TSX Requires Majority Voting for Director Elections

On February 13, 2014, the Toronto Stock Exchange (“TSX”) adopted amendments to its Company Manual which will require each director of a TSX-listed issuer to be elected by a majority (50% + one vote) of the votes cast with respect to his or her election, other than at contested meetings (the “Majority Voting Requirement”). The TSX defines a “contested meeting” as a meeting at which the number of directors nominated for election is greater than the number of seats available on the board.

The Majority Voting Requirement is meant to improve Canadian corporate governance standards and transparency by improving accountability of individual directors as well as the governance dialogue between issuers and their stakeholders.

Pursuant to the amendments, TSX-listed issuers will be required to adopt a majority voting policy unless the issuer otherwise satisfies the Majority Voting Requirement in a manner acceptable to the TSX, such as through applicable law or constating documents. As a result of these further amendments, security holders will now effectively be required to vote “for” or “against” each individual board nominee, rather than “for” or “withhold”.

The Amendments become effective beginning June 30, 2014 and issuers with fiscal years ending on or after June 30, 2014 must comply with the amendments at their next annual meeting following such date.

Majority Voting Requirement

A majority voting policy must substantially provide for the following:

a) a director elected at an uncontested meeting with less than 50% plus one of the votes cast must immediately tender his or her resignation to the board;

b) within the following 90 days, the board must consider the resignation, and accept it absent “exceptional circumstances”;

c) the resignation will be effective when accepted by the board;

d) a director who tenders a resignation must not participate in any meeting of the board or any subcommittee of the board at which the resignation is considered; and

e) the issuer must promptly issue a news release announcing the board’s decision (a copy of which must be provided to the TSX) and, if the board determines not to accept the resignation, the news release must fully state the reasons for that decision.

The issuer must annually describe its majority voting policy in its information circular sent in connection with meetings in which directors are being elected.

The amendments do not include any commentary as to what the TSX considers would constitute “exceptional circumstances” permitting a board to reject a resignation, leaving this instead to the discretion of the board, exercising its fiduciary duty to the issuer.

Further Disclosure Obligations: News Release

Following any uncontested meeting at which directors are elected, TSX-listed issuers must issue a news release disclosing the detailed voting results for each director candidate which must include (i) the percentages of votes received “for” and “withheld” for each director; (ii) the total votes cast by ballot with the number each director received “for”; or (iii) the percentages and total number of votes received “for” each director.

Where voting is conducted by a show of hands, the TSX expects the required news release to at least disclose 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.

Exemptions to the Majority Voting Requirement

The Majority Voting Requirement is not currently applicable to majority-controlled TSX-listed issuers (i.e. entities with a shareholder holding voting securities carrying more than 50% of the voting rights for the election of directors). Majority-controlled issuers with multiple classes of listed voting securities will only be able to rely on the exemption with respect to the majority-controlled class or classes of securities that vote together for the election of directors. Therefore, majority-controlled issuers with dual-class structures where both classes vote together for director elections will be exempt. All majority-controlled issuers are required to disclose annually in their meeting materials their reliance on the exemption and reasons for not adopting a majority voting policy.

Waiver Applications by Interlisted International Issuers

The TSX has issued a staff notice (the “Staff Notice”) providing guidance on how certain TSX-listed issuers residing and listed on another stock exchange or market in foreign jurisdictions (“Interlisted International Issuers”) may seek a waiver from the amendments as well as other recent rules requiring the annual election of directors (collectively, the “Requirements”). The factors to be addressed by an Interlisted International Issuer in an application for a waiver of the Requirements include:

a) the name of the stock exchange on which the issuer primarily trades;

b) the issuer’s jurisdiction of incorporation;

c) the level of trading in Canada and the home market (the TSX will be more receptive to an application where at least 75% of the value and volume of an issuer’s trading in the six months prior to the application has occurred outside of Canada);

d) whether the issuer’s jurisdiction of incorporation is outside of Australia, the United Kingdom or the State of Delaware (or another U.S. state with corporate laws comparable to the state of Delaware) (the “Known Jurisdictions”);

e) a detailed description of the issuer’s compliance with director election standards and practices of its jurisdiction of incorporation, comparative director election practices of similar-sized issuers in its sector in its home market, and the corporate governance regime for director elections in the home market, including a description of current practices and trends; and

f) if the issuer’s jurisdiction of incorporation is 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.

More broadly, the TSX will consider whether the issuer’s overall corporate governance framework demonstrates commitment to the policy objectives behind the Requirements, being to strengthen the Canadian corporate governance regime and enhance the integrity of Canadian capital markets.

If the TSX grants a waiver from the Requirements, the relief granted and reasons for requesting the relief must be disclosed by the issuer in its annual information circular.

In considering waiver applications, the TSX will consider whether the issuer’s broader corporate governance framework demonstrates commitment to the policy objectives behind the Requirements, being to strengthen the Canadian corporate governance regime and enhance the integrity of Canadian capital markets.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.

If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.