​Capital Markets


Richard Turner, Matthew Merkley and John Tuzyk

The Toronto Stock Exchange (TSX) has adopted amendments to its Company Manual (Amendments) which will require each director of TSX-listed issuers, other than issuers that are majority controlled, 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 (Majority Voting Requirement).
The Amendments were originally published by the TSX for public comment in a request for comments on October 4, 2012 (see our October 2012 Blakes Bulletin: TSX Adopts, and Proposes, New Director Election Requirements). The Amendments will come into effect on June 30, 2014. TSX-listed issuers with fiscal years ending on or after June 30, 2014 must comply with the Amendments at their first annual meeting following June 30, 2014.
The Majority Voting Requirement is not currently applicable to issuers listed on the TSX Venture Exchange.
The TSX sees the Amendments as a way to improve corporate governance standards in Canada by providing a meaningful way for security holders to hold individual directors accountable. It believes that the implementation of the Majority Voting Requirement will better align Canadian practices with those of other major jurisdictions. The TSX noted in its announcement of the adoption of the Amendments that in the summer of 2013 it surveyed a cross section of 200 issuers and found that 76% had already adopted a majority voting policy.
The Amendments provide that each director of a TSX-listed issuer must be elected by a majority (50% + one vote) of the votes cast (i.e., more votes “for” than votes “withheld”) with respect to his or her election, other than at contested meetings (i.e., meetings at which the number of directors nominated for election is greater than the number of seats available on the board).
Unless a TSX-listed issuer otherwise satisfies the Majority Voting Requirement in a manner acceptable to the TSX (e.g., if there is a majority voting requirement prescribed by applicable law or mandated by the issuer’s constating documents), it will be required to adopt a majority voting policy that substantially provides for the following:
  • any director must immediately tender his or her resignation to the board of directors if he or she is not elected by at least a majority of the votes cast with respect to his or her election (since a majority voting policy will not override Canadian corporate law which provides that a director is validly elected in an uncontested election if he or she has any votes “for” as, under corporate and securities law, votes can only be “withheld”, not voted “against”);
  • the board must determine whether or not to accept the resignation within 90 days and the board must accept the resignation absent exceptional circumstances; 
  • the resignation will be effective when accepted by the board;
  • 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
  • the listed issuer must promptly issue a news release announcing the board’s decision and, if the board determines not to accept the resignation, the news release must fully state the reasons for that decision.
The TSX elected not to clarify what, in its view, would constitute “exceptional circumstances” that would permit a board to reject a resignation, stating that it believes that the board of an issuer, in exercising its fiduciary duty, should retain the latitude to determine whether exceptional circumstances exist in each case.
Each TSX-listed issuer that adopts a majority voting policy must annually fully describe the policy in the materials sent to holders of listed securities in connection with a meeting at which directors are being elected. Also, 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. Further to prior guidance provided by the TSX, such a news release should include one of the following:
  • the percentages of votes received “for” and “withheld” for each director;
  • the total votes cast by ballot with the number each director received “for”; or
  • the percentages and total number of votes received “for” each director.
In recognition of the fact that not all listed issuers conduct their votes by ballot, which would be necessary to obtain the information set out in the bullets above, the Amendments provide that if no formal count is conducted (e.g., the vote is 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.
Issuers that are majority controlled (i.e., a security holder or company beneficially owns, or controls or directs, directly or indirectly, voting securities carrying 50% or more of the voting rights for the election of directors) are exempted from the Majority Voting Requirement. However, issuers with multiple classes of listed voting securities will only be able to rely on the exemption with respect to the controlled class or classes of securities that vote together for the election of directors. Therefore, controlled issuers with dual-class structures where both classes vote together for director elections will be exempt.
In adopting the Amendments, the TSX agreed with concerns expressed that majority voting at controlled companies may mislead minority security holders into believing that their vote may impact the outcome of director elections, when in fact the election results are “predetermined”.
A controlled company relying on this exemption must annually disclose, in the meeting materials sent to security holders in connection with a meeting at which directors are to be elected, its reliance on the exemption and its reasons for not adopting majority voting.
For further information, please contact:
Richard Turner       416-863-4026
Matthew Merkley    416-863-3328
John Tuzyk             416-863-2918
or any other member of our Capital Markets group.
Tags: Capital Markets, Corporate Governance

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