TSX Listed Companies Face Changes to Board Election Process

Amendments for Director Elections and Majority Voting Disclosure

The Toronto Stock Exchange has approved amendments to the TSX Company Manual relating to director elections. The amendments come into effect on December 31, 2012, and will require each TSX listed entity to:

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

The TSX has indicated that it believes the corporate governance landscape in Canada is lagging vis-à-vis other jurisdictions and has adopted the amendments to support good governance and provide an effective voice to the Canadian investing public on the director election process.

Securities and corporate laws in Canada allow 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 a majority voting regime, 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.

Proposed Amendments to Make Majority Voting Mandatory

The TSX has also circulated for public comment proposed additional amendments which would require companies listed on the TSX to implement majority voting for director elections at uncontested meetings. The proposed additional amendments further provide that this requirement may be satisfied by adopting a majority voting policy that requires a director who receives a majority of the total votes cast "withheld" from him or her to immediately tender his or her resignation, which will be effective on acceptance by the board of directors. The board of directors is then required to consider the resignation and disclose its decision and the reasons for the decision to the public no later than 90 days after the date of the resignation. The comment period for these proposed changes ends on November 5, 2012, and are intended to take effect on December 31, 2013.