Notice of Approval - Amendments to Part IV of the TSX Company Manual - Toronto Stock Exchange (TSX Inc.)

1. Do you support TSX mandating that its listed issuers have majority voting, which may be satisfied by adopting a majority voting policy for uncontested director elections? Please identify positive and negative impacts if issuers are required to have majority voting.

Yes, we support TSX mandating majority voting. (CII, NEI, PGGM, PIAC, PSP, SHARE, SIO, OTPP, USS, CCGG, ICGN, Florida, OBA, bcIMC, Blackrock, CFA, CPPIB, FAIR, Hermes, AC)

A majority of commenters support TSX mandating majority voting for its listed issuers and see positive benefits for the Canadian market, including enhanced engagement and accountability. TSX agrees that the Canadian market will benefit if TSX adopts the Amendments.

Majority voting for uncontested director elections will enhance the accountability of directors to security holders (SHARE, Blackrock) and will increase transparency and open communication. (CIRI, CFA)

Canada's reputation will be enhanced for supporting strong governance. (AC, CFA, OTPP)

Mandatory majority voting will require less oversight and resources from TSX because TSX will not need to allocate resources to evaluate disclosure of issuers who have not adopted majority voting. (FAIR)

Plurality voting reduces investor confidence in the public markets so, while market regulation is not the commenter's primary choice, the TSX Amendments are the only practical alternative to address the issue at this time. (QIM)

Majority Voting can be satisfied by adopting a non-binding majority voting policy that incorporates the requirements set out in Section 461.3 of the Manual. (CIRI)

TSX should replace the "withhold" votes under plurality voting with a majority vote allowing security holders to vote "for" or "against" directors. (AC)

TSX appreciates the feedback, however, determining the form of proxy is a matter of corporate and securities law and is outside of the jurisdiction of TSX.

The adoption of mandatory majority voting is not universally supported by major stock exchanges and plurality voting has been the standard for North American corporations. (Tethys)

TSX thanks the commenter for its input. TSX, however, believes that adopting majority voting is an important tool in strengthening the Canadian corporate governance regime.

If issuers adopt majority voting policies, they may lose directors with unique experience or expertise that complements the board of directors. (Norton Rose)

TSX notes that issuers may lose directors for a number of reasons unrelated to majority voting results. TSX encourages its issuers to prepare for such a situation by maintaining an 'evergreen' list of potential board candidates.

TSX should not impose majority voting unless it can find a way to exclude the "withhold" votes of US brokers who believe that "withhold" means the same as a non-vote. (Nash)

TSX notes that several TSX listed issuers that are interlisted in the US have adopted majority voting and have not raised this as a concern.

Issuers should have the flexibility to adopt director election practices that comply with applicable laws and suit their unique governance concerns. Regulation is not required. (ATCO)

TSX thanks the commenter for its input.

TSX should not impose a "one size fits all" standard for all issuers. If TSX determines to move forward with the Amendments, controlled companies should be exempted from them. (Canadian Tire, Weston, ATCO, Norton Rose, PCC, PFC)

TSX has exempted majority controlled issuers from the majority voting requirement in the Amendments. The Amendments also contemplate dual share class companies.

Majority voting is impractical for controlled companies and serves no valuable purpose. (Weston)

While supportive of efforts by the CSA, the Amendments by TSX are premature and are not suitable for controlled companies. (IGM)

The adoption of a majority voting policy by a majority controlled company may be misleading to security holders as they cannot meaningfully impact the election of directors. (Canadian Tire, IGM, Esso, Norton Rose, PCC, PFC, ATCO)

Adopting majority voting for controlled companies would result in the imposition of additional complexity without any meaningful change to the outcome of director elections. (ATCO)

The CCGG recognizes that controlled companies have unique governance considerations and exempts these companies from majority voting guidelines. (Weston, IGM, Norton Rose, PCC, ITG, PFC)

NYSE has exempted controlled companies from certain NYSE rules. (Weston)

TSX should devise an alternate model for controlled corporations (Hermes, Esso) as well as for companies with dual share classes. (Hermes)

TSX has acknowledged that controlled corporations have unique considerations regarding majority voting. (Norton Rose)

Binding majority voting can present significant corporate, securities and operational problems. (CIRI)

TSX has not mandated binding majority voting. The Amendments allow issuers to adopt a majority voting policy which TSX believes satisfactorily addresses these concerns.

