As reported in our TSX Mandated Majority…bulletin and TSX moves to majority voting blog post, the Toronto Stock Exchange (TSX) adopted at the end of 2012 a policy that requires TSX-listed companies to disclose in their Management Information Circulars whether they have adopted a majority voting policy for the election of directors at non-contested meetings and if not, provide an explanation as to why such a policy was not adopted. A majority voting policy is one that requires a director to tender his or her resignation if the director receives more “withheld” votes than “for” votes. It then remains for the board to decide whether to accept the resignation.
Fasken Martineau has been monitoring the rationale for the non-adoption of majority voting by reporting issuers in Canada during the 2013 proxy season and has noted the following most commonly cited reasons for non-acceptance, in no particular order as to frequency:
- majority voting policies are ineffective and/or irrelevant for companies with a controlling shareholder or group of controlling shareholders;
- the TSX’s stance on majority voting is relatively recent and therefore more consideration is required before implementation;
- majority voting is unsuitable for the structure, size and needs of some companies and/or their boards;
- majority voting may result in the loss of directors of particular experiences or expertise and/or those meeting independence requirements;
- certain shareholders may utilize majority voting for the purpose of pushing political agendas that may not be in the best interests of the company and/or are unrelated to the discharge of duties by individual directors;
- certain corporate statutes provide for plurality voting not majority voting;
- plurality voting is advantageous as it ensures a full board is elected annually while not diminishing the right of shareholders to nominate other persons for election as directors;
- majority voting policies fail to give adequate weight to the business experience, personal ethical standards, unique knowledge, diversity, commitment and actual performance of particular directors;
- low voter turnout at shareholder meetings may result in unfair outcomes;
- “for” or “against” voting systems required by certain foreign jurisdictions are effective at accomplishing objectives similar to those of majority voting regimes;
- majority voting is currently unnecessary as management’s nominees historically receive an overwhelming majority support from shareholders; and
- majority voting fails to give adequate weight to the importance of building a well-balanced team of directors with complementary skills to ensure as a whole a board of directors functions well.
On October 4, 2012, the TSX published a request for comments proposing mandated majority voting for director elections at uncontested meetings of TSX listed issuers. The comment period ended on November 5, 2012. Following the Ontario Securities Commission’s approval and the issuance of a public notice, adoption of a majority voting policy is expected to become mandatory for TSX listed issuers on December 31, 2013.