Thursday, September 15, 2011

Toronto Stock Exchange Would Require Listed Companies to Explain Why No Majority Voting

The Toronto Stock Exchange proposes to require listed companies that have not adopted majority voting for directors to explain why they have not done so. Moreover, to further improve corporate governance standards, TSX will require issuers who have not adopted a majority voting requirement to advise TSX if a director receives a majority of "withhold" votes. TSX intends to follow up with such issuers where a director has not received a majority of votes in order to understand the issuer's intentions and corporate governance practices in light of the voting results.

In the view of TSX, Majority voting policies support good governance by providing a meaningful way for security holders to hold directors accountable and remove underperforming or unqualified directors. Although the Amendments would not mandate majority voting or the adoption of a majority voting policy, TSX believes that the disclosure model proposed is the appropriate measure at this time. Disclosure of an issuer's adoption or non-adoption of a majority voting policy will enhance the governance dialogue between issuers, security holders and other stakeholders and improve transparency.

When a majority voting policy is adopted, a plurality voting standard applies, and security holders generally vote "for" or "withhold" for each individual board nominee. However the number of "withhold" votes are considered "against" votes and counted as part of total votes cast. A typical majority voting policy provides that a director who receives a majority of "withhold" votes must tender his or her resignation, and the board will generally accept that resignation, absent exceptional circumstances. Some majority voting policies provide that the board must accept the director's resignation, although those policies are less common. In either type of policy, a director who receives a majority of "withhold" votes would still be elected as a matter of law, but a majority voting policy is designed to ensure that only those directors who receive a majority of votes in their favor remain on the board.

Canada remains one of the few major jurisdictions that has plurality voting, with the UK, Hong Kong and Australia embracing majority voting. The US remains a plurality voting jurisdiction, with a majority voting provision in the Senate version of Dodd-Frank having been removed during the House-Senate conference.

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