New developments
1. Proxy advisory firm updates: ISS and Glass Lewis
Institutional Shareholder Services (ISS)
ISS announced the following key benchmark policy updates for 2025. These updates are effective for shareholder meetings held on or after February 1, 2025.
TSX guidelines
Non-Executive Director (NED) independence
ISS has updated their definition of independence for NEDs to extend the guidelines for nonindependence for former/interim CEOs by removing the five-year cooling off period to gain independence. Unless an exemption is granted to make a five-year cooling off period sufficient, this change results in all former CEOs being deemed as non-independent NED by virtue of their former role.
Former CEO/CFO on audit/compensation committee
In conjunction with the updates regarding the independence of former CEOs, ISS has updated its policy regarding former CEO/CFOs on the audit/ compensation committee. ISS will generally vote "withhold" for any director who has served as CFO of the company or its affiliates during the past three years or a company acquired in the past three years and is a member of the audit or compensation committee. As noted above, the policy will not apply to former CEOs ISS has deemed independent after the five-year cooling off period noted above and the policy for CFOs to be automatically deemed independent after three years continues.
Board gender diversity
For issuers in the S&P/TSX Composite Index, ISS' current board gender diversity is to generally withhold votes for the Chair of the committee responsible for nominating or the Board Chair if no such committee has been identified, where the board is comprised of less than 30% women. Previously there was an exemption for noncompliant issuers who had no women on the board provided they had disclosed a written commitment to add at least one woman to the board at or prior to the subsequent AGM and disclosed the circumstances for why there were no women on board. The policy change removes the requirement to interpret the disclosure before the exemption is applied. This change is intended to harmonize the Canadian approach with the US market and provide for greater transparency and predictability.
Board racial/ethnic diversity
ISS has removed the transitionary requirements from the guideline for racial and ethnic diversity for issuers in the S&P/TSX Composite Index which were implemented on February 1, 2024. ISS' current board racial/ethnic diversity is to generally withhold vote for the Chair of the committee responsible for nominating or the Board Chair if no such committee has been identified, where the board has no apparent racially or ethnically diverse members and the company has not provided a formal, publicly disclosed commitment to add at least one racially or ethnically diverse director at or prior to the next AGM. Issuers who fail to meet the policy over two years or more will be evaluated on a case-by-case basis.
As the transitory period has ended, ISS has added two conditional exemptions for issuers who have publicly committed in writing to add at least one racially or ethnically diverse director at or prior to the subsequent AGM. The first exemption is available for issuers who have joined the S&P/TSX Composite Index and were previously not subject to the requirement in the past and a second for S&P/ TSX Composite Index issuers who have fallen below the minimum racial or ethnic representation after achieving such level of representation at the AGM.
Pay for performance evaluation
ISS has updated its guidelines regarding pay for performance evaluation to capture the exceptional circumstances of NEOs who regularly receive higher compensation than the CEO. This policy update allows ISS to elect to use a non-CEO NEO instead of the CEO in its pay for performance evaluation if doing so would be more appropriate in the circumstances.
TSX and venture guidelines
Shareholder meeting format
ISS has revised its guidelines regarding Articles/ By-Law amendments to vote against any Articles or By-Laws which give the board discretion to hold shareholders' meeting in virtual only formats without compelling rationale. This change underscores ISS' preference for in-person or hybrid shareholder meetings to facilitate meaningful engagement. Notably, the guideline did not give examples of what would be deemed compelling rationale.
Glass Lewis & Co. (Glass Lewis)
Glass Lewis has announced the following key benchmark policy changes for shareholder meetings held in 2025.
Board oversight of artificial intelligence (AI)
Glass Lewis has outlined a new guideline regarding their expectation for board oversight of AI. In particular, Glass Lewis takes the position that boards should be cognizant of and take steps to mitigate exposure to any material risks that could arise from their use or development of AI. Companies who use or develop AI technologies should adopt internal frameworks which include ethical considerations and effective oversight of AI. Given that AI is likely to be of value to shareholders, there is an expectation for clear disclosure regarding how boards are overseeing AI and expanding their expertise and understanding of AI.
In instances where there is evidence that insufficient management of AI has resulted in material harm to shareholders, Glass Lewis may recommend that shareholders vote against the re-election of accountable directors or other matters subject to shareholder vote, as appropriate, should they find the board's oversight, response or disclosure concerning AI-related issues to be insufficient.
Shareholder meeting format
Glass Lewis is now tracking shareholder meeting format by in-person only meetings, virtual-only meetings and hybrid meetings where shareholders have equal access to participate virtually or in person and in-person meetings with virtual elements where shareholders can attend online but do not have the capacity to participate. While Glass Lewis has not yet adopted a benchmark policy voting recommendation, they do expect clear disclosure from issuers guaranteeing shareholders' ability to meaningfully participate in virtual-only meetings.
Glass Lewis has clarified its benchmark policy expectation that companies who do not allow for in-person attendance at the shareholder meetings should engage with their shareholders on this matter and provide rationale for their choice of meeting format. They may recommend voting against the chair of the governance committee or other relevant director, in cases where a board has failed to sufficiently respond to legitimate shareholder concerns regarding the shareholder meeting format.
Disclosure of professional skills and experiences
Glass Lewis has added language to their "Professional Skills and Experience" section of the guideline to note the importance of companies providing substantive disclosure regarding the experience and expertise of board nominees. Glass Lewis may recommend a vote against a chair of the nominating committee or equivalent, in cases where the disclosure of S&P/TSX 60 company does not allow a meaningful assessment of the key skills and experience of incumbent directors and nominees to a board.
