2025 Proxy Advisory Firm Voting Guidelines: Canadian Highlights

In preparation for the upcoming 2025 proxy season, issuers should familiarize themselves with the updated Canadian proxy voting guidelines recently published by Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. (Glass Lewis), respectively. This bulletin addresses certain key topics covered by ISS's 2025 Benchmark Policy Recommendations and Glass Lewis' 2025 Benchmark Policy Guidelines.

Role of Proxy Advisors 

Proxy advisory firms review and analyze matters put forward for consideration at shareholder meetings and make highly influential voting recommendations concerning such matters to their clients, who are typically institutional investors. The items considered range from routine matters, such as the appointment of auditors, to proxy contests and complex business acquisition transactions involving a voting decision, covering both management initiatives and shareholder proposals. A voting recommendation is generally based on the issuer’s adherence to the practices and standards outlined in the proxy advisory firm’s voting guidelines for that proxy season.

2025 Policy Updates

The key updates to the proxy voting guidelines for 2025 include updates to virtual shareholder meetings, board diversity, independence and executive compensation, as well as the addition of artificial intelligence oversight.

Virtual Shareholder Meetings

Both ISS and Glass Lewis have updated their guidelines regarding virtual shareholder meetings.

ISS has clarified its existing policy, stating that it will generally recommend voting against proposals to adopt or amend an issuer’s articles or bylaws if the resulting document contains a provision that gives a board discretion to hold virtual-only shareholder meetings without providing a compelling rationale.

While Glass Lewis continues not to have a benchmark voting recommendation based solely on the format of shareholder meetings, the benchmark policy has been clarified to provide that Glass Lewis may issue a negative voting recommendation (i.e., recommend voting against or the withholding of votes) in respect of the chair of the governance committee, or other relevant directors, in egregious cases where a board has failed to sufficiently respond to legitimate shareholder concerns regarding the format of shareholder meetings.

For issuers that hold virtual-only meetings, Glass Lewis continues to expect robust disclosure, which assures shareholders that they will have the same rights and opportunities to participate as they would at an in-person meeting. Issuers holding virtual-only meetings are also expected to disclose the reasons for the board electing to hold the meeting in such format. Where an issuer is planning to hold a virtual-only shareholder meeting and fails to provide satisfactory disclosure addressing such matters (or discloses that shareholders participating virtually are not being afforded with certain outlined protections), Glass Lewis will generally issue a negative voting recommendation in respect of the chair of the governance committee.

Board Gender Diversity

For S&P/TSX Composite Index issuers where women comprise less than 30% of the board of directors, the general recommendation of ISS continues to be a negative voting recommendation in respect of the chair of the nominating committee (or chair of the committee designated with the responsibility of a nominating committee, or chair of the board of directors if no nominating committee has been identified or no chair of such committee has been identified).

Compared to its 2024 proxy season recommendations, ISS has slightly broadened the exemptions available to such issuers to include that, assuming a publicly disclosed written commitment to achieve 30% representation of women on the board at or prior to the subsequent annual general meeting (AGM), an exception will be made for issuers that have fallen below 30% representation of women on the board after achieving such level of representation at the preceding AGM. Previously, such exemption also required that the issuer had fallen below the 30% threshold “due to an extraordinary circumstance,” which requirement has now been deleted.

For TSX-listed issuers which are not S&P/TSX Composite Index constituents and have no women on the board of directors, ISS generally will continue to issue a negative voting recommendation in respect of the chair of the nominating committee (or chair of the committee designated with the responsibility of a nominating committee, or chair of the board of directors if no nominating committee has been identified or no chair of such committee has been identified).

ISS has similarly broadened the exemptions available to such non-S&P/TSX Composite Index issuers to include that, assuming 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 issuers that temporarily have no women on the board after having at least one woman on the board at the preceding AGM. Previously, such exemption also required that the issuer temporarily have no women on the board “due to an extraordinary circumstance,” which requirement has now been deleted.

ISS has explained that these changes provide greater transparency and predictability as to how its policy will be applied and harmonizes the Canadian approach with the U.S. market.

Board Racial/Ethnic Diversity

Last year, ISS introduced a racial/ethnic board diversity standard for all S&P/TSX Composite Index issuers. For the 2025 proxy season, ISS has revised its general recommendation regarding this representation standard to remove the transitory language and to include an additional conditional exemption.