TSX should not impose mandatory majority voting. (ATCO, IGM, Norton Rose, PCC, PFC, Tethys, Confidential Comment Letter)

Directors could be put in a difficult situation in fulfilling their fiduciary duties if bound to accept director resignations. (Norton Rose)

TSX neither intends for nor believes that the Amendments interfere with the exercise of the board of directors' fiduciary duties. TSX believes that the board is better positioned to determine what constitutes 'exceptional circumstances' for itself when determining whether to accept a resignation.

Mandatory majority voting may create unexpected negative consequences if an issuer has given nominating rights to an entity with which it has partnered and the nominee does not receive a majority of "for" votes. (Confidential Comment Letter)

TSX recognizes that exceptional circumstances may exist. A majority voting policy allows the directors to examine these situations to determine whether or not to accept the resignation of the director.

2. Do you believe it would be useful for TSX to provide specific guidance that it expects that the board of directors will typically accept the resignation of a director that receives a majority of "Withhold" votes, absent exceptional circumstances? If you agree, please suggest the preferred means to provide it (for example in a Staff Notice, in commentary about the Amendment or in the drafting of the Amendment itself).

It is useful for TSX to provide guidance and it should be part of the Amendments. (AC, bcIMC, CIRI, CII, CPPIB, FAIR, NEI, PGGM, PIAC, PSP, SIO, OBA, OTPP, CCGG)

In the event that the board determines not to accept the resignation of a director, TSX has included in the Amendments the requirement to issue a press release disclosing in detail the reasons for not accepting the resignation. TSX believes that the board is in the best position to determine what those exceptional circumstances may be.

Guidance would be useful but no comment (Hermes, SHARE) and no preference (PGGM) on what form this guidance should be in. TSX should encourage issuers to fully disclose the Policy and engage in dialogue with security holders. (Hermes)

TSX has included in the Amendments the requirement that issuers with a Policy provide a detailed description of the Policy in their Management Information Circulars.

TSX should provide guidance in a Staff Notice or other commentary outside of the Amendments to preserve flexibility in reorganizing a board or board committee, particularly for smaller or closely held issuers. (CFA)

TSX appreciates the input.

In instances where the board reasonably concludes that accepting a resignation is not in the best interests of the issuer, the board needs to clearly explain why it will not accept the resignation. Requiring this disclosure will ensure that boards undertake a thoughtful review of the voting outcome and do not reject the will of security holders absent special circumstances. (Blackrock

The Amendments require an issuer to fully state the reasons why the board did not accept the resignation in a news release.

TSX should provide guidance as to what would amount to an "exceptional circumstance" and this should be limited to considerations of timing and finding replacements. (SIO)

TSX has concluded that, at this time, the board of directors is better positioned to determine what constitutes 'exceptional circumstances' for itself.

The guidance in the Amendment should require the board to accept the resignation of a director that receives a majority of withhold votes. (CII)

TSX does not believe that it should require the board to accept a resignation if the board, exercising its fiduciary duty, determines that there are exceptional circumstances. TSX believes that the board, in exercising its fiduciary duty, should retain the latitude to determine whether exceptional circumstances exist in each case and whether or not to accept the resignation. The board must fully state the reasons for its decision in a press release if it does not accept the resignation.

Allowing the board to determine whether to accept resignation allows the board to override a security holder vote. (USS)

Where a majority of security holders have voted against a director, the time period for the board to decide whether to accept the resignation should be reduced from 90 days to 45 days following the meeting. (CFA)

TSX believes that 45 days for responding may be too short as a universal standard. The 90-day time frame is the accepted standard found in current Canadian majority voting policies.

A 90-day time frame within which the board can accept a resignation is too long. The maximum time should be 60 days and then, only when the board or committee quorums are compromised. In all other situations, boards should act without delay. (Hermes)

Guidance should clarify that delaying the acceptance of a resignation may be appropriate under extraordinary circumstances related to the composition of the board or voting results and that rejecting a resignation should only be considered in the rarest of cases. Board discretion must be exercised consistent with fiduciary duties. (CPPIB, PIAC, FAIR, PSP, OBA, OTPP)

TSX believes that the board, in exercising its fiduciary duty, should retain latitude to determine whether or not to accept the resignation within the timeframe, provided that the issuer fully states the reasons for its rationale in a press release if it does not accept the resignation.

