On October 4, 2012, the Toronto Stock Exchange ("TSX")
published notice of approval for certain amendments
("Amendments") to its TSX Company Manual. The Amendments,
when implemented, will change how future director elections for
listed issuers will be conducted.
The Amendments were published for comment on September 9, 2011.
In proposing the Amendments, the TSX noted that director election
practices in Canada have lagged behind those found in other major
jurisdictions. Although in recent years the Canadian Securities
Administrators ("the CSA") have assumed jurisdiction over
large areas of corporate governance, the TSX continues to play a
role in the area and to monitor developments. The TSX also noted
that plans to implement similar types of reforms by the CSA, while
underway, would not be implemented in the short term.
What You Need to Know About the Amendments
The Amendments add sections 461.1 through 461.4 to the TSX
Company Manual, and require each listed issuer to do the
Elect directors individually. The TSX will no longer permit
Hold annual elections for all directors. As a result, staggered
boards will no longer be permissible for TSX listed issuers.
Disclose annually in its management information circulars
whether or not the listed issuer has adopted a majority voting
policy for directors for uncontested meetings. If the listed
issuer has not adopted a majority voting policy, it must explain
its practices for electing directors and why it has not adopted a
majority voting policy.
If a majority voting policy has not been adopted, advise the
TSX if a director receives a majority of "withhold"
Promptly issue a news release providing detailed disclosure of
the voting results for the election of directors.
In adopting these rules, the TSX has not provided exemptions for
foreign issuers, so those foreign issuers which have staggered
boards will be required to alter their director election practices.
Similarly, the Amendments do not provide an exemption for
Timing – When Must You Comply With the Amendments?
The Amendments are effective as of December 31, 2012, however
security holder meetings:
which have already been set, and
for which proxy materials have already been approved
will be unaffected by the Amendments until their next security
holder meeting at which directors will be elected.
Any issuer applying for listing after December 31, 2012, as well
as those with listing applications in process, will be expected to
explain to the TSX how they comply with the new requirements. If
they are not in compliance, they will need to explain the plan and
time frame in which they will be in compliance.
If security holder approval is required to implement the
requirement to hold annual elections for all directors, for example
because an amendment must be made to the issuer's articles of
incorporation, the TSX will not consider the listed issuer to be in
breach of that requirement if the issuer has submitted and
recommended the necessary amendments for approval by security
holders and security holder approval is not attained. However if
those amendments are not approved by security holders, the issuer
must submit and recommend the necessary amendments for approval by
security holders at the annual meeting of the issuer not later than
three years after the security holder meeting, until such time as
the necessary amendments are approved.
A copy of the Amendments is available on the TSX website: Amendments.
More Changes to Come?
With respect to the adoption of a majority voting policy, the
Amendments are "comply or explain" only, so a listed
issuer can still "opt-out" of majority voting for
directors if it is comfortable explaining the rationale for
doing so. However, as a result of comments received, the TSX has
also now published for comment proposed amendments to require
majority voting for director elections. The comment period on this
proposal expires on November 5, 2012.
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