On January 10, 2011, the Ontario Securities Commission ("OSC") released a staff notice which provides an update on the OSC's review of shareholder democracy issues. The OSC has targeted three issues for further review and the potential development of regulatory proposals. The issues are related to director elections, shareholder voting on executive pay (i.e., "say-on-pay"), and the effectiveness of the proxy voting system.

Director Election Issues

The OSC is reviewing two issues with respect to director elections: slate voting vs. individual director voting and plurality voting vs. majority voting.

Slate voting refers to the practice whereby management proposes a slate or group of directors to shareholders and shareholders are given the option of either voting for the entire group or slate of nominees or withholding their vote from the entire slate. Individual director voting would allow a shareholder to cast its vote in favour of, or withhold its vote in respect of, each individual nominee.

Plurality voting refers to the corporate law concept that provides that a shareholder is only given the option of casting its vote in favour of a nominee or withholding its vote. Votes that are withheld do not count as votes against that nominee and, as a result, a nominee can be elected by a single vote if the remaining votes are withheld. Majority voting would require that a nominee receive a majority of the votes cast in order to be elected.

The OSC is assessing whether the appropriate manner in which to facilitate individual director voting and majority voting is through amendments to securities laws.

Say-on-Pay

"Say-on-pay" refers to the practice of providing shareholders with a separate advisory vote on executive compensation and "golden parachute" payments. Securities laws in Ontario do not require reporting issuers to give shareholders a "say-on-pay", although a number of large public companies have done so voluntarily. The OSC is considering the introduction of mandatory "say-on-pay" for reporting issuers, especially given the adoption of "say-on-pay" internationally (including in the United Kingdom, Australia, certain European countries, and expected soon in the United States).

Effectiveness of Proxy Voting System

Finally, the OSC is reviewing the general effectiveness of the proxy voting system to determine whether additional reforms are necessary, with a view to allowing "shareholders to make informed voting decisions and ensur[ing] that their votes are counted". This review is in addition to the review by the Canadian Securities Administrators (CSA) and its proposed amendments to National Instrument 54-101 - Communications with Beneficial Owners of Securities of a Reporting Issuer.

Opportunity to Comment

In the notice, the OSC requested comments in respect of the foregoing and indicated that it anticipates additional consultations with stakeholders.

We will keep you informed of further developments as they arise.

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