Once a director fails to receive the required support from security holders, even if there are exceptional reasons as to why the board cannot immediately accept the resignation, a transition plan to enable the board to accept the resignation should immediately be enacted. (CCGG)

TSX thanks the commenter for its input.

Section 461.3 does not clearly define what "majority voting" means and a definition is required. (LeClerc)

TSX has provided a definition of majority voting in the Amendments.

It would be inappropriate for TSX to provide this guidance since directors are subject to a statutory standard governing whether to accept a resignation. (Canadian Tire, Norton Rose, Tethys)

TSX acknowledges that the board of directors of an issuer must fulfill its fiduciary duty and agrees that the board is best positioned to determine what constitutes exceptional circumstances.

Directors have more information about a director's performance than security holders who do not sit on the board. While the number of "withhold" votes should be an important consideration, boards may come to a reasonable conclusion not to accept a director's resignation. (Canadian Tire)

Decisions should be made on a case by case basis by the board exercising their fiduciary duties. TSX cannot provide meaningful guidance and anticipate all scenarios. (Norton Rose)

Corporate law and Supreme Court of Canada decisions provide guidance on fiduciary duties so TSX guidance is unnecessary and could constrain directors in the exercise of their duties. (Norton Rose)

Boards should be allowed to decide what "exceptional circumstances" mean for each issuer. (Tethys)

Issuers should be allowed to follow a principles-based determination of what constitutes "exceptional circumstances" under which the board might reject a director's resignation, provided that there is appropriate disclosure. (CIRI)

3. What positive or negative impact may Amendments have on other market participants or the market in Canada in general?

The Canadian markets' reputation will be improved for supporting strong governance standards. (AC, CFA, CPPIB, NEI, TPP, CCGG, OBA)

TSX agrees that the Canadian market, as a whole, will benefit from the adoption of the Amendments.

The Amendments strengthen investor protection and the confidence of foreign investors (CFA, CPPIB, PIAC, PSP, OTPP, CCGG, OBA) and enhance accountability. (Hermes, QIM, bcIMC, Blackrock, FAIR, CFA)

The Amendments improve dialogue with security holders. (Hermes, USS, Florida)

Majority voting allows security holders to exercise their most fundamental right. (bcIMC, Blackrock)

Other markets such as the U.K., the Netherlands, Australia, New Zealand, Germany and France have had positive experiences with majority voting. (USS)

No negative consequences are foreseen (NEI) based on evidence from issuers that have already adopted majority voting. (bcIMC, Hermes)

Fears of failed elections or loss of directors with particular experience/expertise have not actually occurred or are unwarranted in Canada. (CPPIB, OTPP, PIAC, OBA, AC)

Investors only need to remove directors in exceptional circumstances where the director is no longer serving security holders, therefore most issuers will not be impacted. (bcIMC)

Potential negative effects, such as governance or other issues arising from director departure, can be managed by delaying the departure for a reasonable period of time until the board can be reconstituted. (CFA)

A majority voting policy whereby a plurality voting standard still applies has the advantage (over binding majority voting) of giving security holders a significant say in director elections while not removing the fiduciary duties of the board. A non-binding majority voting policy allows the board the final say in the make-up of the board in the rare, but possible, situations where exceptional circumstances may cause the board to reject a director's resignation. (CIRI)

TSX thanks the commenter for its views.

Boards could lose directors with particular experience or expertise and the loss could compromise board stability at a time when executive tenure is becoming shorter. In some instances, mandatory majority voting results in votes being withheld for political reasons as opposed to reasons related to director performance. (Norton Rose)

The Amendments will allow the board of directors to manage these issues, should they arise.

Until shareholder organizations enhance transparency about their roles, solicit input of issuers prior to making voting recommendations or become accountable to a majority of an issuer's security holders, majority voting will have negative consequences. Issuers may be forced to have higher quorum requirements to ensure that the will of a few institutional shareholders does not result in unrepresentative elections which may prejudice minority security holders. Issuers will be encouraged to solicit votes more aggressively and, in turn, drive up costs to security holders. (Tethys)

TSX thanks the commenter for its response. TSX believes that one of the fundamental rights of security holders is to elect directors. The Amendments provide a workable solution to give investors a stronger voice in director elections.

