Effective June 30, 2014, issuers listed on the Toronto Stock Exchange (TSX) will be subject to new rules for director elections at uncontested meetings, including:
- New Majority Voting Rules. The new rules introduce majority voting rules for director elections at uncontested meetings.
- Mandatory Majority Voting Policy Requirements. The new rules make a mandatory voting policy mandatory and set out prescribed provisions.
The new rules give security holders more influence in setting board composition. Boards and management of TSX-listed issuers must carefully consider the nominees put forth for election – or risk losing board members in the wake of a security holder meeting.
2012 Foundation. The 2014 rule changes builds on a 2012 set of amendments to the TSX Company Manual for director elections at uncontested meetings. The 2012 rules included the requirements that an issuer:
- elect directors annually
- elect directors individually and not by slate
- publicly disclose the results of the votes for the election of each director
- publicly disclose if it has adopted a majority voting policy for uncontested director elections and if not, to disclose to the TSX if a director receives a majority of “withhold” votes.
New Majority Voting Rules. The 2014 changes introduce a majority voting rule under which:
- each director of a TSX-listed issuer must be elected by a majority (50% + 1) of the votes cast at uncontested meetings; this excludes meetings at which the number of directors nominated for election exceeds the number of available board seats
- each issuer must adopt a majority voting policy that complies with the amended requirements unless it otherwise satisfies the majority voting requirement in a manner acceptable to the TSX
- the issuer must issue a news release with “detailed” voting results that complies with the amended requirements after each uncontested meeting at which there is a vote on the election of directors
- a majority controlled issuer is exempt if it discloses annually in its proxy materials for meetings at which directors are to be elected that it is relying on the exemption and its reasons for not adopting majority voting
Mandatory Majority Voting Policy Requirements. The rules also mandate that an issuer’s majority voting policy provide that:
- any director not elected by a majority of the votes cast must immediately tender her resignation
- the board determine whether to accept the resignation within 90 days after the meeting date, and must accept it absent exceptional circumstances
- the resignation will be effective when the board accepts it
- a director who tenders her resignation will not participate in any meeting of the board or committee where the resignation is considered
- the issuer will promptly issue and provide to the TSX a news release with the board’s decision which, if the board decides not to accept the resignation, must fully state the reasons for the decision
Model Policy. The Canadian Coalition for Good Governance (CCGG) has published guidelines for majority voting and a model majority voting policy to assist issuers. Click here to read the CCGG’s guidelines for majority voting and the model policy.
Key Dates. The new rules will come into effect on June 30, 2014:
- issuers with a financial year end after June 30, 2014 must comply with these new rules at their first annual meeting following that financial year; and
- all issuers must be in compliance with the rules by June 30, 2015.
Impact on Boards. The new rules diverge from the Canadian law on director elections: under them, a “withheld” vote is intended to have the effect of a vote “against” the election of a director. The effect is that security holders have more influence in setting board composition while boards will have the time and flexibility to either replace a director who receives a majority of “withhold” votes or make alternative arrangements. Boards and management of TSX-listed issuers will need to carefully consider the nominees put forth for election each year – or risk losing board members in the wake of a security holder meeting.
Action. Issuers currently listed on the TSX or planning to apply for TSX listing should consider their corporate governance structure and:
- if it has not adopted a majority voting policy, adopt one that complies with the new rules; and
- if it previously adopted a majority voting policy, review it for compliance with the new rules and if it does not, make the necessary changes to comply.