Toronto Stock Exchange Makes Majority Voting Mandatory

The Toronto Stock Exchange (TSX) announced on February 13, 2014, amendments (Amendments) to the TSX Company Manual (Manual) mandating majority voting. From June 30, 2014 (Effective Date), the Amendments will require each director of a TSX-listed issuer, other than directors of a majority-controlled listed issuer, to be elected by a majority of the votes cast at any shareholders’ meeting other than a contested meeting.




Under Canadian corporate laws, election of directors by shareholders of a corporation is based on a "plurality" system under which a shareholder can either vote for a director nominee or withhold his or her vote. Shareholders do not have the option to "vote against" a director. If the number of nominees presented for election as directors is the same as the number of directors fixed by the management of a public issuer,  management’s slate will be elected even if only one vote "for" is cast for each director and all other votes are withheld. The corporate law theory behind such practice is that, while allowing shareholders to express their objection, a corporation should not be bereft of a board of directors.


In 2012, the TSX introduced initial "comply or explain" amendments to its Manual, requiring an issuer listed on the TSX to elect directors individually; to hold an annual election for all directors; and to disclose in its management information circular on an annual basis whether it has adopted a majority voting policy for directors for uncontested meetings. If a policy is not adopted, the TSX-listed issuer must explain its practices for electing directors and say why it has not adopted such a policy.


The Amendments make it mandatory for TSX-listed issuers to adopt majority voting provisions. The TSX has commented that the Amendments will "improve corporate governance standards in Canada by providing a meaningful way for security holders to hold individual directors accountable" and "enhance transparency and improve the governance dialogue between issuers, security holders and other stakeholders."


New Majority Voting Requirements


The Amendments require that each TSX-listed issuer adopt a majority voting policy, which is generally a written policy adopted by a resolution of the board of directors of the issuer. An issuer does not have to adopt a formal majority voting policy if it otherwise satisfies the majority voting requirements of the TSX – for example, if its articles or by-laws include majority voting provisions. The issuer is required to fully describe its majority voting policy or provisions on an annual basis in its management information circular.


Majority voting provisions must provide that a director immediately tender his or her resignation if he or she is not elected by at least a majority of the votes cast, other than in the context of a contested meeting. A "contested meeting" is defined as a meeting at which the number of directors nominated for election is greater than the number of board seats available as fixed by the issuer before the meeting.


The majority voting provisions must also provide that the board of directors accept or refuse (but only in exceptional circumstances) a tendered resignation within 90 days of the relevant meeting. Promptly after the board’s decision, an issuer is required to issue a news release communicating the directors’ decision and, if the directors refuse to accept a resignation, the news release must fully state their reasons.


Issuers that are majority controlled are exempt from the majority voting requirement. However, such issuers must disclose annually that they are exempt from the majority voting requirement and provide their reasons for not adopting majority voting. "Majority controlled" is defined as a security holder or company that beneficially owns, or controls or directs, directly or indirectly, voting securities carrying 50% or more of the voting rights for the election of directors, as of the record date for the meeting.


Effective Date


Issuers with fiscal years ending on or after June 30, 2014, must comply with the Amendments at their first annual meeting following the Effective Date. Unless exempted, all TSX-listed issuers are expected to be in compliance with the Amendments by June 30, 2015.