Proxy Advisors Update Canadian Voting Guidelines for 2025

In late 2024, Institutional Shareholder Services (ISS) and Glass Lewis, two leading North American proxy advisory firms, updated their benchmark proxy voting guidelines ahead of the 2025 proxy season. Public company investors often rely on the expertise of proxy advisory firms and follow their recommendations on how to vote at shareholder meetings. As such, voting recommendations from proxy advisory firms play a crucial role in influencing the outcome of a shareholder vote.

Both ISS and Glass Lewis maintain model guidelines for good corporate governance and update those guidelines on an annual basis. These model guidelines inform the proxy advisors’ respective voting recommendations and apply to all Canadian publicly-listed issuers. ISS and Glass Lewis’ updates for the 2025 proxy season provide guidance on a range of matters including, among other things, board diversity and independence, executive compensation, shareholder meeting format, and risks related to artificial intelligence.

ISS

ISS’s updated 2025 proxy voting guidelines apply to shareholder meetings occurring on or after February 1, 2025. The guidelines include the following policy updates:

• Definition of Independence: ISS will deem any former CEO of a Canadian publicly-listed issuer as non-independent. While previously a former CEO could be considered independent following a five-year cooling off period, the policy update provides that a former CEO may only be considered independent following such period in exceptional circumstances, after considering factors that may reasonably be deemed to affect the former CEO’s independence.
  
• Board Gender Diversity: In the past several years, ISS has generally recommended “withhold” votes for the chair of the nominating committee (or the chair of the committee designated with the responsibility of a nominating committee, or the chair of the board if no nominating committee has been identified) of S&P/TSX Composite Index companies where women comprise less than 30% of the board of directors. In such cases, ISS provided an exemption where companies disclosed extraordinary circumstances causing the representation to fall below 30% after achieving such level at the preceding annual general meeting. In its latest updates, ISS removed the requirement for companies to make such disclosure to rely on the exemption, in an effort to provide greater predictability as to how the policy will be applied in practice and to harmonize its approach to Canadian issuers with that currently taken in the U.S. market.
  
• Board Racial or Ethnic Diversity: Where an issuer included in the S&P/TSX Composite Index has no board members who are racially or ethnically diverse, ISS will generally recommend that shareholders vote against or withhold votes for the chair of the nominating committee (or the chair of the committee designated with the responsibility of a nominating committee, or the chair of the board if no nominating committee has been identified). ISS’s updated guidelines provide that an issuer may be exempted from the requirement if (a) it publicly discloses a written commitment to add at least one racially diverse director by the next annual general meeting, and (b) the issuer (i) has not previously been subject to the racial/ethnic board requirement as a S&P/TSX Composite Index constituent, or (ii) fell below the minimum representation threshold after achieving the required representation at the preceding annual general meeting.
  
• Pay for Performance Evaluation: In conducting a pay-for-performance analysis, ISS has historically considered only a CEO’s total compensation and whether such compensation was aligned with their company’s performance over time. ISS has now updated its policy to allow for consideration of the compensation of a non-CEO named executive officer (NEO), such as an executive chair or former CEO, where the compensation of such NEO is regularly significantly higher than that of the CEO.
  
• Virtual Only Meetings: ISS updated its benchmark policies to reflect its historical practice of withholding support for amendments to articles or by-laws that give a board of directors discretion to hold shareholders’ meetings in virtual-only formats without a compelling rationale.

Glass Lewis

In its 2025 Benchmark Policy Guidelines, Glass Lewis made certain noteworthy updates that apply to shareholder meetings held after January 1, 2025. These updates include:

• Board Oversight of Artificial Intelligence: Glass Lewis advised that companies using or developing artificial intelligence technologies should ensure they maintain strong oversight of such technologies and that they clearly disclose the board’s role in overseeing AI-related issues. Where a company’s overall governance practices, the board’s response to and management of issues related to AI, and any associated disclosures, were insufficient or not clearly communicated to shareholders, and poor oversight or mismanagement of AI has materially harmed shareholders, Glass Lewis may recommend voting against appropriate directors.
  
• Shareholder Meeting Format: Glass Lewis clarified that companies which choose to hold virtual-only meetings should provide comprehensive disclosure in their proxy statements consistent with the guidance of the Canadian Securities Administrators on virtual shareholder meetings. Glass Lewis expects clear disclosure guaranteeing shareholders’ ability to meaningfully participate in the virtual-only format. Additionally, companies are expected to engage with shareholders on the topic of meeting format and explain any decision to hold a meeting virtually without also permitting in-person attendance. In egregious cases where a board has failed to address legitimate concerns regarding the shareholder meeting format, Glass Lewis may recommend voting against the chair of the governance committee and other appropriate directors.
  
• Disclosure of Professional Skills and Experience: Glass Lewis clarified that it expects large-cap TSX-listed companies to provide substantive disclosure in their proxy filings regarding the key skills and experience of each director nominee. If such disclosure is insufficient to allow for a meaningful assessment, Glass Lewis may recommend voting against the chair of the nominating committee or the appropriate director of a S&P/TSX 60 company.
• Glass Lewis also provided a number of clarifications to its existing policies, including:
• Approach to Executive Pay Program: Glass Lewis emphasized that it takes a holistic approach in evaluating executive compensation plans. Each pay program is reviewed on a case-by-case basis. Glass Lewis reviews unfavourable features within the broader context of various factors, including the context of rationale, overall structure, overall disclosure quality, the program’s ability to align executive pay with performance and the shareholder experience, and the trajectory of the pay program in light of any changes introduced by the compensation committee.
  
• Governance Committee Meetings: Glass Lewis clarified its expectations regarding governance committee meetings for TSX-listed companies. The policy now stipulates that a governance committee must meet at least once during each year. If a governance committee fails to do so, Glass Lewis will generally recommend against the chair of a governance committee or, if no chair is designated, the senior-most member of the committee.

Canadian issuers and their legal and professional advisors should carefully review the updates highlighted above, along with the complete set of guidelines. Ensuring compliance with these updated guidelines will help companies align their practices with shareholder expectations.

For further information on ISS and Glass Lewis’s 2025 updates or their benchmark policies generally, please contact any member of our Capital Markets Group.

The authors would like to thank Carina Leung, Articling Student-At-Law, for her assistance in writing this Update.