Thursday February 13, 2014 was an important day for shareholder democracy in Canada. We know that athletes train many years in order to reach the Olympics, but the Canadian Coalition for Good Governance (CCGG) also has worked publicly and behind the scenes for many years to bring majority voting to Canada. Finally, last week the Toronto Stock Exchange (TSX) agreed to adopt a listing requirement effective June 30, 2014 pursuant to which TSX listed companies (other than those which are majority controlled) must adopt a majority voting policy which requires each director of a TSX listed issuer to be elected by a majority of the votes cast with respect to his or her election other than at contested meetings.
The TSX’s new rule states that the board shall determine within 90 days of the shareholder meeting whether to accept the resignation of a director who was not elected by at least a majority of the votes cast with respect to his or her election and the board must promptly issue a news release with the board’s decision. The TSX rule then contains the important words similar to those which were first set out in CCGG’s model majority voting policy in 2006, namely that the “board shall accept the resignation absent exceptional circumstances”. Furthermore, as CCGG’s model policy sets out, the TSX rule also states that if “the board determines not to accept a resignation, the news release must fully state the reasons for that decision”.
By way of background, Canadian corporate statutes, like those in the U.S., provide for plurality voting for directors. CCGG first considered trying to convince the relevant federal and provincial governments to change Canada’s corporate legislation to utilize a majority voting standard in uncontested director elections, but CCGG also realized that legislative change takes many many years. In 2006 CCGG first issued its majority voting policy, which was a “work around” the existing Canadian legislation. The CCGG policy included the key provision that if a director has 50% plus 1 of the total votes cast at the shareholder meeting “withheld” from him or her, the withheld votes would be considered “no” votes and the director was expected to immediately tender his or her resignation to the board. The board was required to accept the resignation within 90 days of the meeting unless it determined that there were extraordinary circumstances relating to the composition of the board or the voting results that should delay the acceptance of the resignation or (in very rare cases) justify rejecting it. The board was required to make its decision and reasons available to the public.
Since CCGG issued it model majority voting policy in 2006, many of Canada’s largest public companies voluntarily adopted a version of CCGG’s majority voting policy and other mid sized companies began to follow the wagon train. Most of the adopted policies, however, did not have the important CCGG provision which required the board to accept a resignation absent extraordinary circumstances. With the number of companies adopting majority voting policies in Canada plateauing and with many of the adopted policies not having the important CCGG provision, in early 2012 CCGG made a strategic decision to utilize its resources to urge the TSX, as well as the TSX’s primary regulator the Ontario Securities Commission, to adopt a listing requirement which would require TSX issuers to adopt a majority voting policy. At the end of 2012 the TSX adopted a “comply or explain” policy for its listed issuers, but CCGG and many of our members did not believe that “comply or explain” was sufficient for this very fundamental tenet of shareholder democracy and thus we continued to press for TSX issuers to be required to adopt a majority voting policy similar to CCGG’s model policy. Thanks to assistance from key individuals at the Ontario Securities Commission, these efforts came to fruition last week.
CCGG still has more work to do, however, in relation to majority voting. CCGG will continue to try to have Canadian corporate legislation changed so that majority voting becomes law and is not only a TSX listing requirement. CCGG also will continue to urge that smaller companies which are listed on the TSX venture exchange (rather than on the TSX) be required to adopt a majority voting policy similar to CCGG’s model policy.
In June 2013 the Council of Institutional Investors (CII) followed CCGG’s lead by urging the NYSE and NASDAQ to adopt a majority voting policy as a listing requirement on those exchanges. We hope that the TSX rule adopted last week will assist CII to convince those U.S. exchanges to adopt this basic tenet of shareholder democracy.
A copy of the new TSX rule is available here.