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CA-EN Advisors

Propelling positive change: A recap of our 2021 proxy voting season in Canada

February 26, 2022
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2021 corporate governance highlights

  • As a Canadian asset manager, a lot of our stewardship efforts are focused on encouraging good governance practices at Canadian companies through our proxy voting and voting-related engagement. This piece looks back at our approach and learnings from 2021, a year that continued to be impacted by COVID-19, climate action and diversity and inclusion efforts.
  • Canada saw its first voluntary “Say on Climate” votes provided by companies and endorsed by shareholders, including BMO GAM.
  • We voted against management on 16% of resolutions in 2021, which is lower than our global average of 20%. This suggests better alignment of expectations between shareholders and management on good governance practices in Canada.
  • 63% of our votes against management related to director elections. As board refreshment and independence contribute to diverse and accountable oversight of management, we mainly voted against the re-election of board members with long tenures and multiple directorships.
  • Executive pay remained a contentious issue for us in the Canadian market. We voted against one-third of compensation packages, mainly due to concerns about lack of sufficient performance metrics or disclosures.

Like the rest of the world, the corporate governance landscape in Canada continued to be impacted by COVID-19 in 2021 as shareholders were more critical on the potential imbalance between high executive pay, workforce impacts and the constraints the pandemic had on company performance. This past year also marked one of the first “Say on Climate” votes in the Canadian market, and shareholders sought progress from companies on their diversity, equity and inclusion commitments following 2020’s global antiracism protests. Furthermore, the Rogers Communications board family feud created international headlines and led to public debates about family-owned companies, shareholder rights and dual class share structures.

How we voted in 2021 (%)

Source: BMO Global Asset Management, as of December 31, 2021.

Votes against management by issue (%)

Source: BMO Global Asset Management, as of December 31, 2021.

Our voting decisions are guided by our Corporate Governance Guidelines. In 2021, we voted against management at roughly 16% of all Canadian resolutions, mainly related to director elections and executive pay. This is slightly lower than our global average of roughly 20% against management votes suggesting better alignment of expectations between shareholders and management on good governance practices in Canada than in other markets. However, we had at least one vote against management in nearly 80% of the company annual general meetings (AGMs) we voted in. As such we actively engage with our portfolio companies to convey our expectations, develop a joint understanding of good governance practices and encourage boards to implement improvements.

Director elections

The family feud at Rogers Communications drew significant scrutiny over its ownership structure where public shareholders essentially did not have any voting rights on the company’s board composition. The Canadian Coalition for Good Governance (CCGG) has described the company as the “poster child” for the adverse governance impact that can result from dual class share structures – where different share classes within a company provides varying levels of voting rights. The CCGG has advocated for conditions to be attached to dual class shares such as a sunset clause which would allow for the structure to be terminated at a given point in time (source: Ibidem). As a member of the CCGG, we believe in equal voting rights among all shareholders and we flagged such concerns in 92 resolutions related to director elections.

Main concerns that affected our votes on director elections (%)

Source: BMO Global Asset Management, as of December 31, 2021

While our decision to withhold support on director elections can be based on multiple concerns, we primarily voted against board members that held multiple directorships and lacked independence, including independence affected by overly long board tenure. We believe that multiple directorships may detract board members from properly performing their roles given the significant time commitment required – a point that has been emphasized by senior leaders having to abruptly navigate through the uncertainties of the pandemic. We also recognize that directors may become closer to management over time which can compromise their ability to exercise independent judgement. As such we typically withhold support from directors tenured over 12 years if they have roles on the board where we require full independence, such as the Lead Independent Director role, or serving on the audit committee.

While we may not consider directors with a tenure over 12 years to be fully independent, we do support the re-election of these members provided they represent a minority percentage (33% or less) of non-employee directors on the board. Once a board consists of more than a third of long-tenured directors however, this to us is an indication that board composition is overly skewed towards long-tenured directors and is due for refreshment. As other investors have expressed similar concerns over the impact of long tenure on independence, we welcome regulatory efforts aimed at enhancing board refreshment policies such as the recommendations on tenure limits provided by the Ontario Capital Markets Modernization Taskforce.

