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Companies in the S&P/TSX index that don’t have at least one minority director will be getting a thumbs down from proxy advisory firm ISS Governance this year.

The firm issued its updated proxy voting guidance on Tuesday, launching its new approach to racial and ethnic diversity on the boards of companies that belong to the S&P/TSX Composite index.

Last year, ISS signalled a new board diversity policy for S&P/TSX companies, which recommends voting against the chair of the nominating committee (or the board chair if there is no nominating committee) at companies with no directors from racial or ethnic minority groups.

That policy wasn’t in effect for this year’s annual meetings, as ISS adopted a one-year grace period for its new policy, which is now set to expire on Feb. 1.

As a result, the firm’s new voting policy will be in effect for the upcoming proxy season with the caveat that companies can also avoid shareholder scorn — and meet the policy’s new diversity demands — with a public commitment to add at least one racially or ethnically diverse board member at, or before, their next annual meeting.

The new voting policy comes in the wake of changes to federal corporate law designed to encourage greater board diversity by requiring companies to report on the composition of their boards beyond just gender to include visible minorities, Indigenous people and people with disabilities.

Earlier this year, the Canadian Securities Administrators (CSA) also completed a consultation on possible changes to regulatory requirements in this area, which aim to expand reporting beyond gender. The CSA proposed two alternative approaches to boosting disclosure, and it remains to be seen which path the regulators take.

Alongside the changes to its voting recommendations for S&P/TSX companies, ISS’s new benchmark policy also includes changes to its board voting recommendations for Japanese companies, restoring a policy that was suspended with the onset of the pandemic that calls for shareholders to vote against the election of top executives at companies that are underperforming (as measured by average return on equity over the previous five years).

It also revised its approach to takeover defence plans (poison pills) in Japan, by requiring that companies that seek to adopt poison pills must have boards that are majority independent (up from the previous criterion of one-third independence).

The updated policy is intended to prevent “a non-independent board from arbitrarily using a poison pill mechanism for management entrenchment,” ISS explained in a release.

The firm’s revised voting recommendations follow a public consultation process on a range of corporate governance issues for various markets.