Commentary: TSX rule change gets mixed reaction Down Under

On Dec. 31, 2012, the Toronto Stock Exchange made amendments to its company manual to require that TSX-listed issuers elect all directors annually, in addition to changes requiring disclosure of majority voting policies.

While the majority voting policy changes attracted greater attention for Canadian companies, Australian companies listed on the TSX have been more interested by the impact of the new annual director election requirements. The rule change did not affect companies listed on the TSX Venture Exchange.

In Australia, directors are already elected on a “for” or “against” basis and not on a “for” or “withhold” basis, and therefore already have a majority voting “policy” in effect by operation of the Australian Corporations Act. However, the constitution (or articles) for a Corporations Act company would typically require that one-third of the directors resign at each annual general meeting and be re-elected. This means it would take three years to replace the entire board in Australia.

In order to comply with the new TSX requirement, many Australian companies would have to amend their constating documents — their constitution — to implement an annual director election requirement.

As many Australian issuers have June 30 year-ends, most Australian companies will bring the amendments to their shareholders in the latter half of 2013. However, four Australian companies with earlier year-ends have proposed amendments at their recently held annual general meetings.

Shareholders of Ivanhoe Australia and Aurora Oil & Gas overwhelmingly approved the required constitutional changes by votes of 91.4% and 99.8%. Shareholders of Intrepid Mines were less convinced, approving the changes with a 75.4% vote in favour — just 0.4% ahead of the 75% required under the Australian Corporations Act. Finally, Mirabela Nickel shareholders failed to approve the amendments by the needed 75%, as its shareholders voted just 66% in f­avour of the constitutional change. The sample size here is small, and a better indication of overall sentiment will come in the latter half of 2013.

In the comment process associated with the rule change, there were several suggestions that these changes not apply to foreign companies. The TSX accommodated by making it clear that if listed-company shareholders did not approve, the TSX would not consider the issuer in breach of TSX requirements, but the company would have to again place and recommend the changes to its articles to its shareholders within three years.

That accommodation has not stopped the change from being a contentious one among a number of listed companies who regard the TSX change as an affront to what many in Australia see as a well-functioning corporate governance system Down Under. It seems the shareholders of Mirabela Nickel have agreed with that sentiment.

This first shareholder meeting season in Australia has been an interesting test to see if foreign shareholders are prepared to approve the changes that created concern among boards when they were first announced.

When the second season of annual general meetings kicks off later this year, we will have the opportunity to again test shareholder sentiment on the issue, but while initial results have been mixed, in all cases a majority of voting shareholders did approve of the change, although in one case not by enough to meet the extraordinary voting threshold required for approval.

— Quentin Markin is the co-head of the Global Mining Group of Stikeman Elliott LLP, and a partner of the firm based in Sydney, Australia. With over 500 lawyers in offices worldwide, Stikeman Elliott is one of Canada’s leading business law firms, recognized for top-tier services in each of its core practice areas: corporate finance, M&A, real estate, corporate-commercial law, banking, structured finance, tax, insolvency, competition and foreign investment, and employment and business litigation.

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