Canada: TSX Rules On Director Elections

Edited by Martine Guimond

On October 4, 2012, the Toronto Stock Exchange (the “TSX”) announced amendments to the TSX Company Manual relating to the election of directors (the “Amendments”).  It also published for comment further amendments relating to mandatory majority voting policies (the “Proposals”). 

Individual (vs. Slate) Director Elections

Slate voting refers to the practice of proposing the election of the board of directors as a group, rather than asking securityholders to vote on each nominee individually.  Corporate and securities laws in Canada do not prohibit slate voting, and slate voting used to be the predominant practice in Canada.  In recent years, in response to the views of the Canadian Coalition for Good Governance (CCGG), Institutional Shareholder Services (ISS) and others, many Canadian public companies have shifted their practices to individual director elections. Pursuant to the Amendments, all TSX-listed issuers will be required to permit their securityholders to vote for the election of each director individually. 

Annual (vs. Staggered) Elections

As a general rule, the Amendments will require TSX-listed issuers to permit securityholders to vote on the election of all directors on an annual basis.  However, the TSX recognizes that some issuers may currently be prohibited from conducting annual elections (for example, by their constating documents).  Notably, in many foreign jurisdictions, it is common to hold staggered elections, pursuant to which only a subset of directors is submitted to the election process each year, rather than the full board.  If securityholder approval is required for an issuer to implement annual elections of all directors, then the Amendments will require that issuer to submit and recommend the necessary approval to its securityholders.  If the securityholders do not give the required approval, then the Amendments will require the issuer to again submit and recommend the necessary approval to its securityholders no later than three years thereafter.  This process will need to be repeated until the necessary approval is obtained.

Majority (vs. Plurality) Voting

When securityholders are given the choice to either vote “for” a director or “withhold” their vote, it is possible for that director to be voted in with only one affirmative vote, even if all other securityholders withhold their votes.  This is referred to as plurality voting, since a director or the slate may be elected without receiving a majority of votes.  Canadian corporate law provides for plurality voting, which avoids failed elections in circumstances in which directors would not otherwise have sufficient affirmative support to elect the minimum number of directors required.

A majority voting policy maintains the plurality voting process, but typically requires a director who receives a majority of “withhold” votes to tender his or her resignation.  A majority voting policy may require the board to accept such a resignation, but more commonly will leave the board with some discretion as to whether to accept the resignation (which alleviates concerns about achieving quorum or committee requirements).  In recent years, some Canadian public companies have adopted majority voting policies consistent with CCGG’s suggested form of majority voting policy, available at:

The Amendments

The Amendments will not require TSX-listed issuers to adopt majority voting policies.  Rather, an issuer subject to National Instrument 51-102 – Continuous Disclosure Obligations will need to disclose in its securityholder meeting materials whether it has adopted a majority voting policy for the election of directors for uncontested meetings.  If a policy has not been adopted, the issuer will also be required to explain in its securityholder meeting materials (a) its practices for electing directors and (b) why it has not adopted a majority voting policy.  If a policy has been adopted, the TSX expects that an issuer will provide fulsome disclosure of that policy (which might include, for example, information with respect to any principles or policies that the board might apply if the board has discretion as to whether or not to accept a resignation).

If a TSX-listed issuer does not have a majority voting policy, the Amendments will require the issuer to provide notice to the TSX following a meeting of securityholders if a director receives a majority of “withhold” votes.  The TSX has indicated that it will follow up with the issuer in an attempt to understand the issuer’s intentions and corporate governance practices in light of the voting results.  The TSX also intends to follow up with the director in question to determine how the vote results may affect that director’s views about serving as a director.

The Proposals

The Proposals go beyond the “comply or explain” model of the Amendments, and would require TSX-listed issuers to have majority voting for director elections at uncontested meetings.  The TSX notes that Canada and the United States are among the few major developed jurisdictions that still have plurality voting.

The Proposals contemplate that a majority voting policy adopted by an issuer would:

  • require a director who receives a majority of “withhold” votes to immediately tender his or her resignation, effective on acceptance by the board; and

  • require the board to consider the resignation and disclose by news release the board’s decision whether to accept the resignation and the reasons for its decision no later than 90 days after the date of the resignation.

Public Disclosure of Voting Results

Following each meeting of securityholders at which there is a vote on the election of directors, the Amendments will require issuers to forthwith issue a news release disclosing the detailed results of the vote.  Under National Instrument 51-102 – Continuous Disclosure Obligations, non-venture reporting issuers are already required to file a report of voting results which discloses the outcome of each vote at a meeting of securityholders and, if the vote was conducted by ballot, the number or percentage of votes cast for, against or withheld from the vote.

The Proposals clarify that, if the vote is by show of hands, the TSX-mandated news release would need to disclose the number of securities voted by proxy in favour or withheld for each director and the outcome of the vote by a show of hands.

Effective Date for Amendments

The Amendments will become effective on December 31, 2012.  However, securityholder meetings which have already been set and for which proxy materials have already been approved will not be affected by the Amendments.  If an applicant for listing on the TSX is not in compliance with the Amendments, the applicant will be required to advise the TSX of the applicant’s plan and time frame for complying with the Amendments.  The TSX expects all TSX-listed issuers and applicants to be in compliance with the Amendments by December 31, 2013.

Deadline for Comments and Effective Date for Proposals

Submissions to the TSX on the Proposals must be made by November 5, 2012.  The TSX anticipates that the Proposals would become effective as of December 31, 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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