The TSX has adopted, and the Ontario Securities Commission has approved, amendments to the TSX Company Manual aimed at improving corporate governance standards and disclosure for all TSX listed issuers. The amendments had first been published for comment in September 2011.
Summary of Amendments
The amendments, which will come into force on December 31, 2012, impose five new requirements on all TSX listed issuers:
1. elect directors individually;
2. hold annual elections for all directors;
3. disclose annually in Management Information Circulars:
(a) whether they have adopted a majority voting policy for directors for uncontested meetings; and
(b) if not, to explain:
(i) their practices for electing directors; and
(ii) why they have not adopted a majority voting policy;
4. advise the TSX if a director receives a majority of "withhold" votes (if a majority voting policy has not been adopted; and
5. promptly issue a news release providing detailed disclosure of the voting results for the election of directors.
The purpose of the amendments is to address the fact that certain provisions under corporate law are considered to limit effective corporate democracy. Such provisions include the fact that issuers in a number of jurisdictions are permitted to adopt a plurality voting standard for the election of directors rather than majority voting. In addition, slate voting and staggered terms for directors are also permitted under the corporate law of a number of jurisdictions.
Under a plurality standard securityholders vote "for" or "withhold" for each director or a slate of directors. Accordingly, a director may be elected without receiving majority of favourable votes. The TSX expects all listed issuers and applicants to be in compliance with the amendments by December 31, 2013.
The amendments will not have retroactive effect and will apply to all securityholder meetings commencing December 31, 2012 (meetings which have already been scheduled and for which proxy materials have already been approved will be unaffected).
Discussion
Individual Annual Director Elections As a result of the amendments, slate voting (pursuant to which shareholders were allowed to vote for all of the directors nominated by management (i.e. a slate of directors), but not for individual directors unless nominated separately), will no longer be permitted. Accordingly, shareholders will be allowed to cast a ballot for each director.
As a result of the amendments, each director will be required to stand for election annually (notwithstanding that an issuer's constating documents may permit staggered terms). If security holder approval is required to implement the amendments because changes are required to the issuers constating documents, the TSX will not consider issuer to be in breach of these obligations if the security holders do not approve. However, the issuer is required to resubmit and recommend the required amendments at an annual meeting within three years.
Majority Voting
The amendments do not mandate the adoption of a majority voting policy. Rather, the amendments require that an issuer disclose whether it has adopted a majority voting policy. Under a typical majority voting policy, plurality voting is permitted, but withhold votes are considered to be votes against the election of a candidate. Such a policy generally provides that a director who receives a majority of withhold votes must tender his or her resignation and the board would generally accept that resignation, absent exceptional circumstances.
Majority voting policies may generally be adopted by an issuer's board of directors, without a need for shareholder approval or amendment to constating documents. The TSX has published a new request for comment proposing further amendments that would require all TSX listed issuers to adopt a majority voting policy. The comment period for the additional amendments is open until November 5, 2012 and their adoption is subject to approval by the Ontario Securities Commission.
Disclosure of Voting Rights
Although the amendments require issuers to issue a news release with detailed results of the vote for the election of directors, the TSX specifically determined not to require votes by ballot. Accordingly, the practice of electing directors by show of hands is still permitted.
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