Toronto exchange pushes for end to director 'slates'

The Toronto Stock Exchange is taking steps to end the practice of having directors stand for election together and instead giving shareholders the right to votes on each individual. In a filing with the Ontario Securities Commission, the exchange said it was moving ahead with a consultation on the proposed change in its listing requirements after because the OSC's own consideration of wider issues were still at an early stage. Current arrangements mean that directors stand for election every year, but most companies give shareholders the right only to vote yes for the slate or "withhold" their vote from all directors. This combination of "slate" voting and the "plurality" approach prevent votes against means that shareholders have little practical influence over the boards. In the United States, plurality voting is common, but directors stand individually. That means a director might well be elected with a plurality, but it would be apparent that s/he received a sizeable number of "withheld" votes. In the UK, directors stand individually and "majority" voting applies – shareholders can vote against and a director must receive a majority to be elected.

Another rule change would ensure that directors face annual elections. Most companies listed in Toronto do this in combination with the "slate" approach. But the exchange wanted to ensure that companies don't seek to introduce "staggered" elections, under which directors serve three-year terms and a third stand each year. That practice, commonplace in the US, is been by shareholder activists as entrenching boards. The 2010 UK Corporate Governance Code seeks to make annual elections the norm for the top 350 companies.

The exchange didn't opt to shift from plurality to majority voting, but its rule change would seek to have companies publish whether they permit majority voting, and if not explain the rationale. The larger OSC inquiry will examine that issue.

Source document: The request for comment is a seven-page pdf file. The comment period runs until October 11.