• TSX-Listed Companies Face Mandatory Majority Voting for Director Elections
  • February 21, 2014 | Author: William S. Osler
  • Law Firm: Bennett Jones LLP - Calgary Office
  • The Toronto Stock Exchange has approved amendments to the TSX Company Manual relating to director elections. Under the amendments, which come into effect on June 30, 2014:

    • each director of a TSX-listed entity must be elected by a majority (50 percent plus one) of the votes cast by shareholders other than at a contested shareholders' meeting (Majority Voting Requirement); and
    • each TSX-listed entity must adopt a majority voting policy unless it otherwise satisfies the Majority Voting Requirement to the satisfaction of the TSX through, for example, the entity's articles or by-laws.

    Securities and corporate laws in Canada have long allowed for the election of directors on an individual basis or by slate, through plurality voting. Shareholders are permitted to vote "for" or "withhold" their vote in respect of each director nominee or the slate, but the "withholding" of a vote does not count in the tally. As a result, a director nominee or slate can be elected even if only one vote is cast "for" and the majority of votes are "withheld". In contrast, under majority voting, shareholders vote separately for each director nominee and, even though shareholders still vote "for" or "withhold" their vote, the "withheld" votes are considered to be votes against such director nominee. If a director nominee receives a majority of votes against, he or she is required to resign despite having been duly elected as a matter of law.

    A majority voting policy must provide for the following:

    • a director who is not elected by a majority vote at a meeting of shareholders must immediately tender his or her resignation to the board of directors;
    • the board must decide whether or not to accept the resignation, within 90 days after the shareholders' meeting. Absent exceptional circumstances, the board will accept the resignation;
    • the resignation will be effective upon acceptance by the board;
    • a director who tenders a resignation under a majority voting policy may not participate in any board meeting where the resignation is considered; and
    • the listed entity must promptly issue a press release disclosing the board's decision regarding the resignation and, if the decision is to not accept the resignation, the press release must fully state the reasons for the decision. The press release must also be filed with the TSX.

    In addition, if a TSX-listed entity adopts a majority voting policy, it must include a full description of the policy annually in the materials it sends to its shareholders in connection with its annual general meeting.

    The TSX has not provided any guidance on what will constitute exceptional circumstances. When considering a resignation from a director who has not been elected by a majority vote, boards of directors will need to carefully consider all relevant facts and circumstances in reaching a decision. Boards should be reminded that their decisions whether or not to accept a resignation will need to be disclosed in a press release, along with reasons for a decision to not accept the resignation, if applicable.

    Majority controlled companies (i.e., companies with a shareholder holding voting securities carrying more than 50 percent of the voting rights for the election of directors) will be exempt from the Majority Voting Requirement. However, majority controlled companies will be required to describe, on an annual basis in their annual general meeting materials sent to shareholders, their reliance on the exemption along with reasons for not adopting majority voting.

    These amendments follow a set of amendments to the TSX Company Manual in 2012 that required TSX-listed issuers to:

    • hold annual elections for all directors;
    • elect directors annually;
    • disclose annually in their management information circulars whether a majority voting policy has been adopted for director elections at uncontested meetings (and if not, to explain their current practice for electing directors and why a majority voting policy has not been adopted);
    • advise the TSX if any of their directors receive a majority of "withhold" votes (where a majority voting policy has not been adopted); and
    • disclose by press release the voting results of director elections.

    The latest TSX amendments will take effect on June 30, 2014, meaning they will be in place for the 2015 proxy season.