The heart of proxy season is upon us with the majority of Annual General Meetings (AGMs) scheduled to take place over the next couple of months. These meetings will highlight shareholder votes on important issues such as the election of directors for the upcoming year and approval of the company’s auditors. In many cases, shareholders will also be voting on whether they approve or disapprove of the compensation provided to a company’s top executives (otherwise known as a “Say on Pay” vote) or re-approving a company’s equity compensation plans for employees. It is on these last two issues (Say on Pay and equity compensation plan approval) where a company’s disclosure on executive compensation can play a critical role in influencing the outcome of votes at the AGM.
It has been two eventful years since the Canadian federal government announced its plans to pass legislation to legalize the recreational use of marijuana. In the U.S., over 80% of the states including California, Colorado, Oregon and Washington have legalized recreational and/or medicinal use of marijuana at the state level. The California industry alone is projected to hit over $7 billion in a few years. This has led to a growing list of emerging companies in the cannabis space seeking financing through the public markets as they see the opportunity in building up their operations to cater to a significant spike in marijuana use now that it is legalized in Canada and more and more U.S. states are legalizing it in some form or fashion. While listing on exchanges in the United States can still be problematic due to the current U.S. federal ban, Canadian stock exchanges have provided a reputable market for cannabis shares with companies listing on the TSX Venture Exchange and Canadian Securities Exchange (CSE). Certain Canadian listed companies have also been able to dual-list their shares on the NYSE such as Canopy Growth, Aurora Cannabis and Aphria with others such as CannTrust currently in the process of listing in New York. This is providing greater exposure of these stocks to institutional investors and index funds.
The clock struck midnight on December 31st, ringing in the start of a new year. While most companies work to finalize their audited financial statements in the next month or two, they also need to be aware of other important tasks required in the months ahead. This includes the calculation, review and approval of Annual Incentive payouts for 2018 as well as the review and approval of any adjustments to Base Salary, Target Annual Incentive and Long-Term Incentive opportunities for 2019. Once these approvals are made, companies must figure out how they are going to communicate the executive compensation decisions made for 2018 and potentially what shareholders can expect for compensation in 2019, to shareholders. This information is provided through a company’s Form DEF 14A in the United States or its Canadian equivalent, the Management Information Circular, also referred to as the proxy circular. Specifically, the Compensation Discussion & Analysis (“CD&A”) section is where the majority of information can be found.
ISS has recently published its 2019 proxy voting guidelines for the United States and Canada, along with additional clarification on some of its compensation policies. Typically, any changes will apply for all meeting dates on or after February 1, 2019. While there are some differences observed between the two jurisdictions, ISS has provided clarity on updates in the following areas:
While Glass Lewis has not changed its current approach in the following areas, it has codified certain policies in the United States:
Glass Lewis has recently published its 2019 proxy voting guidelines for the United States and Canada. While there are some differences observed between the two jurisdictions, Glass Lewis has provided clarity on changes in the following areas:
An essential question asked by board members is how can we improve our performance? While there are many possible answers to solve this riddle, making sure your board composition is set-up as intended is key. An increasingly prevalent tool used by boards in evaluating their board’s composition is the Board Skills Matrix. According to a 2017 study by Equilar, 307 U.S. and Canadian public companies disclosed the use of a Skills Matrix within their proxy statement. A Board Skills Matrix strengthens an organization’s overall governance practices by identifying the current skills, knowledge, experience and capabilities of current board members. The matrix is a relatively simple table that lists all board members along the top with a board’s view of the essential skills and experience required by the board to be most effective.
Autumn brings more than crimson leaves, pumpkin spice lattes, and the resurgence of candy corn on the shelves of your local corner store. The start of fall is also a glaring reminder that proxy voting guideline season is upon us.
All publicly-traded companies face the risk of a proxy fight with one or more of its current shareholders. In a nutshell, a proxy fight is a situation where two corporate factions (typically the Board/Executive Team vs. an activist shareholder or a group of company shareholders) fight for votes from remaining shareholders in order to effect change in a particular area of governance in the company.
This issue often occurs when a new slate of board members is proposed to replace a group of existing board members by an activist shareholder or group. The new slate of board members are generally individuals who are receptive to the activist shareholder’s views on how to change the company while the existing board members are often resistant to the activist shareholder’s views. Common areas of disagreement that can lead to a proxy fight include: future company strategy, executive compensation, company performance or whether a sale of the company or continuing as a stand-alone company is in the best interest of shareholders.
Effective Board and Committee meetings are one of the key factors that allow a board to operate efficiently and help drive better decision-making. As an advisor to boards, I have participated in hundreds of meetings and have observed both efficient and inefficiently run meetings. Ultimately, the meetings that ran most efficiently allowed the Board/Committee to move forward with its agenda and not be distracted by trivial issues that delay decision-making.