Reporting issuers in Canada are subject to governance standards and continuous disclosure obligations under securities laws and stock exchange rules.
From time to time, securities regulators, including the Canadian Securities Administrators (CSA) and the Ontario Securities Commission (OSC), and stock exchanges, revise these disclosure rules or publish guidance to clarify their expectations regarding compliance with those rules. In addition, each year proxy advisory firms Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co. (Glass Lewis) update their annual voting guidelines, which set out governance and disclosure policies that guide their voting recommendations. Finally, the Canadian Coalition for Good Governance (CCGG) publishes annual “best practice” guidelines for governance standards and related disclosure by reporting issuers and additional policies relating to specific matters.
This Update discusses relevant governance and disclosure rule updates and related guidance for the upcoming 2022 annual reporting and proxy season, including with respect to board diversity, executive pay and environmental, social and governance (ESG) issues.
This Update does not provide a comprehensive description of the documents referenced below. These documents should be reviewed when preparing this year’s annual reporting and proxy materials.
Highlights of Relevant Updates and Guidance
The following are highlights of the updates and guidance regarding disclosure and proxy rules for the 2022 annual reporting and proxy season, described in more detail below.
1. On November 25, 2021, the OSC published Staff Notice 51-732 Corporate Finance Branch 2021 Annual Report, which summarizes key disclosure trends and guidance coming out of the OSC’s annual continuous disclosure review program. Key focuses of the OSC’s 2021 continuous disclosure review were MD&A deficiencies (including those relating to the requirement to update previously issued forward-looking information and discussion of variances in operations), COVID-19 disclosure, mining disclosure, the use of non-GAAP financial measures and diversity disclosure.
2. On October 18, 2021, the CSA published a proposed rule, National Instrument 51-107 Disclosure of Climate-related Matters (“NI 51-107”), that would impose climate-related disclosure on reporting issuers. The proposed disclosure requirements, which are not expected to come into force before December 31, 2022, are generally in line with the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations, as well as the growing international movement towards mandatory climate-related disclosure standards. For further details, refer to our December 6, 2021 Update, CSA Proposes Climate-Related Disclosure for Reporting Issuers.
3. On November 4, 2021, the CSA published CSA Multilateral Staff Notice 58-313 Review of Disclosure Regarding Women on Boards and in Executive Officer Positions (“CSA Notice 58-313”), which reviews public disclosure regarding women on boards and in executive officer positions, as required by Form 58-101F1 Corporate Governance Disclosure of National Instrument 58-101 Disclosure of Corporate Governance Practices (“NI 58-101”). Among other things, CSA Notice 58-313 recommends that proxy circulars set out data related to representation, targets and term limits in a common tabular format.
4. On August 25, 2021, National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure (“NI 52-112”) came into force, applying to documents filed by reporting issuers for a financial year ending on or after October 15, 2021. NI 52-112 establishes binding disclosure requirements for non-GAAP financial measures and other financial measures used outside of financial statements, including in proxy circulars. For further details, refer to our June 7, 2021 Update, CSA Publish Final Rule for Disclosure of Non-GAAP and Other Financial Measures.
5. On February 25, 2021, the CSA published CSA Staff Notice 51-362 Staff Review of COVID-19 Disclosures and Guide for Disclosure Improvements, which reviews the disclosures provided by reporting issuers on the impact of COVID-19. The report reaffirms the importance of tailoring disclosure to entity-specific COVID-19 risks rather than relying on boilerplate disclosure. It also warns against providing overly promotional and unbalanced disclosure regarding non-GAAP financial measures and forward-looking information.
6. Proxy advisory firms ISS and Glass Lewis each published annual updates to their proxy voting guidelines for the upcoming 2022 proxy season: 2022 Americas Proxy Voting Guidelines Updates and 2022 Proxy Paper Guidelines Canada, respectively. These guidelines are covered in more detail in our discussion of the 2022 proxy season themes below.
7. The CCGG released its annual guide on 2021 Best Practices for Proxy Circular Disclosure.
8. On July 5, 2021, Bill 213 Better for People, Smarter For Business Act (“Bill 213”),
came into force. Bill 213 amends Ontario’s Business Corporations Act (OBCA) by, among other things, eliminating director residency requirements. For further details, refer to our June 16, 2021 Update, Changes Coming to the OBCA Will Give Ontario Business More Flexibility.
