2025 Proxy Advisor Updates

ISS and Glass Lewis

Institutional Shareholder Services (ISS) and Glass Lewis have released their voting policy updates for the 2025 proxy season. ISS updates apply to meetings held on or after February 1, 2025 and Glass Lewis updates apply to meetings held on or after January 1, 2025.

Summary of Updates

• ISS made relatively minor updates pertaining to board composition (independence and diversity), by-law amendments related to virtual-only shareholder meetings and broadening the pay for performance test to include other Named Executive Officers (NEOs) in certain instances.
• Glass Lewis addresses board oversight of AI, shareholder meeting formats, disclosure of board skills and frequency of governance committee meetings.

ISS Updates

Definition of Independence

The policy has been revised to stipulate that a director that served as a CEO or interim CEO of the company may only be classified as a non-independent director in certain circumstances after a five (5) year cool-off period. Factors include:

• management/board turnover;
• recent involvement in the company;
• whether the former CEO was an Executive Board Chair or founder;
• length of service with the company;
• related party transactions;
• consulting arrangements; and
• any other factors that may be deemed to affect the independence of the former CEO.

The same independence test will apply to former CEOs that sit on the Audit/Compensation Committee. ISS recommends voting against any former CEOs deemed non-independent sitting on the committee.

Board Gender Diversity

ISS removed wording requiring the disclosure of the circumstances of a company falling below the board gender diversity threshold of 30% before a policy exemption may be applied. The change harmonizes with the U.S. approach.

Board Racial/Ethnic Diversity

ISS removed the transitory language allowing companies one (1) year to comply with the requirement that the board have at least one (1) racially or ethnically diverse member. Companies will now only receive an exemption if they joined the S&P/TSX Composite Index within the past year or have fallen below the representation requirement after achieving the threshold at the preceding AGM.

Pay for Performance Evaluation

The revised policy stipulates that ISS may now use the compensation of other NEOs in the pay-for-performance evaluation where an NEO’s pay is significantly higher than the CEO on a regular basis.

Article/By-law Amendments

New changes to the policy help to clarify that ISS does not generally support amendments to articles or bylaws that afford board discretion to hold virtual-only shareholder meetings, absent a compelling rationale.

Glass Lewis Updates

Board Oversight of AI

Glass Lewis believes that companies should provide clear disclosure on board oversight of AI and the expansion of its collective expertise and understanding of AI. The proxy advisor may now recommend voting against the responsible directors if inadequate management of AI has resulted in material harm to shareholders.

Shareholder Meeting Format

Glass Lewis does not currently make voting recommendations based on the chosen shareholder meeting format. The updates now clarify that shareholders be adequately engaged and provided a rationale for the choice of meeting format when in-person attendance is not permitted.

They also clarify that Glass Lewis may recommend against the chair of the governance committee, or other relevant director, where there is insufficient board response to shareholder concerns on meeting format.

Disclosure of Professional Skills and Experience

Language has been added to emphasize the importance of disclosure on experience and expertise of board nominees. Glass Lewis may recommend a vote against the nominating committee chair, or equivalent director, of S&P/TSX60 companies that do not provide a meaningful assessment of the key skills and experience of incumbent directors and nominees.

Approach to Executive Pay Program

Glass Lewis has emphasized its holistic approach when analyzing executive compensation programs. This is in accordance with its practice of not making voting recommendations based on a set scorecard and where very few program features in isolation may lead to an adverse recommendation.

Unfavourable factors are reviewed based on the rationale, and considering the overall pay structure, how well the programs align with performance and shareholder experience, and the quality of the company’s disclosure.

For 2025, Glass Lewis highlights two additional features that may contribute to a negative say-on-pay (SOP) vote:

• egregious or excessive perquisites; and
• adjustments to performance results leading to problematic pay outcomes.

Governance Committee Meetings

Additional language clarifies that Glass Lewis may recommend a vote against the chair of the committee, or senior-most member in the absence of a chair, if the governance committee does not meet at least once a year.

Issuers should remain cognizant of current ISS and Glass Lewis policies which can have a material influence on voting results at shareholder meetings. Companies should also monitor the unique voting policies which certain institutional shareholders may have in place, and engage with shareholders where necessary and appropriate.

For more information, contact us at info@laulimaconsulting.com.

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