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 Regarding Statement 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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