April 11, 2017
We are at an important inflexion point in the evolution of shareholder voting in Canada. The federal government is proposing to change the way in which directors of public companies governed by the CBCA are elected. The proposed changes respond to shareholder demands for “majority voting” (the requirement that directors be elected by a majority of votes cast). However, they create a regime that is very different from the current majority voting regime in place for TSX listed companies.
If the proposed amendments come into force, directors of public companies governed by the CBCA will face “sudden death elections” as early as the 2018 proxy season. The board will have no discretion to keep a director on the board who has been voted down by shareholders, even for a transition period while the board tries to replace the skills and experience it has lost (subject to two exceptions). Succession plans will need to be rethought to deal with gaps in the board’s skill set and experience on an expedited basis. Companies will need to prepare to deal with change in control provisions in employment contracts and loan agreements that could be triggered, and the potential for both new activist tactics and increased proxy solicitation costs. These changes in director voting will affect over 40% of the corporations listed on the S&P/TSX Composite Index. They merit thoughtful discussion before they are implemented.
Time is short. As we release this Discussion Paper, the amendments are awaiting third reading in the House of Commons. Once they pass third reading, they will go to the Senate. There has been too little discussion about the implications of the proposed amendments for companies governed by the CBCA and for the capital markets more generally.