Toronto Stock Exchange Announces New Rules for Director Elections

Davis LLP Securities & Corporate Finance Bulletin


Introduction

The Toronto Stock Exchange has announced new rules for director elections for listed issuers, which will come into effect on December 31, 2012. These new rules will apply to any meeting of security holders which has not been scheduled and for which proxy materials have not been approved by that date. TSX-listed issuers will be required to:

  • hold elections on an annual basis for all directors;
  • elect directors individually (so that slate voting for directors will no longer be allowed);
  • disclose on an annual basis in its management information circular whether a majority voting policy has been adopted for director elections at uncontested meetings. If it has not adopted a majority voting policy, an explanation will be required in the circular as to the issuer’s current practices for director elections and why a majority voting policy is not in place;
  • notify the TSX if a director receives a majority of “withhold” votes rather than votes “for” that director’s election (in cases where no majority voting policy is in place); and
  • disclose the director voting results by promptly issuing a press release.


Reasons For These Changes

The TSX has stated that the reasons for the changes surrounding director elections is to improve corporate governance principles so that security holders will be able to hold directors accountable. The amendments are designed to improve the channels of communication between issuers and security holders. The TSX also hopes to improve Canada’s reputation for supporting strong governance standards at levels similar to other major international jurisdictions.

The new TSX rules provide an exception for issuers which require security holder approval in order to implement these changes (such as amendments to articles or bylaws) and which seek but do not obtain security holder approval. If the required amendments are not approved by security holders, the issuer must re-submit and recommend them for approval by security holders at the issuer’s annual meeting not later than three years after the security holder meeting, until such time as the required amendments are approved.

Additional Proposed Changes

During the comment period for these rule changes, the TSX received a number of comments supporting mandatory majority voting rules for uncontested director elections, rather than simply requiring an issuer to disclose whether a majority voting policy had been adopted for director elections and, if not, to explain why. Due to these comments, the TSX published further proposed amendments for comment that would require all TSX-listed issuers to adopt a majority voting policy. It will be interesting to see how far the TSX will go with rule changes in this area.

If you have any questions concerning this bulletin or if you would like any further information on these new TSX rules, please contact the authors or your usual contact at Davis LLP.

This bulletin is intended to provide our general comments on developments in the law. It is not intended to be a comprehensive review nor is it intended to provide legal advice. Readers should not act on information in the bulletin without first seeking specific advice on the particular matter. The firm will be pleased to provide additional details or discuss how this information is relevant to a specific situation.

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Lisa Harding
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Authors

Robert Black
416.365.3405

Sarah Bode
416.365.3422

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