The "comply or explain" model already implies that the adoption of a majority voting policy is best practice and there are corollary negative implications for issuers with legitimate explanations for non-adoption. (PCC, PFC)

TSX believes that the Amendments represent important enhancements to the dialogue between issuers and stakeholders and that mandatory majority voting will improve director accountability.

In responding to comments received regarding the 2012 Amendments, TSX indicated its understanding that controlled corporations have unique considerations in this regard but that TSX believes controlled corporations should disclose and explain their choice to adopt or not adopt majority voting. The Proposed Amendments do not mention the unique considerations of controlled corporations. The commenter strongly urges TSX to consider and recognize controlled corporations in the Amendments. (ATCO)

TSX has exempted majority controlled companies from the requirement to adopt majority voting in the Amendments.

May create confusion or uncertainty without advancing the interests of affected parties. (ATCO)

Could create the impression that a "withhold" vote would result in a director resignation and could result in meaningless disclosure. (Canadian Tire, Norton Rose)

Creates increased complexity (Norton Rose) and increased costs that are not in the best interests of security holders. (IGM, PCC, PFC)

TSX should address the issue of dual class capital structures and controlled corporations, since a majority voting policy does not have the same benefits for those structures as in widely held companies. TSX should find an appropriate model, such as the election by holders of subordinate voting securities of a minority of directors. (Hermes)

TSX notes that certain majority controlled companies provide minority security holders with the right to elect a minority of directors. TSX, however, has determined not to mandate majority voting for majority controlled issuers. The Amendments also contemplate dual share class issuers.

4. Do you support the jurisdiction of TSX to adopt and enforce the Amendments? If not, please support your response, and differentiate the Amendments from the September RFC Amendments being finalized today.

We believe that TSX has the jurisdiction to adopt and enforce the Amendments. (AC, CFA, CIRI, CPPIB, FAIR, Hermes, NEI, PGGM, PIAC PSP, SIO, OTPP, CCGG, OBA)

TSX thanks the commenters for their input.

The OSC's approval of recent governance-related amendments to the Manual shows that TSX has jurisdiction. (CCGG)

TSX efforts are complementary to similar efforts underway by securities regulators and will expedite the adoption of commonly accepted best practices in Canada. (CPPIB, CCGG, OBA)

Certain commenters were silent about whether TSX has jurisdiction with respect to the Amendments but were supportive of TSX's efforts to improve director election practices. (bcIMC, Blackrock, ICGN)

The preferred solution is to see corporate law revised to eliminate plurality voting altogether. The Amendments are an excellent first step in establishing the majority voting standard. (OTPP)

Market regulation is not the commenter's primary choice but, on the matter of majority voting, the commenter sees no other practical alternatives at this time since plurality voting reduces investor confidence and undermines the markets. (QIM)

TSX does not have jurisdiction since director elections are a matter of corporate law. (ATCO, IGM, Norton Rose, PCC, PFC)

TSX understands various sources of legal and regulatory requirements exist regarding corporate governance and director election practices. TSX does not believe that these other sources restrict TSX's jurisdiction to adopt the Amendments, as supported by the director election requirements reflected in the 2012 Amendments.

Changes to majority voting should be considered by relevant legislative authorities. (Tethys)

It is inappropriate for TSX to impose requirements in addition to the 2012 Amendments for director elections. (ATCO, PCC, PFC)

TSX jurisdiction is primarily over disclosure of material information and the issuance of securities. Issuers should adopt and disclose whatever corporate governance policy works best for each issuer, provided that the policy is in accordance with applicable laws. (IGM)

TSX has generally exited the field of corporate governance and should defer to the CSA since the CSA are in a better position to intervene and have more efficient and effective enforcement tools. (Norton Rose)

The Amendments are unnecessary as Canadian security holders already have the ability to express dissatisfaction with one or more directors. The Canada Business Corporations Act allows security holders holding 5% or more of the issuer's securities to submit a proposal from security holders. In addition, security holders can nominate directors from the meeting floor. (Norton Rose)

While other mechanisms may exist for security holders to express their views, TSX believes the Amendments provide security holders with an important and accessible way to engage with issuers.

