings can complement in-person meetings by increasing the participation of shareholders who may be unable to attend in person, however, a virtual-only meeting can adversely impact meaningful shareholder engagement at one of the few opportunities for interaction with senior management. Beginning in 2019, Glass Lewis will 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 to this effect. In the short term, Laurel Hill Advisory Group anticipates an increase in hybrid meetings in Canada, before any significant adoption of virtual-only platforms, particularly in the case of prominent, brand name companies and in those instances where social activists may attempt to exert influence in physical meetings.

Notably, in 2017, ISS held a roundtable discussion in Toronto, which included the topic of virtual shareholder meetings. While proxy advisory firms have not yet adopted formal policies governing virtual meetings, ISS announced they were canvassing clients for input. Laurel Hill expects recommendation language to be put in place for the 2018 proxy season and such discussions may give rise to further policy changes or announcements.

Non-GAAP Financial Measures

In 2017, the OSC continued to express its concern with the prominence of non-GAAP financial measures for disclosure. The OSC has noted the use of non-GAAP measures in news releases, MD&A, prospectus filings, websites and marketing materials. Most recently, the OSC Corporate Finance Branch 2016-2017 Annual Report (“Branch Report”) reiterated this concern, particularly in the mining, real estate, technology and biotechnology industries. There is concern regarding the visibility and clarity of non-GAAP financial measures being used and the OSC warns that non-GAAP financial measures should not mislead investors or obscure GAAP results. The OSC has also warned in the Branch Report that it may take regulatory action if information is misleading and reminds investors that non-GAAP disclosure must meet the requirements of CSA Staff Notice 52-306 (Revised). This is an area where the OSC has indicated that new securities laws are expected.

Website and Security-Based Compensation Arrangement Disclosure

In 2017, the TSX announced amendments to the TSX Company Manual that affect website and security-based compensation arrangement disclosure for most TSX-listed issuers.

The website disclosure amendments are effective April 1, 2018 and will require listed issuers (with some exceptions) to post the following documents on their website, including some that may already be filed on SEDAR:

  • articles of incorporation, or any other constating or establishing documents and by-laws; and
  • if adopted, copies of any:
    • majority voting policy
    • advance notice policy
    • position descriptions for the chairman of the board and the lead director
    • board mandate
    • board committee charters

The security-based compensation arrangement disclosure is effective for financial years ended on or after October 31, 2017. These amendments: (1) clarify existing disclosure; (2) add a new disclosure requirement for an annual burn rate (calculated in the prescribed manner) for each security-based compensation arrangement; and (3) modify the time period covering disclosure for annual meetings. For more on this topic, please see our previous post.

Social Media Disclosure

Social media is a popular venue for issuers to connect with customers, shareholders and other stakeholders. In 2017, the CSA issued Staff Notice 51-348 noting that a higher proportion of corporate disclosure is being provided through social media and the potential issues associated with such disclosure. The review was completed by securities regulatory authorities in Alberta, Ontario and Quebec and identified three key areas where issuers should improve disclosure practices in relation to social media use: (1) selective or early disclosure when certain investors received information through social media that was not generally disclosed; (2) misleading or unbalanced social media disclosure that was not sufficient to give investors a complete picture or was inconsistent with information filed on SEDAR; and (3) insufficient social media governance policies were established to govern social media practices internally. The members of the CSA have indicated that they will continue to monitor social media disclosure and issuers who have not complied will be expected to take corrective action. See our previous post for more on the CSA’s staff notice. In addition to the CSA comments, in the Branch Report, the OSC has also indicated that social media disclosure will need to comply with NI 51-102 – Continuous Disclosure Obligations.

Cyber Security Risk Disclosure

In September 2016, the CSA published Staff Notice 11-332 Cyber Security to highlight the importance of cyber security risks for issuers. Following that notice, CSA staff reviewed the disclosure provided by issuers on the S&P/TSX Composite Index regarding cyber security risk and cyber attacks and published CSA Multilateral Staff Notice 51-347 (“Staff Notice 51-347”) in January 2017 to report on the review and to provide disclosure expectations for reporting issuers.

The CSA found that 61% of issuers reviewed included cyber security risks in their disclosure. Staff Notice 51-347 sets out that issuers should focus disclosure on material and entity-specific information and that such disclosure should avoid boilerplate language. Materiality in the case of a cyber security risk will depend on an analysis of the probability that a breach will occur and the anticipated magnitude of its effect. Issuers are also expected to address how they mitigate cyber security risks, including whether and to what extent the issuer maintains insurance covering cyber attacks or its reliance on third party experts for their cyber security strategy and to remediate prior or future cyber attacks. However, issuers are not required to disclose details regarding their cyber security strategy or their vulnerability to cyber attacks that is of a sensitive nature or that could compromise their cyber security.


ISS also announced changes to its overboarding policy to better align with U.S. requirements. Beginning February 2019, ISS will generally recommend voting withhold for: (1) Non-CEO nominees who sit on more than five public company boards (compared to four under the current policy); and (2) CEO nominees who sit on more than two public company boards besides the company on which they serve as CEO (compared to one under the current policy).

However, under the new policy, director attendance will no longer be considered a factor to determine whether a director is overboarded. Under the current policy, an adverse voting recommendation is only issued when a director attends fewer than 75% of meetings of each board on which they serve.

Proxy Access

The past year has seen significant changes in proxy access, resulting from a push by shareholders for proxy access similar to that in the U.S. Glass Lewis noted that it has received a considerable number of shareholder proposals requesting Glass Lewis to adopt the U.S. style proxy access. The U.S. style of proxy access is the “3/3/20/20” model, meaning one or more holders (up to a maximum group of 20) who hold 3% of the shares for 3 consecutive years may nominate up to 20% of the board. Notably, both The Toronto-Dominion Bank and Royal Bank of Canada adopted proxy access policies in 2017. Both of these policies are similar to the U.S. style, however they are limited to a 5% ownership threshold of outstanding shares as required under the Bank Act (Canada). Both banks have indicated that they would reduce the ownership requirement to 3% if permitted and have written to the federal Department to Finance to advocate for such an amendment to the Bank Act (Canada).

In response to the proposals received, Glass Lewis has noted it will continue to monitor the landscape in Canada regarding proxy access.

Director and Audit Committee Independence

In 2017, the CSA published CSA Consultation Paper 52-404 to facilitate a broad discussion on the current CSA approach to determining director and audit committee member independence. The comment period closes on January 25, 2018. This initiative by the CSA could result in changes to the current determination of independence set out in National Instrument 52-110 – Audit Committees, which has been criticized for being too rigid. See our previous post for more on the consultation paper.

Advance Notice Requirements

For the 2018 proxy season, ISS has revised its list of advance notice requirements which it may deem problematic. Some new additions that may be considered problematic under ISS’ evaluation include: (i) a requirement that any nominating shareholder provide representation that the nominating shareholder be present at the meeting in person or by proxy at which their nominee is standing for election for the nomination to be accepted, irrespective of the number of votes obtained by such nominee; (ii) any provision that restricts the notification period to that established for the originally scheduled meeting in the event that the meeting has been adjourned or postponed; and (iii) a requirement that any proposed nominee deliver a written agreement whereby the proposed nominee acknowledges and agrees, in advance, to comply with all policies and guidelines of the company that are applicable to directors.