recent amendments to the TSX Company Manual (the
"Manual"), which will become effective on December 31,
2012, issuers listed on the Toronto Stock Exchange (the
"TSX") will be required to disclose whether they have
adopted a "majority voting" policy in respect of director
The TSX is currently seeking comments on a proposal for further
amendments to the Manual, which would require TSX‐listed
issuers to elect directors by way of "majority voting" at
Under Canadian corporate law, in the context of the election of
directors, shareholders who vote by proxy have only two options:
vote "for" or abstain from voting for each director
nominee or slate of directors. Given that votes abstained do not
count and that, in practice, most shareholders of Canadian public
companies vote by proxy, a director nominee or slate of directors
will generally need only one "for" vote to be elected.
According to the Canadian Coalition for Good Governance (the
"CCGG"), this system is not in the best interests of
shareholders "as it does not permit [them] to vote against an
underperforming director and allows an entrenched board to continue
to be in charge of the company, even if they are opposed by a
majority of the owners of the company".
Under the proposed majority voting policy, votes abstained will
be considered "against" votes and will be counted as part
of the total votes cast. Consequently, a director who receives a
majority of votes abstained is considered not to have received the
support of the shareholders and would be required to tender his or
her resignation. The CCGG notes that 61% of listed issuers on the
S&P/TSX Composite Index have a majority voting policy.
The main passage of the proposed amendments reads as
"Listed issuers must have majority voting for the election
of directors at uncontested [shareholder] meetings. In satisfaction
of this requirement, a listed issuer may adopt a majority voting
policy that requires a director that receives a majority of the
total votes cast withheld from him or her to immediately tender his
or her resignation to the board of directors, to be effective on
acceptance by the board. The policy must also provide that the
board shall consider the resignation and disclose by news release
the board's decision whether to accept that resignation and the
reasons for its decision no later than 90 days after the date of
It should be noted that in order to avoid conflict with
applicable corporate or securities law requirements, issuers will
be able to adopt a nonbinding majority voting policy (also called a
"holdover rule") in satisfaction of the amendments. Under
such a policy, directors who receive a majority of votes abstained
are still elected but resign at a later date so as to provide the
board of directors with time to reconstitute and reorganize
The TSX asserts that the amendments will improve corporate
governance standards by increasing the accountability of directors,
enhancing dialogue between issuers, shareholders and stakeholders
as well as improving transparency. Glass, Lewis & Co. and
Institutional Shareholder Services, two important proxy advisory
firms operating in Canada, have indicated that they generally
support proposals calling for majority voting.
There are also negative aspects to majority voting. For example,
more time and money may be spent on director elections through
telephone solicitation, second mailings of proxy materials, etc.
There is also a risk of "failed" elections (where one or
more directors are not seated on the board), which can, however, be
mitigated by a non‐binding majority voting policy.
Please note that the comment period in respect of these
amendments ends on November 5, 2012.
About Fraser Milner Casgrain LLP (FMC)
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
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