9. On July 1, 2021, the proposed amendments of Bill C-25 An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act, and the Competition Act (the “Proposed Regulations”) did not come into force as originally expected. The Government of Canada anticipates that the Proposed Regulations will come into force following the 2022 proxy season. When they come into force, reporting issuers incorporated under the Canada Business Corporations Act will be required to implement changes to their director election processes. The new requirements include those relating to individual (as opposed to slate) voting and majority voting.
2022 Proxy Season Themes
In 2022, ISS will generally recommend voting against the chair of the nominating committee of a S&P/TSX Composite Index company that has a board comprised of less than 30% women, and which has not provided a formal, publicly-disclosed written commitment to achieve at least 30% women on its board by the next annual general meeting. For TSX companies that are not members of the S&P/TSX Composite Index, ISS will continue to generally recommend voting against the chair of the nominating committee where the company has not disclosed a formal written gender diversity policy and there are no women on the board.
In 2022, Glass Lewis will generally recommend voting against the chair of the nominating committee of a TSX-listed company with fewer than two gender diverse directors (which Glass Lewis defines as being women and directors that identify with a gender other than male or female), or against the entire nominating committee if the board has no gender diverse directors. For companies listed on other Canadian stock exchanges, and for all boards with six or fewer total directors, Glass Lewis will require a minimum of one gender diverse director. Glass Lewis may refrain from recommending a vote against directors if sufficient rationale or a plan to address the lack of diversity on the board is provided.
Beginning in 2023, Glass Lewis will move from a fixed numerical approach to a percentage-based approach for all TSX-listed companies, and will generally recommend voting against the nominating committee chair of a board that is not at least 30% gender diverse.
The CSA and OSC both noted that, while issuers generally address the diversity requirements of NI 58-101, the format and content of disclosure varies from issuer to issuer. The CSA and OSC both encourage issuers to use the sample tables in CSA Notice 58-313 when displaying diversity disclosure to increase consistency and comparability between issuers.
ISS will continue to consider management say-on-pay proposals on a case-by-case basis. Beginning in 2022, however, ISS will evaluate board responsiveness following cases where a company’s previous say-on-pay proposal received the support of less than 80% of the votes. This is up from the previous threshold of 70%. This increased threshold aligns with the recommendations of Glass Lewis and the CCGG.
Environmental, Social and Governance (ESG) Disclosure
In response to the rising number of management-initiated say-on-climate proposals, in 2022 ISS will begin assessing these proposals on a case-by-case basis, taking into account a number of factors, including, among other things, the extent to which the company’s climate-related disclosures are in line with TCFD recommendations and meet other market standards; emissions disclosure and targets / commitments, and peer-related disclosure.
Glass Lewis has updated its voting policy on disclosure of ESG practices. Beginning in 2022, Glass Lewis will generally recommend voting against the governance committee chair of any S&P/TSX 60 Index company that does not provide explicit disclosure concerning the board-level oversight of ESG issues. In 2022, Glass Lewis will note as a concern any company in the S&P/TSX Completion Index (i.e., those members of the S&P/TSX Composite Index that are not part of the S&P/TSX 60 Index) that does not provide this explicit disclosure. In 2023, Glass Lewis will generally recommend voting against the governance committee chairs of these companies.
This year, the CSA has shown an increased focus on climate-related disclosure, with proposed NI 51-107. While not yet in force, NI 51-107 would require most reporting issuers to provide climate-related disclosure in their AIFs (or their MD&A if there is no AIF) around four core elements:
- Risk Management
- Metrics and Targets
The “Governance” and “Risk Management” disclosures would be mandatory, while the “Strategy” and “Metrics and Targets” disclosure would only be required where the information is material.
Other Governance Matters
Starting in 2023, ISS will apply its over-boarding policies for TSX-listed issuers to those listed on the TSX Venture Exchange. These policies provide that ISS will generally vote withhold for individual director nominees who are non-CEO directors and serve on more than five public company boards or are CEOs of public companies who serve on the boards of more than two public companies besides their own (with the withhold vote being recommended only at their outside boards).
Starting in 2022, ISS will apply all voting guidelines for TSX-listed issuers to companies listed on the NEO Exchange.
