The Toronto Stock Exchange ("TSX")
has adopted amendments to its director voting requirements.
Currently, issuers are required to disclose annually in proxy
circulars (i) if they had adopted a majority voting policy (a
"Policy") for directors for uncontested
meetings and (ii) if not, to explain their practices for electing
directors and why they had not adopted a Policy. (For a description
of the current requirements, see our July 11, 2013 update,
Toronto Stock Exchange Provides Guidance on Director Election
Requirements). The amendments will require listed issuers to
adopt a Policy requiring each director of a listed issuer who does
not receive a majority (50% + 1) of the votes cast with respect to
his or her election, to tender his or her resignation. These rules
do not apply in relation to contested meetings.
Each listed issuer is required to have a Policy that in
substance provides that:
1. any director must immediately tender his or her resignation
if he or she is not elected by at least a majority of votes
2. the issuer's board of directors must determine whether or
not to accept the resignation within 90 days after the relevant
3. the resignation becomes effective when accepted by the
4. the director who tenders a resignation pursuant to a Policy
cannot participate in any board meeting at which the resignation is
5. the issuer must promptly issue a news release disclosing the
board's decision. If the board does not accept the resignation,
the news release must fully state the reasons for that
Proxy advisory firms such as Institutional Shareholder Services
Inc. indicate that they will scrutinize any non-acceptance of a
resignation and the reasons given for a board's decision. This
will, in turn, influence a proxy advisory firm's
recommendations for withholding from continuing directors in future
The new rules provide an exception from the requirement to adopt
a Policy for:
1. majority controlled issuers (entities where voting shares are
more than 50% owned by a single individual or entity). A majority
controlled issuer, however, must still disclose in its annual
materials (i) that it is exempt from the requirement to adopt a
Policy, and (ii) its reasons for not adopting a Policy; and
2. issuers that otherwise satisfy the Policy adoption
requirement "in a manner acceptable to the TSX, for example,
by applicable statutes, articles, by-laws or other similar
instruments." All issuers must provide a full description of
their Policy in the proxy materials sent annually to security
holders in connection with meetings to elect directors.
The amendments will become effective June 30, 2014. Issuers with
fiscal years ending on or after June 30, 2014 must comply with the
amendments at their first annual meeting following that date.
Effectively for issuers with a calendar year end these requirements
will not apply to the 2014 proxy season but will apply to 2015.
Please contact any member of our Corporate Securities Group to
discuss the implications of these changes.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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