TSX Adopts Changes to Director Elections and Proposes Majority Voting
The Toronto Stock Exchange (the “TSX”) has adopted certain amendments to provisions of the TSX Company Manual relating to the election of directors. These amendments (the “New Rules”) became effective on December 31, 2012 (the “Effective Date”). The TSX also published for comment additional proposed amendments which will make majority voting mandatory (the “Proposed Amendments”). The TSX issued a Staff Notice in July 2013 providing guidance on the new rules. See our post summarizing the Staff Notice.
Election of Directors – New Rules
The New Rules require issuers listed on the TSX to:
- elect directors individually, as opposed to electing a slate of directors;
- hold annual elections for all directors, as opposed to electing directors for a specified term;
- disclose annually in Management Information Circulars whether they have adopted a majority voting policy for directors for non-contested meetings; and if not, to explain:
– their practices for electing directors; and
– why they have not adopted a majority voting policy;
- advise the TSX if a director receives a majority of “withhold” votes (if a majority voting policy has not been adopted); and
- promptly issue a news release providing detailed disclosure of the voting results for the election of directors.
The TSX indicated that annual elections provide securityholders with the opportunity to hold directors accountable on an annual basis. Individual director elections provide insight into the level of support of securityholders for each director. Majority voting policies also support good governance by requiring issuers to closely examine directors that do not have the support of a majority of securityholders. Disclosure of an issuer’s adoption or non-adoption of a majority voting policy is considered by the TSX to be valuable information for securityholders and will ensure that boards of directors consider director election practices. Disclosure of the votes received for each director is also valuable information for securityholders and other stakeholders.
As proposed, the TSX will require issuers that have not adopted a majority voting policy to advise the TSX if a director receives a majority of “withhold” votes. The TSX will follow up with the issuer and the director where a director has not received a majority of votes.
The New Rules do not have any retroactive effect, so that securityholder meetings which have already been set and for which proxy materials have already been approved, will be unaffected by the New Rules until the issuer’s next securityholder meeting at which directors are to be elected.
All applicants for listing on the TSX after the Effective Date and applicants with listing applications in progress are expected to explain to the TSX if they are in compliance with the New Rules, and if not, the plan and time frame in which they will be in compliance with the New Rules.
By December 31, 2013, all TSX listed issuers and applicants are expected to be in compliance with the New Rules. Issuers will otherwise be considered to be in breach of the Manual. If changes to an issuer’s articles or by-laws are required to implement annual elections, and the issuer’s securityholders do not support the required resolution, the TSX will respect the securityholder vote and the issuer will not be considered to be in breach of the Manual. However, the issuer must present the resolution to securityholders again in not more than three years and must support the approval of the resolution.
Majority Voting – Proposed Amendments
On October 4, 2012, the TSX published the Proposed Amendments which, if adopted, will require TSX listed companies to implement a majority voting policy for director elections at non-contested meetings.
When a majority voting policy is adopted, securityholders generally continue to vote “for” or “withhold” for each individual board nominee (known as “plurality voting”). However under the majority voting policy, the number of “withhold” votes are considered “against” votes and counted as part of total votes cast. A typical majority voting policy provides that a director who receives a majority of “withhold” votes must tender his/her resignation, and the board will generally accept that resignation, absent exceptional circumstances, and publicly announce its decision by news release. Some majority voting policies provide that the board must accept the director’s resignation, although those policies are less common. In either type of policy, a director who receives a majority of “withhold” votes would still be elected as a matter of law, but a majority voting policy is designed to ensure that only those directors who receive a majority of votes in their favour remain on the board.
The Proposed Amendments will require issuers to adopt a majority voting policy. The Proposed Amendments further require that within 90 days of the date of a resignation by a director under the majority voting policy, the board must disclose by news release the board’s decision whether to accept that resignation and reasons.
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