Case study: Canadian National Railway

We have engaged with Canadian National Railway (CN Rail) on the topics of board refreshment, director tenure and committee independence for several years. Throughout this time, CN Rail removed long tenured directors from the compensation committee and reduced the number of committee members from 10 to 6. We believed that this improved the compensation committee’s independence and in turn, enhanced its ability to formulate and implement fair executive compensation plans. However, these changes did not address our wider concerns about overall board renewal which led us to withhold support from several directors at the 2018, 2019 and 2020 AGMs. In the first quarter of 2021, the company announced updates to its board governance policies including the removal of a grandfathering provision that would subject all directors to a revised tenure limit of 14 years and a lower retirement age for board members. Removing this provision meant that four of the long-tenured directors we had concerns about stepped down from the board at the 2021 AGM.

Board diversity

We continue to evolve our guidelines on gender diversity: it is our view that diversity can enhance the long-term effectiveness of the board. We raised our expectations this past year from requiring two women on the board, to requiring a minimum of 25% female representation which resulted in 91 votes against chairs of nominating committees – an increase from 34 in 2020. We supported the re-election of 25 nominating committee chairs where board diversity did not meet our expectations of 25% female representation but where the board demonstrated positive momentum in advancing gender diversity. This includes setting a robust, time-based gender diversity target and adding a new female nominee to the board during the year under review.

Number of director elections affected by our policy on gender diversity (2020)

Source: BMO Global Asset Management, as of December 31, 2021.

Number of director elections affected by our policy on gender diversity (2021)

Source: BMO Global Asset Management, as of December 31, 2021.

What’s next for board diversity in 2022? As a member of the 30% Club Investor Group Canada and a signatory to the Canadian Investor Statement on Diversity & Inclusion, we have raised our expectations for 2022 on gender diversity to a minimum of 30% female representation on the board. We firmly believe that meaningful representation contributes to better corporate performance for both companies and its shareholders and as such, recognize the importance of other forms of diversity. Throughout 2021, we engaged with 87% of our Canadian portfolio companies on our expectation that they address diversity beyond gender on their boards. We also gave them notice that in 2022 we will start withholding our support from chairs of nominating committees on boards where there is no racial diversity – unless the company has published meaningful plans, targets and timelines to address this. We recognize sensitivities around assessing individual director identities and therefore, we encourage boards to report aggregated data on the number or percentage of racial and other types of diversity based on voluntary self-disclosure. While still in its infancy, we believe that regulations and company practices will continue to evolve to enhance disclosures on diversity that are both relevant and comparable to peers.

Case study: Loblaw Companies Limited

Loblaw was one of the first Canadian companies to set a target for enhancing representation of visible minorities at the board-level. When we spoke to Loblaw prior to its 2021 AGM, the company confirmed that it aims to have 25% of the board represent visible minorities by 2024. The company also disclosed that 17% of the director nominees identified as visible minorities. Loblaw is one of the companies we encouraged to adopt targets that address board diversity beyond gender.


Canadian companies set a new record in 2021 for failed say on pay votes with six TSX-listed companies recording less than 50% support from their shareholders, including BMO Global Asset Management, on their pay practices. This demonstrates the increasing scrutiny from shareholders on how executive pay is tied to company performance especially as the pandemic continues to adversely impact companies across all sectors. In 2021, we voted against roughly one-third of the management resolutions related to say-on-pay and withheld support from 43 directors in part due to the absence of an advisory say-on-pay vote.

Main concerns that affected our votes on executive pay (%)

Source: BMO Global Asset Management, as of December 31, 2021

While our decision to withhold support on executive pay may be based on multiple concerns, almost half of our votes against management was partly due to compensation packages that allowed directors to receive incentive awards for below-median performance, which we consider to be rewarding underperformance. We also voted against certain say-on-pay proposals in part, when the proportion of equity granted to directors was 50% or less performance-based. We believe that compensation packages should generally reflect a balance of financial, operational and relative performance targets. It should not be heavily weighted on a single performance metric, such as stock price, as this may result in short-term management focus which would not be in the best interest of shareholders.

Nearly one-third of votes against executive pay were partly due to a lack of clear disclosures on companies’ incentive awards. We seek detailed disclosure of board and management pay packages to improve shareholders’ understanding on the company’s compensation strategy and succession planning. We believe that robust compensation disclosures should outline a company’s philosophy, policies and formulas for determining annual, short and long-term pay. Overall, we will withhold support for compensation proposals where we believe that compensation packages do not align with long-term shareholder value.

Case study: Northland Power Inc.

We engaged with Northland Power in previous years to provide our views on attaching performance conditions to long-term incentive plans to preserve shareholder value. We also voted against the company’s say-on-pay proposals in both 2019 and 2020 due to concerns that its equity-based compensation was entirely time-based as it was unclear whether performance targets were included. Our concerns were subsequently addressed this past year when the Human Resources and Compensation Committee approved new performance-based restricted share units that raised the performance-based equity granted to directors to over 60%.