For issuers in the S&P/TSX Composite Index where the board has no apparent racially or ethnically diverse members, ISS will generally issue a negative voting recommendation in respect of the chair of the nominating committee (or chair of the committee designated with the responsibility of a nominating committee, or the chair of the board of directors if no nominating committee has been identified or no chair of such committee has been identified).

Previously, an exception applied when an issuer had a publicly disclosed written commitment to add at least one racially or ethnically diverse director to the board at or prior to the next AGM. The exception now also requires that such an issuer has (1) joined the S&P/TSX Composite Index and has not previously been subject to the racial/ethnic board requirement as an S&P/TSX Composite Index constituent, or (2) fallen below the minimum representation threshold after achieving the required level of representation at the preceding AGM.

Artificial Intelligence

With the rapid development and adoption of artificial intelligence (AI) by issuers, Glass Lewis has included a new section in its 2025 guidelines outlining its expectations regarding board oversight and disclosure of AI.

Glass Lewis recommends that all issuers that develop or use AI in their operations provide clear disclosure regarding (1) board oversight of AI, which can be effectively conducted by specific directors, the entire board, a separate committee or combined with the responsibilities of a key committee and (2) how the issuer is ensuring AI competency on the board.

Where there is evidence that insufficient oversight or management of AI technologies has resulted in material harm to shareholders, Glass Lewis will review an issuer’s overall governance practices and identify which directors or board-level committees have been charged with oversight of AI-related risks. After evaluating the board’s response to and management of the issue, as well as any associated disclosures, Glass Lewis may provide a negative voting recommendation in respect of appropriate directors where the board’s oversight, response or disclosure concerning AI-related issues is viewed as being insufficient.

Glass Lewis will also carefully evaluate all shareholder proposals regarding an issuer’s use of AI and make recommendations on a case-by-case basis.

Say-on-Pay

Glass Lewis has issued clarifying revisions to highlight the benchmark policy’s holistic approach to formulating say-on-pay voting recommendations in respect of executive compensation programs of TSX-listed issuers. The guidelines note that Glass Lewis assesses pay programs on a case-by-case basis, considering unfavorable factors within the broader context of their rationale, overall structure, disclosure quality and alignment of executive pay with performance, while evaluating the shareholder experience and the trajectory of the pay program in light of changes introduced by the compensation committee.

Commentary has been added for the 2025 proxy season, noting that Glass Lewis reviews all factors related to named executive officer compensation, including quantitative analyses, structural features, the presence of effective best practice policies, disclosure quality and trajectory-related factors. Glass Lewis has further clarified that, except for particularly egregious pay decisions and practices, no one factor would ordinarily lead to an unfavourable voting recommendation. Glass Lewis has also updated its list of problematic pay practices to include egregious or excessive perquisites and adjustments to performance results that lead to problematic pay outcomes.

Other 2025 Policy Changes

• Professional Skills and Experience. For issuers in the S&P/TSX 60 Index, Glass Lewis may now issue a negative voting recommendation in respect of the chair of the nominating committee (or its equivalent) if the issuer fails to provide sufficient disclosure to enable a meaningful assessment of the key skills and experience of incumbent directors and board nominees.
• Governance Committee Matters. Glass Lewis may now issue a negative voting recommendation in respect of the chair of the governance committee of a TSX-listed issuer (or, absent a chair, the most senior member of the committee) if the governance committee did not meet during the year in review. Glass Lewis may also now provide a negative voting recommendation in respect of the governance committee chair of a TSX-listed issuer if the issuer fails to disclose amounts received by a director in connection with a related party transaction.
• Pay for Performance Evaluation. ISS’s updated guidance provides that it may elect to use a TSX-listed issuer’s non-CEO named executive officer rather than a CEO in ISS’s pay-for-performance evaluation in exceptional circumstances if doing so provides a more appropriate assessment of pay-for-performance alignment.
• Definition of Independence. ISS has recharacterized how it will consider the five-year cooling-off period used in the determination of the independence of a TSX-listed issuer’s former CEO serving as a director of the issuer.
• Change in Control. Glass Lewis has clarified that issuers that allow for committee discretion over the treatment of unvested awards should commit to providing clear rationale for how such awards were ultimately treated in the event a change in control occurs.

For further information, please contact the authors or any member of our Corporate Governance group.