CBCA amendments impacting director elections and shareholder proposals are coming into force

Amendments to the Canada Business Corporations Act (CBCA) related to the election of directors and shareholder proposals will come into force this summer. These changes are the latest in a series of CBCA amendments to take effect in the past several years.

CBCA amendments coming into force

As of August 31, 2022, the following amendments to the CBCA will be in effect:

Annual Elections with a Separate Vote for Each Candidate

Directors of public CBCA corporations will need to be elected on an individual and annual basis. Currently, the CBCA allows directors to be elected as part of a slate and for up to a three-year term. The TSX already requires annual elections and individual rather than slate voting. However, the amendments will result in a change for some TSXV- and CSE-listed issuers, as those stock exchanges permit staggered elections and slate voting as long as shareholders agree to such provisions.

Majority Voting for Directors in Uncontested Elections 

Where there is only one candidate nominated for each position available on the board, shareholders will be able to vote “for” or “against” each nominee director (instead of “for” or “withhold” under the current system), and each nominee director must receive a majority of “for” votes to be elected. Further, if a nominee director does not receive a majority of “for” votes, they may not be appointed a director by the board before the next annual meeting of shareholders, except if necessary to ensure the board has the requisite number of resident Canadians or independent directors. 

Under current TSX requirements, directors must offer to resign if they not receive a majority of “for” votes, but the board has the option of not accepting such resignation in “exceptional circumstances.” The amendments remove this discretion. The amendments will also result in changes for many TSXV- and CSE-listed issuers since they are not currently required to follow a majority voting standard. 

Note that if an incumbent director fails to obtain a majority of “for” votes at the shareholder meeting, that director may be able to continue as a director for a transition period of up to 90 days following the meeting. 

Shareholder Proposals 

The amendments and draft regulations change the timeframe for a shareholder to submit proposals to a CBCA corporation to between 90 to 150 days before the anniversary of the last annual shareholder meeting (instead of a deadline of 90 days prior to the anniversary date of the notice of the last AGM). This change will make the deadline clearer and allow shareholders to submit proposals closer to the date of the AGM. Those corporations who choose to disclose the deadline for next year’s proposals in their current circular should take note of this change as they finalize their circulars for their 2022 meetings.

CBCA amendments not yet in force

Other amendments to the CBCA related to corporate governance and shareholder communications are still not in force and we do not expect them to be in force for at least another year:  

• “Notice-and-Access.” Notice-and-access allows certain shareholder meeting materials to be made accessible online rather than physically mailed to shareholders. Although securities legislation was amended in 2013 to introduce notice-and-access, the CBCA was not entirely compatible with those amendments. As a result, CBCA corporations must seek an exemption to be able to use the notice-and-access system. The amendments will allow full use of notice-and-access by CBCA corporations.  
• Delivery of financial statements. Corporations will be able to meet the requirement to send financial statements to registered and beneficial shareholders by using notice-and-access. If a public corporation does not use notice-and-access (or at least not for its financial statements), it will only be required to send financial statements to those registered shareholders who specifically request them. Prior to the amendments taking effect, public corporations are required to mail annual financial statements to all registered shareholders, except those who state they do not wish to receive them. Corporations wishing to take advantage of notice-and-access prior to the amendments coming into force may seek exemptive relief.
• Say-on-pay vote. Corporations will be required to develop an approach to the remuneration of directors and executive officers that shareholders will vote on annually. Results of the vote will have to be disclosed. However, those results will not be binding on the corporation. While we do not yet know the details of the requirements, the overall approach is similar to that taken by corporations that have voluntarily adopted say-on-pay voting.
• Clawback policy disclosure. Corporations will be required to provide information in their annual proxy circulars regarding the recovery of incentive payments and other remuneration benefits paid to directors and executive officers of the corporation in circumstances (still to be defined) where the payments were later found to be “undeserving.”
• Disclosure related to well-being. Corporations will be required to disclose in their annual proxy circulars certain information regarding the “well-being” of employees, retirees and pensioners. The details of this novel requirement are still unknown. 

With respect to the amendments related to notice-and-access and delivery of financial statements, Corporations Canada had advised back in May 2018 that it would take approximately 18 to 24 months before the amendments would be fully in force. They were obviously delayed, but we have not received an updated timeline. The corporate governance amendments are more substantial, as they could result in significant changes for corporations, particularly as regards “well-being” disclosure. Corporations Canada undertook a consultation process for those amendments in the first quarter of 2021. Given the potential extent of the changes and the fact that we have not yet seen draft regulations, we do not anticipate that these changes will be in effect prior to the 2024 shareholder meeting season.