Environmental and social proposals

We typically support resolutions that call on companies to improve their business strategy and public disclosures on managing material environmental and social risks. This past year, we supported 88% of shareholder resolutions related to climate change and social equality. More specifically, we supported a proposal on the implementation of a say-on-climate vote at Canadian Pacific Railway which was also endorsed by the company.

We also supported resolutions aimed at enhancing disclosures on managing risks related to human capital and human rights as established by the UN Guiding Principles for Business and Human Rights. We were supporters of a shareholder resolution at TMX Group on Indigenous inclusion and reconciliation – one of the first proposed in Canada which we expect will set the precedent on similar resolutions in upcoming years as shareholders seek meaningful disclosures on company efforts in advancing Indigenous rights and reconciliation. In some cases, we voted against shareholder proposals where we agreed with the spirit of the proposal but found the request to be overly prescriptive and as such wanted management to have more discretion in adopting a suitable approach in managing ESG risks.

Case study: Canada’s main railway companies

CN Rail is one of the first Canadian companies to adopt an advisory say-on-climate vote in 2021, and we voted in favour of its climate strategy. When we spoke to CN Rail before its 2021 AGM, the company reported that it was 15% more fuel efficient than the industry average and had a 2030 target in place based on a 2-degree scenario which it was in the process of updating. We had encouraged the company to adopt a net zero by 2050 goal. CN Rail announced in November 2021 its commitment to setting a target in line with a 1.5-degree scenario and to achieving net-zero carbon emissions by 2050.

At the 2021 AGM for Canadian Pacific Railway (CP Rail), we supported a shareholder resolution that requested the company adopt an advisory say-on-climate vote where the board would disclose its climate action plan and emission reduction strategies. The resolution also requested that CP Rail release an annual report to shareholders containing progress and any updates on its reduction strategies as well as any changes to its climate action plan. The shareholder resolution received an overwhelming level of support with approximately 85.4% of shareholders voting in favour of a say-on-climate vote.

Our expectations for 2022

In 2022, we will continue to raise our expectations on managing material ESG issues at the board-level. We expect all companies on the TSX Composite to have at least 30% female representation on the board and will vote against the chairs of governance/nomination committees in the absence of racial diversity with no indication, such as robust targets or timelines, to address this. Canadian companies will also be expected to demonstrate their capabilities in managing climate risks. We use both internal methodologies as well as data from the Transition Pathway Initiative and Climate Action 100+ to assess companies’ progress towards net zero commitments. We are also members of the new initiative Climate Engagement Canada (CEC), where we serve on the Steering Committee, and expect to use future CEC research and engagement outcomes to inform our voting approach as well.

We continue to consider the impacts of COVID-19 as we prepare for the 2022 proxy voting season. This includes monitoring potential implications of virtual-only AGMs such as concerns over accessibility and transparency, as well as assessing whether pay practices reflects a balance between executive and stakeholder experience of the pandemic. We will also evaluate the appropriateness of enforcing new guidelines during the pandemic. For example, our intention for 2021 was to vote against the re-appointment of long-serving audit firms (defined as longer than 20 years) in Canada since our view is that it may compromise independence due to close relationships potentially forming. This guideline is currently being applied in other markets we vote in. While we believe that the rotation of audit firms preserves independence, we have decided once again to postpone the application of this guideline in Canada after consultation with companies on the difficulties of releasing audit tenders and switching auditors during a global pandemic with restrictions related to on-site visits. Additionally, we are starting to reflect on how we can better incorporate concerns about income inequality into our assessments of executive compensation packages and encourage Canadian companies to disclose more information about how they are addressing potential pay disparities.

We will continue to engage with companies on issues that may threaten shareholder value and where our basic expectations are not met – we will use our voting rights to propel change.

About BMO Global Asset Management's Responsible Investing Team

BMO Global Asset Management’s Responsible Investing team manages and develops the firm’s Responsible Investing (RI) thought leadership, publishing regular insights and deep dives on a variety of emerging environmental, social and governance (ESG) topics. The team collaborates with investment teams on emerging ESG developments, provides ongoing ESG integration support, employs a progressive approach to stewardship activities and oversees BMO Global Asset Management’s ESG initiatives and commitments to responsible investing.


This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.

BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc. and BMO Investments Inc.

 ®/™Registered trademarks/trademark of Bank of Montreal, used under licence.


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