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The Ontario Securities Commission (the OSC) recently released
OSC Notice 11-767 – Notice of Statement of Priorities
for Financial Year to End March 31, 2013 (the Priorities
Notice), which provides, among other things, an update on the
OSC's intentions concerning potential reforms to the regulation
of director elections of Ontario reporting issuers.
Background on the Priorities Notice
The Securities Act (Ontario) (the OSA) requires the OSC
to deliver to the Minister of Finance (Ontario) by June 30th of
each year a statement setting out the OSC's priorities for its
current financial year ended March 31st, in connection with the
administration of securities laws in Ontario, with a summary of the
reasons for the adoption of the priorities.
The OSC previously published OSC Notice 11-766 –
Request for Comments RegardingStatement of Priorities
for Financial Year to End March 31, 2013 (the Request for
Comments) on March 30, 2012, pursuant to which interested parties
were invited to make written submissions to the OSC. The Priorities
Notice states that the OSC received 105 responses to the Request
for Comments, covering a range of topics.
OSC Regulatory Developments Concerning Director Elections
The Priorities Notice outlines five regulatory goals for the OSC
and, in particular, provides that a key initiative of the OSC for
this year is to facilitate shareholder empowerment in director
elections by "advocating":
the elimination of slate voting;
the adoption of majority voting policies for director
elections; and
enhanced disclosure of voting results for shareholder
meetings.
This initiative, unchanged from the Request for Comments,
follows OSC Staff Notice 54-701 – Regulatory
Developments Regarding Shareholder Democracy Issues (the
Shareholder Democracy Notice), published by the OSC in January
2011, wherein the OSC stated that it was assessing whether reforms
to securities laws were appropriate to, among other things,
facilitate individual director voting and majority voting for
director elections of reporting issuers in Ontario.
Parallel TSX Process
In September 2011, the Toronto Stock Exchange (TSX) published
for comment proposed changes to its Company Manual (the TSX
Proposal) which would require TSX-listed issuers to elect directors
individually and make specified disclosures concerning majority
voting for the election of directors, among other matters, and
requested feedback on whether disclosure of proxy results should be
mandated by the TSX (see our September 2011
Blakes Bulletin: TSX Proposes Reforms for Director
Elections).
Advocating vs. Reforming
While the stated intentions of the Shareholder Democracy Notice
were to provide an update from OSC staff on the status of work in
the area of shareholder democracy issues and to specifically
identify topics requiring additional review and, potentially, the
development of regulatory proposals, the more recent Priorities
Notice provides that the OSC has formed a view that change with
respect to director elections is desirable, but states only that
the OSC intends to facilitate shareholder empowerment in director
elections by "advocating" for change.
The use of the word "advocating" is unclear and raises
interesting questions. Does the OSC intend to advocate for change
through a "comply or explain" disclosure-based regime
rather than imposing absolute substantive requirements? Or does the
OSC intend to pursue regulatory change by advocating to the other
Canadian Securities Administrators that harmonized amendments to
impose substantive requirements with respect to director elections
be set forth in Canadian securities laws?
Since director elections have historically been governed by
corporate law (although disclosure of voting results for reporting
issuers is governed by securities laws), does the OSC intend to
pursue regulatory change by advocating that the legislators who
administer the federal, provincial and territorial corporate
statutes of Canada, such as the Canada Business Corporations
Act and the Business Corporations Act (Ontario),
amend these corporate statutes with respect to director election
provisions?
Further, does the OSC intend to pursue regulatory change by
advocating to the TSX for the adoption of the amendments outlined
in the TSX Proposal, which requirements would then only apply to
TSX-listed issuers?
While the OSC's precise intentions are unclear, it is
apparent that, at a minimum, reporting issuers who do not currently
have individual director voting or a majority voting policy for
directors will likely be under increased pressure to consider the
adoption of such policies.
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