Issues surrounding the election of directors of public
companies gained the attention of Canadian securities regulators in
the last years due to concerns expressed by large institutional
investors that current Canadian rules regarding the election of
directors were not democratic nor aligned with current practices in
Issues surrounding the ele
In January 2011, the Ontario Securities Commission (the
"OSC") published a Staff Notice advising
that it was assessing whether reforms to securities laws were
appropriate to facilitate individual director voting and majority
voting for director elections.
Following such initiative, the Toronto Stock Exchange
("TSX") published for public comment, in
September 2011, a series of proposed amendments to its Company
Manual that relate to how a listed issuer elects the members of its
board of directors. Considering that a majority of commenters
supported such amendments and that the OSC approved same, TSX
announced on October 4, 2012 the adoption of the proposed
amendments to its Company Manual. The new rules require TSX listed
(II) elect directors individually, prohibiting elections of
board slates as a whole;
(III) disclose by way of press release the votes received for
the election of each director;
(IV) disclose in its proxy circular whether a majority voting
policy has been adopted and if not, explain the practices for
electing directors and the reason for not adopting a majority
voting policy; and
(V) disclose to TSX if a director receives a majority of
"withhold" votes in the case that the issuer does not
have a majority voting policy.TSX will follow up with the issuer
and the director where a director has not received majority
The final amendments will come into force on December 31, 2012.
The amendments will not have retroactive effect, so that issuers
for which security holder meetings have already been set and for
which proxy materials have already been sent to security holders,
will be unaffected by the amendments until their next security
holder meeting at which directors will be elected.
TSX further announced on October 4, 2012, that it is seeking
public comment on additional proposed amendments to its Company
Manual that would require issuers listed on TSX to have majority
voting for director elections at uncontested meetings. Issuers
would be able to comply with such a requirement by adopting a
majority voting policy. The comment period ends on November 5,
2012, and TSX anticipates that the amendments, subject to the
approval of the OSC, would become effective as of December 31,
Under current Canadian corporate law, security holders have the
option to either vote "for" or "withhold" their
votes for the directors (however, only votes cast "for" a
nominee are counted). This can lead to a result where a director
may be elected even if more votes were withheld than were cast in
favour of his or her election.
When a majority voting policy is adopted, the
"withhold" votes are considered "against" votes
and counted as part of the total votes cast. A typical majority
voting policy provides that a director who receives a majority of
"withhold" votes must tender his/her resignation, and the
board will generally accept such resignation, absent exceptional
circumstances, and publicly announce its decision by issuing a news
release. Some majority voting policies provide that the board must
accept the director's resignation, although such policies are
less common. In either type of policy, a director who receives a
majority of "withhold" votes would still be elected as a
matter of law, but a majority voting policy is designed to ensure
that only those directors who receive a majority of votes in their
favour remain on the board.
It is interesting to note that a significant number of issuers
in the S&P/TSX Composite Index have already voluntarily adopted
individual director elections (approximately 83% of issuers
according to TSX) and annual director elections (approximately 98%
of issuers according to TSX). According to the Canadian Coalition
for Good Governance, which represents most of Canada's largest
institutional investors, 61% of the listed issuers in the
S&P/TSX Composite Index have also voluntarily adopted majority
Discussions and proposals to improve the effectiveness of
corporate governance in Canada are expected to continue. The OSC
Staff Notice and the TSX amendments and proposed amendments
described above are the largest regulatory initiatives to date
toward granting Canadian security holders a more effective voice in
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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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.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan 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.
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