Approach to executive pay program
Glass Lewis has adopted a holistic approach to its analysis of executive compensation programs and will review each on a case-by-case basis. They do not use a predetermined scorecard approach and instead, unfavourable factors in a pay program are reviewed in 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 resulting from changes introduced by the compensation committee.
Governance committee meetings
Glass Lewis has clarified its expectation that the governance committees of all TSX-listed issuers meet at least once during the year. In cases where the governance committee has failed to meet at least once, Glass Lewis will generally recommend voting against the chair of the committee and in the absence of a chair, the senior members of the committee.
2. SEDAR+ and CSA filing systems fee changes
On November 21, 2024, the Canadian Securities Administrators (CSA) released for public comment proposed amendments to Multilateral Instrument 13-102: System Fees, aimed at ensuring sustainable funding for the CSA's national systems, including SEDAR+ and the National Registration Database. The CSA stated that the proposed amendments are designed to better align system fee revenues with projected national system operating costs over the next five years.
The CSA's national systems play a critical role in facilitating securities regulation and market efficiency across Canada. However, according to the CSA, increasing operational costs, driven by rising IT labour expenses, technological advancements and enhanced cybersecurity measures, necessitate in their view adjustments to the fee structure to maintain the integrity and functionality of these systems. The CSA quote industry-wide trends that indicate IT labour costs have risen by 35% to 45%, alongside significant increases in technology and risk mitigation expenses.
Under the proposed plan, the CSA intend to implement a system fee increase phased over a five-year period beginning in late 2025. The proposed amendments ensure the funding model remains cost-recovery based, without introducing new system fees or altering the flat-fee structure. Instead, existing fees will be proportionally increased to support the CSA's operational needs.
A 60% system fee increase will take effect in November 2025. The CSA are proposing to increase system fees by 3% annually in each of the four years following the initial adjustment.
The CSA have requested stakeholder input in shaping these proposed changes. This 90-day comment periodwill conclude on February 19, 2025, and will provide an opportunity for market participants, organizations and other stakeholders to share feedback. The full proposal and accompanying details are available on CSA member websites.
3. Access equals delivery
The CSA "Access Equals Delivery" (AED) model is an optional alternative to the traditional physical delivery of certain documents to investors, with the aim to make it more cost-efficient, timely and environmentally friendly for issuers to communicate with investors.
The AED model applies to non-investment fund reporting issuers, including venture issuers. It does not apply to investment funds.
The AED model allows issuers to file prospectuses electronically on SEDAR+. For final prospectuses, issuers must also issue a news release on SEDAR+ announcing the prospectus's availability. The news release must include:
- A statement that the document is accessible through SEDAR+.
- A statement that access to the document is provided in accordance with securities legislation.
- A statement that an electronic or paper copy of the document may be obtained without charge from the issuer.
The AED model for prospectuses came into effect on April 16, 2024. The CSA are currently seeking feedback on proposed amendments and changes to implement an access model for certain disclosure documents of non-investment fund reporting issuers (the Proposed Access Model).
The Proposed Access Model will give issuers another alternative to send annual financial statements, interim financial reports and related management's discussion & analysis (collectively, CD documents), instead of following the current requirements found in securities legislation.
The CSA published initial proposals for implementing an access model for prospectuses, generally, and CD documents (the Initial Proposals) on April 7, 2022. On January 11, 2024, the CSA published amendments and changes implementing an access model for prospectuses only, which came into force on April 16, 2024.
After considering the comments received during the 2022 consultation, as well as consulting with the CSA Investor Advisory Panel throughout the policy development process, the CSA made substantive changes to the Initial Proposals for CD documents to enhance the Proposed Access Model from an investor perspective.
As the CSA consider these to be material changes, the CSA republished the Proposed Access Model for a further 90-day comment period that will end on February 17, 2025. Details about submitting comments can be found at the end of the CSA Notice of Republication and Request for Comment.
With this republication, the CSA anticipate resuming the work needed to implement the amendments that would introduce the annual and interim disclosure statements that were proposed in May 2021 (CD modernization proposals). Further, in deciding on the timing for implementing any of the CD modernization proposals, the CSA have stated they will ensure reporting issuers are provided with sufficient time to transition to any new forms and requirements.
4. AI in the capital markets
On December 5, 2024, the CSA announced the publication of a notice intended to provide clarity and guidance on how securities legislation applies to the use of artificial intelligence (AI) systems by market participants. Staff Notice and Consultation 11-348 Applicability of Canadian Securities Laws and the Use of Artificial Intelligence Systems in Capital Markets also seeks stakeholder feedback through consultation questions on the evolving role of AI systems and the opportunities to tailor or modify current approaches to oversight and regulation in light of these advancements.
The guidance in the notice addresses key considerations for registrants, reporting issuers, marketplaces and other market participants that may leverage AI systems. It highlights the importance of maintaining transparency, ensuring accountability and mitigating risks to foster a fair and efficient market environment. The guidance provided is based on existing securities laws and does not create new legal requirements.
The CSA have invited responses to the consultation questions available on CSA members' websites. The comment period closes on March 31, 2025. Responses will play a critical role in informing future initiatives to refine the regulatory framework applicable to the use of AI systems in capital markets.
5. Continuous disclosure for investment funds in continuous distribution
In November 2024, the CSA announced final rules modernizing the prospectus filing model for investment funds. Under the new rules, investment funds in continuous distribution will now be able to file prospectuses every two years instead of annually. Investors continue to have access to continuous disclosure documents, as well as the Fund Facts and the ETF Facts, which are updated annually and investors will still be able to request the prospectus or access it online.
For all investment funds, the requirement to file a final prospectus no more than 90 days after the issuance of a receipt for a preliminary prospectus is also being repealed.
The final rules, which are expected to take effect on March 3, 2025, are available on CSA member websites.
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