Institutional Shareholder Services Inc. (ISS) advises its institutional investor clients on how to vote at public company AGMs and therefore has significant influence over the election of directors. ISS has indicated that its clients “have begun to voice their frustration with the slow movement on boardroom gender diversity”. The latest review of gender diversity conducted by the Canadian Securities Administrators shows that:
- Women occupy only 14% of board seats among TSX-listed companies, an increase of only 3% since 2015.
- Among non-TSX Composite Index issuers, approximately 50% do not have any women directors on their boards.
- The representation of women on boards of the 35% of TSX-listed companies that have adopted a written gender diversity policy is nearly double the representation of women on boards of companies that have not adopted such a policy.
As such ISS has proposed a new policy to govern its voting recommendations whereby if:
- a company has not adopted a formal written gender diversity policy; and
- has no female directors serve on the board;
then ISS will generally recommend withhold votes for the election of the chair of the nominating committee, or the chair of the board if no nominating committee has been identified. Note that, pursuant to the foregoing, the “withhold” recommendation is subject to a “double-trigger” (i.e. the company must fail both tests).
ISS has suggested that this policy will not apply to companies with four or fewer directors, to companies that have become publicly-listed within the current or last fiscal year or companies that have graduated from the TSX Venture exchange within the current or prior fiscal year.
With respect to the written gender diversity policy to be adopted by TSX listed issuers, ISS has stated the following:
- The policy should include a clear commitment to increase board gender diversity. Legal boilerplate or contradictory language may result in withhold votes for directors.
- The policy should include measurable goals and/or targets denoting a firm commitment to increasing board gender diversity within a reasonable period of time.
If the policy is not adequate, that could lead to withhold recommendations.
When determining a company’s commitment to board gender diversity, ISS also proposes to consider the board’s disclosed approach to considering gender diversity in executive officer positions and stated goals or targets or programs and processes for advancing women in executive officer roles, and how the success of such programs and processes is monitored.
It is expected that ISS will determine whether this new policy will be adopted for the upcoming proxy season by the time in releases its policy updates in late November. If adopted, many Boards will need to immediately reconsider their approach to gender diversity on the board and to their written gender diversity policy.
Invitation for Discussion:
Corporate governance is an increasingly important topic for boards to consider. If you would like to discuss this proposed new ISS policy, or any other Canadian securities law matter, please do not hesitate to contact one of the lawyers in the business law group at Linmac LLP.
Disclaimer:
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.