ISS Updates 2025 Proxy Voting Guidelines

January 14, 2025

Written By Kris Hanc, John Lawless and Kruti Sheth

Institutional Shareholder Services (ISS) has released updates to its Canadian proxy voting guidelines for the 2025 proxy season. The ISS updates are effective for shareholder meetings occurring on or after February 1, 2025.

Recommendations from proxy advisory firms such as ISS can have a significant impact on the outcome of business conducted at shareholder meetings, especially if institutional investors comprise a significant portion of the company's shareholder base. Canadian public companies should review the updates with their legal counsel to determine the impact on disclosure and governance practices and take steps to mitigate any potential adverse voting recommendations from ISS.

In addition to general house-keeping amendments and policy clarifications, ISS announced several updates to its policy guidelines for 2025. These updates address virtual-only meetings, the definition of director independence, former CEOs or CFOs serving on audit or compensation committees, pay for performance evaluation, and racial/gender diversity on boards. These changes are summarized below.

Virtual-Only Meetings

ISS will recommend voting against proposals to adopt or amend articles and/or by-laws that provide the board with the discretion to hold shareholders’ meetings in a virtual-only format without a compelling rationale.

Definition of Independence

ISS has updated its policy related to independence of a former or interim CEO for TSX-listed companies to clarify that a former CEO will generally be considered non-independent, except in cases where the specific circumstances suggest that a minimum five-year cooling-off period is sufficient to establish independence.

A former or interim CEO will be deemed non-independent if:

• the individual is a former CEO of the company or its affiliates¹ or of an acquired company;
• the service of the former interim CEO was longer than 18 months, or between 12 and 18 months and the compensation was high relative to other directors or consistent with a CEO’s compensation at the time; or
• the individual is a CEO of a former parent or predecessor firm at the time the company was sold or split off from the parent/predecessors.

Where there is a former CEO of a capital pool company (CPC) or special purpose acquisition company (SPAC) serving on the board of an acquired company, ISS will generally classify such directors as independent unless there is evidence of operating ties to the firm or the existence of any other conflicting relationships or related party transactions.

Former CEO on Audit or Compensation Committee

ISS will recommend vote withhold for any director who has served as a former CEO of the company or its affiliates and is a member of the audit or compensation committee. The same recommendation applies to any director who has served as a CFO of the company or its affiliate in the past three years. The policy does not apply to former CEOs or CFOs who have been classified as independent by ISS. This is consistent with the policy update above clarifying the independence definition.

Pay for Performance Evaluation

ISS updated its policy on pay-for-performance evaluation. Consistent with its voting guidelines from prior years, ISS will continue to recommend voting against Management Say-on-Pay (MSOP) proposals and recommend voting withhold for compensation committee members if there is a significant long-term misalignment between the CEO’s pay and company performance.

The policy has been updated so that, in exceptional circumstances, ISS may use a non-CEO named executive officer (e.g. an executive chair or former CEO) in the pay for performance evaluation if doing so would provide a more appropriate assessment of pay for performance.

This policy applies to all S&P/TSX Composite Index Companies and MSOP resolutions.

Board Gender Diversity

S&P/TSX Composite Index Companies

Consistent with its 2024 voting guidelines, ISS will generally recommend voting withhold for the nominating committee chair (or the chair of the board of directors if no nominating committee has been identified) for companies which are members of the S&P/TSX Composite Index if women comprise less than 30 percent of the board of directors.

There is an exception to this requirement for S&P/TSX Composite Index companies if the company has a publicly disclosed written commitment to achieve 30 percent representation of women on the board at or prior to the subsequent AGM, and either:

• the company recently joined the S&P/TSX Composite Index and has not been previously subject to this gender diversity requirement at its previous AGM; or
• the company fell below the 30 percent threshold after achieving it at the preceding AGM.

This above exception in the 2024 ISS voting guidelines previously contained a reference to “extraordinary circumstances”, and therefore required disclosure and interpretation of the circumstances behind the company falling below the gender diversity threshold before the exception could be applied. The 2025 update removes this reference to “extraordinary circumstances” with a view to providing greater transparency and predictability and aligning the Canadian approach with the US market.

Non-S&P/TSX Composite Index Companies

For TSX-listed companies that are not members of the S&P/TSX Composite Index, ISS will recommend vote withhold for the nominating committee chair if there are zero women on the board of directors. However, if the company has a publicly disclosed written commitment to add at least one woman to the board at or prior to the subsequent AGM, an exception will be made for companies which temporarily have no woman on the board after having at least one woman on the board at the preceding AGM.

For TSX-listed companies that are not members of the S&P/ TSX Composite Index, the board gender diversity requirements do not apply if:

• the company is a newly publicly listed company within the current or prior fiscal year;
• the company transitioned from the TSXV within the current or prior fiscal year; or
• the company has four or fewer directors.

Racial and Ethnic Board Diversity for S&P TSX Composite Index Members 

Consistent with its 2024 guidelines, ISS will generally recommend voting withhold for the nominating committee chair (or the chair of the board of directors if no nominating committee has been identified) of companies which are members of the S&P TSX Composite Index that have no apparent racially or ethnically² diverse members on the board. There is an exemption if the board has made publicly disclosed a written commitment to appoint at least one racially and/or ethnically diverse member at or before the next annual meeting, and either:

• there was racial and/or ethnic diversity on the board at the preceding annual meeting; or
• the company has just joined the S&P/TSX Composite Index and was not previously subject to the racial/ethnic board requirement at the previous AGM.

The 2025 voting guidelines remove prior language associated with the initial implementation of these racial/ethnic diversity requirements as they became mandatory for all TSX Composite Index boards as of February 1, 2024.

If your business or organization has questions regarding the 2025 ISS and Glass Lewis updates, please contact the authors of this blog or a member of the Bennett Jones Capital Markets group.

Authors