Toronto Stock Exchange Provides Guidance on Director Election Requirements

On July 10, 2013, the Toronto Stock Exchange (the TSX) released a staff notice (the “Notice”) providing guidance on the TSX director election requirements (the “Requirements”). The Requirements came into force on December 31, 2012.

Pursuant to the Requirements, issuers listed on the TSX must, among other things:

• allow for individual director elections;
• disclose in meeting materials sent to security holders whether the issuer has adopted a majority voting policy for the election of directors for non-contested meetings; and
• immediately after a meeting at which directors are elected, issue a news release detailing the voting results.

For more information on the Requirements, see our October 10, 2012 Update, Toronto Stock Exchange Announces New Director Voting Requirements. 

Application of the Requirements to Interlisted International Issuers

The Requirements will begin to apply to interlisted international issuers (being those listed on another stock exchange or market) at the time the issuer mails materials for its first annual general meeting occurring after the issuer has been listed on the TSX for at least six months.

Once subject to the Requirements, an interlisted international issuer may apply to the TSX for an annual waiver from the Requirements.  In deciding whether to grant a waiver from the Requirements, the TSX will consider:

• the policy objectives of the Requirements, being to strengthen the Canadian corporate governance regime and support the integrity of Canadian capital markets;
• the issuer’s level of activity in the Canadian market, including the issuer’s level of trading in Canada compared to its primary exchange or market - with the TSX being more receptive to applications where at least 75% of the value and volume of the issuer’s trading in the six months preceding the application has occurred outside of Canada; and
• whether the corporate governance framework to which the issuer is subject demonstrates a comparable commitment to the policy objectives of the TSX rules - with the TSX being seemingly more inclined to grant a waiver where the issuer can confirm its compliance with director election standards and the practices of (or equivalent to) Australia, the United Kingdom or the state of Delaware and those of its principal trading market.

A waiver from the Requirements must be disclosed by the issuer in its annual information circular.

Content of News Releases

The news release disclosing the results of a director election must provide sufficient detail regarding the level of support received for each director.  According to the Notice, this requirement will be satisfied where an issuer discloses:

• the percentages of votes received ‘for’ and ‘withheld’ for each director;
• the total votes cast together with the number that each director received ‘for’; or
• the percentages and total number of votes received ‘for’ each director.

If there was no formal count that would meaningfully represent the level of support received by each director (e.g., when a vote is conducted by a show of hands), the disclosure should at least reflect 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.

Additional Guidance Provided in the Notice

The Notice clarifies that the Requirements will not apply to issuers with director appointment rights that have been accepted by the TSX.  It also provides guidance for amending the issuer’s articles of incorporation to implement the Requirements.  Finally, the TSX cautions that avoidance of the stated policy objectives through by-law provisions (such as extraordinary quorum requirements for the election of directors), or other actions taken by issuers to frustrate or avoid the Requirements, will be considered a failure to comply with the Requirements.