New TSX Rule: Listed Issuers Must Adopt Majority Voting Policies in Uncontested Director Elections

TSX is implementing a new rule requiring listed issuers to adopt majority voting policies in uncontested director elections. This goes a step further than TSX’s 2012 rule changes that eliminated slate voting and staggered boards and required listed issuers merely to disclose whether or not they had voluntarily adopted a majority voting policy. The Canadian Coalition for Good Governance, which has published a model majority voting policy and has been pressing securities regulators and TSX to make such policies mandatory, has indicated that 85% of issuers in the TSX/S&P Composite Index already have majority voting policies in place. Therefore, TSX’s new rule will mainly affect smaller issuers and represents one way in which the Canadian corporate governance regime is now stricter than the U.S. regime. Although voluntary adoption is common among large U.S. companies, majority voting policies are not mandatory under SEC or U.S. stock exchange rules. This may change, however, as last year the Council of Institutional Investors petitioned the NYSE and Nasdaq to make majority voting policies mandatory.

The effective date of the new TSX rule is June 30, 2014. Issuers with December 31 year ends will generally have to implement majority voting no later than at their 2015 annual meetings. Issuers that already have majority voting policies in place should check whether any amendments are necessary to satisfy the new TSX rule, under which the policy must, in substance, provide as follows:

• a director must immediately tender his or her resignation to the board if he or she is not elected by at least a majority of the votes cast;
   
• the board must accept the resignation absent exceptional circumstances, and in any case must make a decision within 90 days after the meeting; and
   
• the board’s decision must be announced promptly by news release, and if the resignation has not been accepted, the news release must fully explain that decision.

Controlled companies, which TSX defines for this purpose as companies with a shareholder who beneficially owns, controls or directs securities carrying 50% or more of the voting rights for the election of directors, will be exempt from the TSX rule. However, they will have to disclose annually their reasons for not adopting a majority voting policy.

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