Last week, Bill C-25 was introduced which would amend the Canada Business Corporations Act (the “CBCA”) to, among other things, make “majority voting” mandatory for all “distributing corporations” and would require prescribed disclosure on diversity for “prescribed corporations”. A “distributing corporation” is defined in the CBCA and means, in layman’s terms, a public company. “Majority voting” is a requirement that directors are only elected if they have received a majority of the votes cast at the meeting at which they were seeking to be elected. A “prescribed corporation” is a new term introduced in Bill C-25 and is yet to be defined.
Under current rules in Canada, shareholders can either vote for directors or withhold their votes. The result is that a director can be elected with a single vote, even if all other votes are withheld. The proposed amendments will provide that directors cannot be elected unless a majority of the shares that are voted, are voted in favour of that particular director. The proposed amendments to the CBCA will only apply to federally incorporated companies and would not affect companies that incorporate under provincial statutes, such as the British Columbia Business Corporations Act. In 2014, majority voting was adopted by the Toronto Stock Exchange (the “TSX”) but the TSX rule is only a listing standard so could be changed at any time, while the federal proposals would become law if enacted.
The proposed amendments also include a provision that would require “prescribed corporations” to report annually on diversity in senior roles. The reporting rules will be defined by further regulations, however, the details of what companies will have to report are not known yet. The federal legislation does not define ‘diversity’, and does not specify that gender must be a factor included in reports. In 2014, certain provincial securities regulators began requiring companies listed on the TSX to report annually on their approach to gender diversity on their boards and among executive officers. This requirement has not been adopted by all provincial securities regulators. The federal proposals would possibly extend this requirement to a broader group of companies but until the regulations are released the extent of the application of the requirement for disclosure on diversity cannot be known.
The foregoing is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, please contact the author who would be pleased to discuss the issues above with you, in the context of your particular circumstances.