On October 4, 2012, the Toronto Stock Exchange (TSX) made two important announcements that will affect the way directors of TSX-listed issuers are elected and which issuers will want to consider as the 2013 proxy season approaches.
Amendments to TSX Company Manual
The TSX has adopted amendments to its Company Manual that will come into effect on December 31, 2012 (the Amendments). These Amendments will require TSX-listed issuers to:
- hold elections annually for all of its directors;
- allow shareholders to vote for each individual director (rather than for a slate of proposed directors); and
- disclose in its meeting circular whether the issuer has adopted a majority voting policy for directors at uncontested meetings. If no policy has been adopted, the issuer would be required to explain why and what its practices are for electing directors. Issuers will also need to advise the TSX if a majority of votes are withheld for a particular director and press release the voting results of the election of directors.
Majority voting policies allow shareholders to vote "for" or "withhold" their vote in respect of each individual nominee director. A director who receives a majority of "withheld" votes will generally be required to tender his or her resignation.
Additional proposed amendments
Taking the Amendments one step further, the TSX also published for comment proposed amendments to the TSX Company Manual that mandate issuers to have majority voting for uncontested director elections (the Proposal). To comply with this requirement, issuers may adopt a majority voting policy. The Proposal would require a director who receives a majority of total votes cast "withheld" from his or her election, to immediately tender his or her resignation to the board of directors.
Comments on the Proposal must be delivered to the TSX by Monday, November 5, 2012. If implemented, it is anticipated the amendments contemplated by the Proposal would come into effect by December 31, 2013.
The Amendments come into effect on December 31, 2012. The TSX stated the Amendments will not have retroactive effect, and indicated that meetings (i) which have already been set, and (ii) for which proxy materials have already been approved, will be unaffected by the Amendments until the next shareholder meeting at which directors are elected.
All TSX-listed issuers are expected to be in compliance with the Amendments by December 31, 2013. Many TSX-listed issuers already voluntarily comply with the substance of the Amendments. For these issuers, the changes will be minimal. For others, however, the Amendments may require changes to their constitutional documents to eliminate requirements for staggered boards or multi-year terms for directors.
If changes to an issuer's articles or by-laws are required to implement annual elections, and the issuer's security holders do not support the required resolutions, the TSX indicated it will respect the security holder vote and the issuer will not be considered to be in breach of the TSX Company Manual. However, the issuer will be required to present the resolution to security holders again in not more than three years.
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