Effective December 31, 2012, the Toronto Stock Exchange (TSX) implemented rules (the Rules) that generally require TSX-listed issuers to provide for the election of directors individually and not by way of a slate, hold annual elections for all directors, make specified disclosures concerning majority voting for the election of directors, and forthwith release detailed disclosure of director election voting results (see our October 2012 Blakes Bulletin: TSX Adopts, and Proposes, New Director Election Requirements).

With the 2013 proxy season completed, the TSX has released guidance on the Rules (the Guidance).

News Release Requirement

The Rules require that, following each meeting of security holders at which there is a vote on the election of directors, each TSX-listed issuer must forthwith issue a news release disclosing the detailed results of the vote for the election of directors. The Rules do not specify what constitutes "detailed results" and, accordingly, practice has varied among issuers. Clarifying the expectations of the TSX, the Guidance provides that TSX-listed issuers should disclose one of the following in their news release: the percentages of votes received "for" and "withheld" for each director; the total votes cast by proxy and ballot, together with the number that each director received "for"; or the percentages and total number of votes received "for" each director.

Under existing corporate and securities laws in Canada, the election of directors may be conducted by a show of hands. The Guidance notes that in such situations, the TSX expects the news release disclosure of "detailed results" to at least reflect the votes represented by proxy that would have been withheld from each nominee had a ballot been called, as a percentage of votes represented at the meeting. Although such reported figures would not represent the actual votes cast at the meeting (as the matter was decided by a show of hands, rather than a ballot), their disclosure is intended by the TSX to provide investors with insight into the level of support for each director.

Waiver Applications by Interlisted International Issuers

The Rules require that at each annual meeting of holders of TSX-listed securities, the board of directors must permit security holders of each class or series to vote on the election of all directors to be elected by such class or series (the Annual Director Election Requirement).

The Rules, and in particular the Annual Director Election Requirement, have raised concerns among TSX-listed issuers residing and listed in certain established foreign jurisdictions (such as the United Kingdom and Australia) who assert that they are already acting in compliance with appropriate (albeit different) corporate governance regimes in their "home" markets. The Guidance recognizes these concerns by confirming that the TSX will consider waiver applications from interlisted international issuers.

The Guidance specifies that the key factors to be considered by the TSX are the issuer's level of activity in the Canadian market and whether the broader corporate governance framework to which the issuer is also subject demonstrates a comparable commitment to the stated intention of the Rules, being to strengthen the Canadian corporate governance regime and support the integrity and reputation of the Canadian capital markets (the Policy Objectives). The Guidance indicates that the TSX will be more receptive to applications from issuers who have had at least 75% of the value and volume of their trading in the preceding six months occur outside of Canada (although this does not preclude applications from issuers who do not meet the threshold).

The Guidance also sets out a list of factors that such waiver applications should address. However, if incorporated in Australia, the United Kingdom, Delaware or another U.S. state with corporate laws comparable to those of Delaware (being "known jurisdictions" to the TSX), an issuer is not required to include descriptions of its home market corporate governance regime and practices.

The Guidance provides that any waiver from the Rules will be effective for one year (or until the issuer's next annual general meeting (AGM)) and its existence and the reasons for requesting such relief must be disclosed by the issuer in its annual information circular.

Application of the Rules to Interlisted International Issuers at the Time of Listing

The Guidance clarifies that the Rules will not apply to an interlisted international issuer at the time of its listing on the TSX. Instead, an issuer will be expected to be in compliance with the Rules (or obtain a waiver as outlined above) when the issuer mails materials for its first AGM after its listing on the TSX. For an issuer that has an AGM within the first six months of its TSX listing, this transitional period will be extended until its next AGM.

Director Recommendation Requirements

The Rules provide that if security holder approval is required to implement annual director elections, the TSX will not consider an issuer to be in breach of the Rules if the issuer has submitted and "recommended" the necessary amendments for approval by the security holders and security holder approval has not been obtained. The Guidance clarifies that if a board of directors concludes that recommending the amendments is contrary to its fiduciary duties, the TSX will consider that an issuer has satisfied the Annual Director Election Requirement if the shareholder meeting materials include a statement of the board that the proposed amendment is "as required by TSX" and balanced information about annual elections and the proposed amendments.

Requirements for the Election of all Directors and Appointment Rights

The Rules include the Annual Director Election Requirement and require issuers to provide for voting on each individual director. The Guidance clarifies that these provisions do not apply to issuers with appointment rights that have been accepted by the TSX at the time of original listing or otherwise.

Compliance with the Policy Objectives of the Rules

The Guidance notes that listed issuers who attempt to thwart the Policy Objectives by means that have the effect of frustrating or avoiding the Rules (e.g., inclusion in an issuer's bylaws of an extraordinary quorum requirement for the election of directors) will be considered to be non-compliant by the TSX.