5. Are there additional ancillary rule amendments or other relevant issues not discussed in the Request for Comments that should be considered in adopting the Amendments?

We support the CCGG's{3} call for reform of the proxy voting system (FAIR, PCC, PFC) and request for the OSC to take steps in 2013 to develop specific proposals in respect of the proxy voting scheme. (FAIR)

TSX thanks the commenters for these views. They are outside the scope of the current Amendments but have been brought to the attention of the Ontario Securities Commission.

Broader issues surrounding the proxy-voting process also need to be addressed for security holders to see an improvement in governance. Director election measures are an improvement, but accuracy of director votes remains suspect. (CIRI, Norton Rose, USS)

Majority voting requirements should apply to TSX and TSX Venture Exchange listed issuers. (CCGG)

TSX has provided this input to TSX Venture Exchange for its consideration.

TSX should require disclosure of voting results for each item on the proxy by press release, not just for voting results cast "for" and "withheld", to improve communication between security holders and issuers and to improve accountability. (FAIR)

TSX thanks the commenter for its views.

TSX should coordinate its review and development of the Amendments and other shareholder democracy initiatives with the CSA to minimize the burden on issuers. (CIRI)

Under the Process for the Review and Approval of Rules and the Information Contained in Form 21-101F1 and the Exhibits thereto, the OSC must approve amendments to TSX rules. TSX will monitor CSA shareholder democracy developments and review the appropriateness and need for its rules in light of any CSA proposals.

Issuers should be required to move beyond an initial board policy and to implement majority voting by obtaining security holder approval to add majority voting to the issuer's articles or by-laws. (AC)

TSX thanks the commenter for its input.

If majority voting were to be mandatory, the proposed text of Subsection 461.3 should be amended to read: "Whether <<or not>> to accept the resignation." (Norton Rose)

TSX has incorporated this suggestion in the final Amendments.

The 30 day comment period is unreasonably short given the nature and impact of the Amendments. (CIRI)

The 30 day period is standard for exchange rule amendments. Accommodation for comments to be submitted after the comment period has ended may be provided upon request in appropriate circumstances.

The December 31, 2013 effective date is appropriate. (CIRI)

The Amendments will come into effect on June 30, 2014. Issuers with years ending on or after that date must comply with the Amendments at their first annual meeting following June 30, 2014.

The Amendments should not be applicable until the 2014 proxy season, at the earliest, to allow issuers to make any required changes to their structure and practices in preparation of mandatory majority voting. (Norton Rose)

The commenter sets out a proposed regime (that it has suggested should be implemented in the US) that would allow for directors who receive a majority of affirmative votes to appoint the number of directors necessary to constitute a lawful board in the event that certain directors were to have to resign. (CII)

TSX thanks the commenter for its input. The proposal is outside the current scope of the Amendments.

Canadian regulators should reform securities regulation to require all voting to be conducted by ballot to protect security holders and improve accurate disclosure. They should undertake a public consultation of reforms that would allow security holders to put forward nominees for election to the board and have their nominees listed in the issuer's information circular without the current onerous and expensive legal requirements. Security holders should be allowed to communicate with or solicit other security holders without the need for a dissident circular. (FAIR)

TSX thanks the commenter for providing this input but notes that securities regulation reform is outside of the jurisdiction of TSX.

Binding majority voting should be the long-term goal since the proposed reform does not go far enough. (Hermes)

TSX thanks the commenter for its input.

Support for provisions that will balance the power between security holders and issuers, such as proxy access and the right to nominate directors. (PGGM)

TSX thanks the commenter for the suggestion but notes that proxy access and nomination rights are outside the jurisdiction of TSX.

If majority voting is mandated, it should be limited to uncontested elections. (Norton Rose)

The Amendments reflect that majority voting applies only to uncontested elections.

Enhanced disclosure about a director's skills, planned contribution to the board and perspectives on key issues that are relevant to the issuer would be helpful, as well as a discussion of how the individual nominee adds value to the board. (USS)

TSX agrees that investors may find the suggested information helpful. TSX encourages issuers to provide enhanced corporate governance disclosure to help investors better understand the issuer's practices, processes and people.