Bill 101, Enhancing Shareholders Rights Act, 2017 (Bill 101), a private member’s bill that has passed second reading in the Ontario Legislative Assembly, proposes changes to the Business Corporations Act (Ontario) (OBCA), including majority voting for directors, diversity disclosure and shareholder approval of binding compensation policies.
Some of these proposed changes to the OBCA (Proposed OBCA Amendments) align with the changes to the Canada Business Corporations Act (CBCA) that were proposed by the federal government in Bill C-25 (Proposed CBCA Amendments), as noted in our October 2016 Blakes Bulletin: Bill C-25 Looks to Include Majority Voting, Diversity Disclosure Requirements in Canada Business Corporations Act and our March 2017 Blakes Bulletin: Proposed Regulations for Revised CBCA Provide Structure to Changes Proposed in Bill C-25.
However, the Proposed OBCA Amendments go beyond the Proposed CBCA Amendments in a number of ways, including a reduction in shareholding thresholds to three per cent for director nominations by shareholders and meeting requisitions and the ability of shareholders to make proposals for binding executive compensation policies. It is currently uncertain whether Bill 101 will be passed into law and, if it is, how it will change in the process.
Similar to the Proposed CBCA Amendments and the existing Toronto Stock Exchange (TSX) requirements, the Proposed OBCA Amendments would require that (i) a majority voting standard be used for uncontested elections of directors, (ii) all directors be elected annually and (iii) individual votes be taken in respect of each director nominee (prohibiting slate voting). Unlike the Proposed CBCA Amendments, which would only apply to public companies, the Proposed OBCA Amendments would apply to all OBCA companies.
The OBCA currently provides that shares may only be voted for or withheld from voting for a director nominee. As a result, a nominee receiving only a single vote in their favour may be elected, despite the number of votes that may have been withheld. The Proposed OBCA Amendments would allow shareholders to vote against a nominee and would provide that a nominee is only elected if the number of votes cast in said nominee’s favour represented a majority of the votes cast on the nominee’s election.
The TSX Company Manual (TSX Manual) already mandates annual director elections and individual voting on nominees, and requires issuers to adopt a majority voting policy. However, the TSX Manual only requires that a director nominee tender his or her resignation to the board for acceptance or rejection if he or she is not elected on his or her election by at least a majority of the votes cast. The board must accept such resignation absent exceptional circumstances. If Bill 101 is adopted, such a nominee would not be elected to the board, and there would be no board discretion to retain the director. For more details on the director election provisions of the TSX Manual, please see our February 2014 Blakes Bulletin: TSX Requires Majority Voting for Election of Directors.
Issuers listed on the TSX Venture Exchange (TSXV) are not subject to the TSX Manual’s requirements. Unless an exemption is provided by regulation, OBCA corporations listed on the TSXV would be subject to the Proposed OBCA Amendments relating to director elections, which would be a significant change for these corporations.
Bill 101 also seeks to implement mandatory voting for or against each nominee by shareholders who are present at shareholders' meetings where directors are being elected. There is no similar change proposed in the Proposed CBCA Amendments.
If the Proposed OBCA Amendments are adopted, prescribed OBCA corporations would be required to provide to shareholders prescribed information relating to diversity among directors and members of senior management. These same changes are proposed in the Proposed CBCA Amendments.
Bill 101 does not specify what prescribed information would be required by the Proposed OBCA Amendments and whether such information would relate only to gender diversity or whether, like the Proposed CBCA Amendments, it would extend to disclosure of diversity beyond gender. However, we expect that, as proposed in the regulations to the Proposed CBCA Amendments, OBCA corporations would be subject to certain portions of the “comply-or-explain” model for diversity disclosure in Form 58-101F1 under National Instrument 58-101 – Disclosure of Corporate Governance Practices.
Most TSX-listed companies are required under securities law to provide shareholders with information relating to gender diversity. Depending on how “prescribed corporation” is defined in the regulations to the Proposed OBCA Amendments, these amendments may extend to companies that are not currently required to prepare and provide diversity disclosure, including those listed on the TSXV.
SHAREHOLDER NOMINATIONS AND MEETING REQUISITIONS
The Proposed OBCA Amendments would enhance shareholder participation in the corporate process by reducing the percentage of outstanding shares that a shareholder or group of shareholders needs to control to initiate a proposal to nominate a director for election or to requisition an OBCA corporation’s directors to call a meeting of shareholders from five to three per cent.
These proposed amendments would not preclude director nominations from being made at a shareholders' meeting. Similar amendments are not proposed to the CBCA, which maintains a five per cent threshold for shareholder proposals and meeting requisitions.
The Proposed OBCA Amendments also propose that, where a shareholder has nominated an individual for election as a director at a shareholders' meeting, the shareholders present at such meeting must choose a person from amongst themselves to act as chair, with the corporation’s normal chair being presumably displaced from their role. There is no similar provision in the CBCA or the Proposed CBCA Amendments.
Bill 101 proposes to provide shareholders with a final say on executive compensation by enabling them to make a proposal to adopt an executive compensation policy with respect to the remuneration of directors or officers of a corporation or to make a proposal to amend or repeal such a policy. Directors of a corporation would be required to fix the remuneration of the directors or officers in accordance with any such adopted executive compensation policy. Similar changes have not been proposed in the Proposed CBCA Amendments.
If enacted, the Proposed OBCA Amendments would give shareholders the ability to impact executive compensation more than they could through traditional “say-on-pay” votes. Say-on-pay votes generally refer only to approval of the company’s approach to executive compensation policies, and are not binding on a corporation’s directors, who maintain the discretion to set executive compensation levels without regard to say-on-pay votes.
Bill 101 was introduced by Harinder Takhar, a Liberal MPP who was formerly a minister under the governing Liberal Government. Bill 101 was passed in a voice vote on second reading in the Ontario Legislative Assembly. Based on the debate that preceded the vote, it appears that Liberal and NDP MPPs supported Bill 101, while Conservative MPPs opposed it.
Bill 101 has been referred to the Standing Committee on Finance and Economic Affairs but it is uncertain if or when it will go to such committee. If it does make it through the Standing Committee on Finance and Economic Affairs, Bill 101 will be returned to the Ontario Legislative Assembly for a third reading.
The Government of Ontario has not expressed its position on the current draft of Bill 101 but, at this time, Bill 101 does not appear to be progressing as a government bill. Private members' bills rarely receive a third and final reading and become law; it is therefore uncertain whether Bill 101 will be passed into law. Even if it does become law, the final form of Bill 101 may differ substantially from the current draft, as it may be revised during the committee process.
However, as it has passed a second reading, OBCA corporations may see Bill 101 as an indication of corporate law changes that may occur in the future.
For further information, please contact:
John Tuzyk 416-863-2918
Victoria Locke 416-863-2739
or any other member of our Capital Markets group.
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