TSX is implementing a new rule requiring listed issuers to adopt
majority voting policies in uncontested director elections. This
goes a step further than TSX's 2012 rule changes that
eliminated slate voting and staggered boards and required listed
issuers merely to disclose whether or not they had voluntarily
adopted a majority voting policy. The Canadian Coalition for Good
Governance, which has published a model majority voting policy and
has been pressing securities regulators and TSX to make such
policies mandatory, has indicated that 85% of issuers in the
TSX/S&P Composite Index already have majority voting policies
in place. Therefore, TSX's new rule will mainly affect smaller
issuers and represents one way in which the Canadian corporate
governance regime is now stricter than the U.S. regime. Although
voluntary adoption is common among large U.S. companies, majority
voting policies are not mandatory under SEC or U.S. stock exchange
rules. This may change, however, as last year the Council of
Institutional Investors petitioned the NYSE and Nasdaq to make
majority voting policies mandatory.
The effective date of the new TSX rule is June 30, 2014. Issuers
with December 31 year ends will generally have to implement
majority voting no later than at their 2015 annual meetings.
Issuers that already have majority voting policies in place should
check whether any amendments are necessary to satisfy the new TSX
rule, under which the policy must, in substance, provide as
a director must immediately tender his or her resignation to
the board if he or she is not elected by at least a majority of the
the board must accept the resignation absent exceptional
circumstances, and in any case must make a decision within 90 days
after the meeting; and
the board's decision must be announced promptly by news
release, and if the resignation has not been accepted, the news
release must fully explain that decision.
Controlled companies, which TSX defines for this purpose as
companies with a shareholder who beneficially owns, controls or
directs securities carrying 50% or more of the voting rights for
the election of directors, will be exempt from the TSX rule.
However, they will have to disclose annually their reasons for not
adopting a majority voting policy.
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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