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TSX to make majority voting rule mandatory

Frank Gunn/THE CANADIAN PRESS

Companies listed on the Toronto Stock Exchange will have to implement new rules requiring their directors to tender their resignations if they do not get a majority of votes in annual board elections.

The new majority voting rules will take effect for fiscal year-ends from June 30 on, the TSX said Thursday, and will apply to all listed companies except those with a majority shareholder.

Majority voting policies have already been widely adopted on a voluntary basis in Canada, but will now become mandatory for all TSX companies. They require directors to tender their resignations if they do not get at least 50 per cent support in board elections.

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The policies have been popular because shareholders in Canada and the United States can only vote for a director or withhold their votes, which means they are not counted in the tally. There is no way to vote against directors, which means they can technically be elected with only a single vote in favour. Shareholder groups have complained their votes become meaningless if they cannot be used to remove unpopular directors.

The TSX said Thursday the new rules will give shareholders a stronger voice in board elections and will compel companies to listen more carefully to investors' concerns during director elections.

"By mandating majority voting, TSX believes transparency is enhanced and the dialogue between issuers, security holders and other stakeholders is improved," Kevan Cowan, group head of equities at the TSX, said in a statement.

The Canadian Coalition for Good Governance, an advocacy group representing most of Canada's largest institutional investors, has launched a campaign in recent years to urge companies to adopt majority voting policies and to urge regulators to make the policies mandatory.

Executive director Stephen Erlichman said he is especially pleased the TSX has adopted the CCGG's proposed wording that companies must accept resignations that are tendered except in "exceptional circumstances," and that companies refusing to accept a resignation must also issue a news release explaining the exceptional circumstances that led to the decision.

"This is a great day for shareholder democracy in Canada," Mr. Erlichman said Thursday.

He said the CCGG has been working for over six years to try to sell regulators on the idea of a majority voting standard for Canada, and the group will now lobby for its to also apply to the TSX Venture Exchange, and to have the requirement enshrined in federal business laws.

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"Athletes train for many years to get to the Olympics – CCGG has been working on getting a majority voting standard adopted across Canada for many years too," he said.

The TSX first published its proposed majority voting rule in October, 2012, for public comment and said at the time it hoped the rules would be ready for adoption by the end of 2013.

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About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

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