Thought Capital

2015 was a challenging year for Canadian issuers, as evidenced by a 10% decline in the TSX 60 index. A closer look, however, reveals fortune diverging largely along industry lines: in the face of weak commodity prices, TSX 60 companies in the mining and energy sectors saw a 30% decline in total shareholder return on average, while non-resource sectors fared comparatively better, returning 2%.

Following an exceptionally challenging year for the energy sector, there seems to be a loose sentiment that the industry has “bottomed out” and we may start seeing the beginning of a recovery in 2016. Nevertheless, management teams continue to cope with the downturn and do more with less. Budgets have been slashed and workforces are significantly leaner, with the impact most pronounced in small and mid-cap organizations. Overseeing energy companies is a daunting challenge for boards. Effective leadership has become critical and time intensive. Directors must support management in reacting to day-to-day challenges and keep an eye on the horizon to ensure the company and its people are positioned for longterm success and sustainability.

Privately-owned companies enjoy many advantages compared to their publicly-traded counterparts in the current economic and regulatory environment. Their detachment from the public markets allows them to operate under less scrutiny and governance bureaucracy. Yet, it also creates some practical barriers when considering incentive compensation alternatives.

In December 2015, Hugessen Consulting and Steven Hall & Partners hosted a Director and Investor Roadshow in NYC, bringing together experienced North American directors and representatives from US institutional investors ($7 trillion in AUM) for a day of unfiltered discussion on a variety of executive compensation and governance topics.

Institutional Shareholders Services (“ISS”) and Glass Lewis (“GL”) recently released updates to their 2016 voting guidelines for Canada. ISS updates will apply to shareholder meetings for publicly traded Canadian companies on or after February 1, 2016. GL updates will apply to meetings held on or after January 1, 2016.

For some time now observers have recognized that executive compensation consultants can have a significant influence on the level of executive pay. As a result, the role and impact of these consultants has come under heightened scrutiny. Questions raised by stakeholders include: what is the nature of consultant influence, does consultant “independence” make a difference, and does it matter who hires the consultant – management or the board?

On November 20, during the new Liberal government's first economic and fiscal update, Minister of Finance Bill Morneau stated during the Q&A that the government has not yet made any final decisions with respect to the taxation of stock options. However, he also indicated that, once a decision is made (which should be "in the next few months"), the new taxation rules will apply to options issued from that date forward and will not apply to options issued prior to that date.

Shareholder engagement remains highly topical in boardrooms across North America. Issuers are recognizing the benefits of speaking directly with institutional shareholders on a broad range of topics beyond financial results, particularly in today’s environment of increasingly influential proxy advisors and the ever-present specter of activists.

Corporate boards and management teams of public issuers often bemoan the challenge of making effective long-term strategic business decisions in the face of short-term pressure from financial markets and investors to deliver quarterly results. Recently, however, there has been growing support in the business and investment communities to encourage focus on longer-term decision-making.

Shareholder engagement remains highly topical in boardrooms across North America. Issuers are recognizing the benefits of speaking directly with institutional shareholders on a broad range of topics beyond financial results – particularly in today’s environment of increasingly influential proxy advisors and the ever-present spectre of activists.