Glass Lewis believes multi-class voting structures are typically not in the best interests of common shareholders. Accordingly, for companies with multi-class share structures and unequal voting rights, beginning in 2022 Glass Lewis will generally recommend voting against the chair of the governance committee when the company does not provide a reasonable sunset of the multi-class share structure (generally seven years or less).
Glass Lewis issued several other “clarifying” amendments to its guidelines, including those relating to overall approach to ESG and shareholder proposals, the use of non-GAAP measures in compensation disclosure, the use of “front loaded” compensation awards, and disclosure of fees paid to auditors.
To discuss any of these developments, please contact any member of our Capital Markets Group.
The authors would like to thank Erik Axell, Articling Student-At-Law, for their assistance in writing this Update.
TSX Proposes TSX Company Manual Amendments to Clarify When it Will Apply its Private Placement Rules to Prospectus OfferingsThe Toronto Stock Exchange (TSX) has published for comment proposed amendments (the “Proposed Amendments”) to the TSX Company Manual (the “Manual”) that clarify when the TSX will apply its private…
Capital MarketsProxy advisor Institutional Shareholder Services (ISS) recently updated its Benchmark Proxy Voting Guidelines, which generally apply to shareholder meetings beginning in 2023 or 2024. The updates…
CSA Announces Results of Continuous Disclosure Review for Fiscal Years 2021 and 2022 Emphasizing Challenges of Disclosure During Economic UncertaintyThe Canadian Securities Administrators (CSA) recently published Staff Notice 51-364 (the “Staff Notice”), summarizing the results of its Continuous Disclosure Review Program for fiscal years…
Capital MarketsOverviewThe Ontario Securities Commission (OSC) has adopted a new prospectus exemption (the “Self-Certified Investor Prospectus Exemption”) applicable to prospective investors that meet certain…
EnergyOn June 21, 2022, the federal government registered the Clean Fuel Regulations (CFR)1 under the Canadian Environmental Protection Act, 1999.2 The goal of the CFR is to advance the growth of Canada’s…
CSA Creates New Exemption to Allow Eligible Listed Public Companies to Issue Freely Tradable Securities Without Filing a ProspectusOn September 8, 2022, the Canadian Securities Administrators (CSA) announced a new prospectus exemption aimed at streamlining the process for eligible listed public companies to raise small amounts of…
Capital MarketsGoodmans LLP acted for NorthWest Healthcare Properties Real Estate Investment Trust (TSX: NWH.UN) (“NorthWest” or the “REIT”) in connection with its $150,006,000 supplement dated March 25, 2022 and in…
Capital MarketsGoodmans LLP acted for BSR in connection with its public offering of trust units of the REIT to a syndicate of underwriters led by BMO Capital Markets, RBC Capital Markets and CIBC Capital Markets…
Capital MarketsGoodmans LLP acted for Playmaker Capital Inc. (TSX-V: PMKR) (“Playmaker”) in connection with the filing of its final short form base shelf prospectus on April…
NorthWest Healthcare Properties REIT Completes Public Equity Offering for Gross Proceeds of $172,506,900Goodmans LLP acted for NorthWest Healthcare Properties Real Estate Investment Trust (TSX: NWH.UN) ("NorthWest" or the "REIT") in connection with its previously announced public offering (the "Public…
Capital MarketsGoodmans LLP acted for Medicine Man Technologies, Inc., dba Schwazze (OTCQX: SHWZ) (NEO: SHWZ) in connection with their listing of common shares on the NEO Exchange – a tier one Canadian stock…
Capital MarketsGoodmans LLP acted for Sienna Senior Living Inc. (TSX:SIA) (“Sienna” or the “Company”) in the connection with a bought deal offering (the “Offering”) of common shares of the Company (“Common Shares…
News & Events
Capital MarketsGoodmans is pleased to congratulate Emily Ting who has been honoured as one of Lexpert® Rising Stars: Leading Lawyers Under 40 for 2022.Emily Ting is a partner and co-head of a business law group at…
Banking and Financial ServicesWe’re pleased to announce Goodmans was once again named to The Globe and Mail’s Canada’s Best Law Firms list, recognizing the firm as one of the country’s best law firms for 2023.Goodmans was…
Banking and Financial ServicesWe are pleased to announce Goodmans LLP has once again received top tier recognition from The Legal 500 Canada in their 2023 Guide released today. Recognition from The Legal 500 is based on…