In December 2012, the Toronto Stock Exchange adopted new rules for the election of directors requiring, in part, that shareholders elect directors individually on an annual basis and disclosure of the voting results. On July 10, 2013, following substantial completion of the first proxy season since the introduction of these new rules, the TSX took the opportunity to provide guidance on the application of these requirements, specifically addressing: (i) applications from interlisted international issuers for a waiver from the requirements; (ii) the application of the requirements to interlisted international issuers applying to list on the TSX; (iii) director recommendation requirements where an amendment must be made to the issuer's articles of incorporation to meet annual election requirements; (iv) the content of the news release disclosing director election results; (v) the application of the requirements where an issuer has appointment or similar rights for its board of directors; and (vi) compliance with the policy objectives of the requirements. A summary of the guidance is provided below.
Waiver Applications by Interlisted International Issuers
The TSX provided guidance on the key factors it will consider in granting a waiver from the director election requirements for interlisted international issuers. The TSX will consider such an issuer's application in the context of the level of activity of the issuer in the Canadian market and whether the broader corporate governance framework to which the issuer is subject in its home market demonstrates a comparable commitment to the policy objectives of the TSX requirements.
Some of the factors that the TSX expects to see addressed in these applications include:
- Principal/Home Market. The TSX will consider the level of trading in Canada and the market on which the issuer primarily trades. The TSX will be more receptive to an application where at least 75% of the value and volume of the issuer's trading in the six months prior to the date of the application has occurred outside of Canada.
- Unknown Jurisdiction of Incorporation. If the jurisdiction of incorporation of the issuer is outside of what the TSX considers to be a "known jurisdiction" (i.e., Australia, the United Kingdom, the state of Delaware or another U.S. state with corporate laws comparable to the state of Delaware), the issuer should provide a detailed description of: (i) the issuer's compliance with director election standards and practices of its jurisdiction of incorporation; and (ii) the comparative director election practices of similar-sized issuers in its sector in its home market. Issuer's should also include a description of the corporate governance regime for director elections in the home market, including a description of current practices and trends.
- Known Jurisdiction of Incorporation. If the issuer is incorporated in a "known jurisdiction", confirmation that the issuer is in compliance with director election standards and practices of its jurisdiction of incorporation and of its home market.
If the TSX grants a waiver, the relief granted and the reasons for requesting such relief must be disclosed by the issuer in its annual information circular. Once granted, the waiver will only be effective for one year or until the issuer's next annual general meeting. Subsequent applications must address changes, if any, from the initial application.
Interlisted International Issuers Listing on the TSX
Interlisted international issuers will not be required to meet the director election requirements at the time of listing. These requirements will begin to apply when the issuer mails its materials for its first annual general meeting after listing on the TSX, provided that the issuer has been listed on the TSX for at least six months at that time. For issuers who have been listed for a period of less than six months, the requirements will not come into effect until the next annual general meeting.
Director Recommendation Requirement
The TSX requires a listed issuer's board of directors to permit security holders of each class or series to vote on the election of all directors to be elected by such class or series on an annual basis. If the implementation of this requirement necessitates amendments to an issuer's articles of incorporation, the TSX requires the issuer to submit and recommend the amendments to its security holders. If the board of such an issuer concludes that recommending the amendments will be contrary to its fiduciary duties, the TSX will consider that an issuer has satisfied the requirement if the board instead states that such amendment is "as required by the TSX". In such instance, the circular must provide balanced information about annual elections and the proposed amendment to implement annual elections.
News Release Requirement
The TSX requires that all issuers disseminate a news release disclosing detailed results of the vote for the election of directors. The TSX suggests that issuers disclose one of the following in their news release in order to meet this requirement: (i) the percentages of votes received 'for' and 'withheld' for each director; (ii) the total votes cast by proxy and ballot, together with the number that each director received 'for'; or (iii) the percentages and total number of votes received 'for' each director. If no formal count has occurred that would meaningfully represent the level of support received by each director, for example when a vote is conducted by a show of hands, the TSX expects the disclosure to reflect the votes represented by proxy that would have been withheld from each nominee had a ballot been called, as a percentage of votes represented at the meeting.
The Right to Elect All Directors and Appointment Rights
The TSX has made it clear that its requirement for security holders to vote for each director to be elected by such class or series does not apply to issuers that have granted appointment rights accepted by the TSX at the time of original listing or otherwise. The TSX will continue to review and evaluate appointment rights in accordance with the TSX restricted securities policy.
Compliance with Policy Objectives of the Requirements
The director election requirements were adopted by the TSX to strengthen the Canadian corporate governance regime and support the integrity and reputation of the Canadian capital markets. Any attempt to avoid or frustrate the requirements, for example, by introducing an extraordinary quorum requirement for the election of directors, will be considered a failure to comply with the TSX rules.
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