Hugessen Briefings

Major News and Other Insights

In Focus: 2024 Canada Proxy Season Recap

ISS/Insights Governance

• “None of the directors at S&P/TSX Composite Index companies received less than majority support at uncontested elections during the first half of 2024. However, there were a few close calls, with six director nominees at four companies receiving vote support ranging between 50 percent and 60 percent. Low vote support for these directors appears to be driven by concerns surrounding the company’s compensation structure or lack of racial/ethnic diversity on the board.”
• “Median CEO compensation during fiscal year 2023 at S&P/TSX Composite Index companies increased relative to fiscal 2022, and notably reached the highest levels in the last five years after a slight decrease in fiscal 2022.”
• “There was an influx in shareholder proposals that made it to a vote this year in Canada, after a temporary dip in 2023. While the total number of shareholder proposals voted on increased, this year also marked a record number of withdrawn proposals in the last five years, indicating a high level of engagement between Canadian companies and proponents.”...Read more

Why AI Risks are Keeping Board Members Up at Night

(Wall Street Journal)

“At a recent bank board meeting, directors were treated to a surprise. They listened to the chief executive talk strategy—except it wasn’t actually the CEO talking. It turned out to be a voice-cloning model that was trained, using the CEO’s prior earnings calls, to generate new content. More boards are undertaking such staged exercises to better grasp the impact—and potential risks—of generative artificial intelligence, says Tariq Shaukat, CEO of coding company Sonar, who was briefed on the exercise but declined to disclose the name of the bank. “There’s a lot of risk [with AI] and they think they need to understand it better,” says Shaukat, who himself serves on corporate boards. Public company board members say the swift rise of AI in the workplace is an issue that is keeping them up at night. Some point to recent concerns around employees putting proprietary code into ChatGPT, companies using generative AI to incorrectly source content or worries about so-called hallucinations where generative AI produces false or inaccurate information. Adding to their nightmares, board members worry that they could be held liable in the event AI leads to company problems. In recent years, some legal actions from shareholders have focused on whether board members—not just executives—exercised sufficient oversight of company risks.”...Read more

After a Pay Boom, Raises are Shrinking

(Wall Street Journal)

“The era of hefty pay increases is over, and companies are already making plans to trim raises again next year. The shrinking raises are the latest sign—alongside last week’s lackluster jobs report—that workers have lost much of the leverage they’ve had with bosses in the past few years. With hiring now slowing sharply, employers are controlling payroll costs by cutting or freezing bonuses, doling out fewer and smaller merit increases, business leaders and compensation consultants say. Some companies are also trying to fill roles as they open in lower-cost cities, paying smaller salaries than what the previous person was making. Meanwhile, fewer workers are getting pay bumps from switching jobs than they did late last year, new data show. Among 1,900 U.S. companies polled in the second quarter, nearly half said they had downsized their budgets for salary increases this year. That has lowered the median raise to 4.1% this year from 4.5% in 2023. They plan to spend even less next year, projecting a median raise of 3.9% in 2025, according to employer-advisory firm WTW, which conducted the survey.”...Read more

Rachel Reeves to Announce Plans to Create ‘Canadian Style’ Pension Model

(Financial Times)

“Chancellor Rachel Reeves will meet bosses of big pension schemes in Toronto on Wednesday, as she seeks to create a “Canadian-style” model in the UK with massive retirement funds investing in equities and infrastructure. Reeves wants to unlock the investment potential of the £360bn local government pension scheme, which has more than 6mn members but is fragmented into 86 individual funds in England and Wales If it were a single fund, it would rank among the top 10 biggest funds in the world. Reeves wants the UK market to achieve the scale of the megafunds operated in Canada by the so-called Maple 8. “The size of Canadian pension schemes means they can invest far more in productive assets like vital infrastructure than ours do,” the chancellor said on Tuesday. Achieving this consolidation is a key challenge for Reeves. Former Conservative chancellor Jeremy Hunt also wanted to build a Canadian-style pensions model in Britain, but progress had been slow. Reeves has announced a review, overseen by the new pensions minister Emma Reynolds, to look into how to achieve scheme consolidation and put pension funds to use in promoting UK growth.”...Read more

Glass Lewis 2024 Proxy Season Briefing (Glass Lewis)

• North American boards continue to become more gender diverse, with Russell 3000 companies averaging 30.2% women directors during the 2024 proxy season. Average gender diversity at the largest Canadian companies is just below 40%.
• In Canada, 88% of S&P/TSX 60 companies provided clear disclosure regarding racial/ethnic diversity on the board. Of these companies, average board ethnic/racial diversity was 16.9%
• 16 companies had a board that was at least 20% ethnically diverse
• In the U.S., racial and ethnic diversity on S&P 500 boards increased from an average of 23.4% in 2023 to 25.3% in 2024
• A similar increase was found among Russell 1000 companies, where the racial and ethnic diversity on the board increased from 22.1% in 2023 to 24% in 2024
• The prevalence and popularity of Say on Climate proposals appears to have levelled off, with most votes again held at European companies
• 21 companies held Say on Climate votes, roughly the same as last year (23) and down from a peak of 41 proposals in 2022...Read more

Proxy Season Global Briefing: Executive Pay (Harvard Law School Forum on Corporate Governance)

• In a review of global 2024 proxy season outcomes, “a supermajority of the largest companies in Europe and North America” now include ESG-related performance in their incentive programs
• Europe continues to lead with 92% of European “blue-chip” companies including ESG metrics
• In Canada, 81% of companies that held a Say-on-Pay vote in 2024 included ESG metrics in their incentive plans...Read more

SEC Defends its Climate Disclosure Rule in Court (ESG Today)

• In early September, the U.S. Securities and Exchange Commission filed its defense in court, arguing that the proposed climate-disclosures will provide “information directly relevant to the value of investments”
• This comes in response to a number of legal challenges arguing that the requirements are expensive and overly speculative
• The SEC noted that the disclosure requirements came in response to “substantial investor demand” and a need for consistent and comparable climate information...Read more 

Board Effectiveness Update

 Variance in Succession Strategy & Transition Processes (Deloitte)

• Deloitte collected survey data from CEOs and corporate secretaries to explore differences in their responses regarding succession planning
• Key takeaways include that while both groups agree on the board’s significant role in reviewing and approving succession plans, they differ on the CEO’s involvement in various stages, such as interviewing candidates and selecting a search firm
• Alignment of expectations between the Board and Management regarding succession planning can save valuable time and ensure smooth transition processes, particularly in the event of unplanned departures...Read more 

Affiliate News Update

Hugessen is pleased to collaborate and be affiliated with MM&K

MM&K is one of the leading independent UK-based advisers on executive remuneration and employee share plans. The firm specializes in the planning, design, implementation, and administration of business-driven pay and reward strategies...Read more

Consultant Spotlight

In this interview, Hugessen Consulting Principals emphasize their commitment to staying closely involved with clients, ensuring successful execution of plans. They highlight the importance of staying informed about industry trends and aligning with the board's outcomes, ensuring compensation decisions are made with full awareness and context...Watch now

Team Update

Hugessen welcomes three new members of our team. Lauren Rozenberg, Jenny Mun and Austin Hanlan. Lauren and Jenny are Analysts in our Toronto office and Austin Hanlan, is an analyst in our Calgary office. Welcome Lauren, Jenny and Austin!