Bill would vanquish defeated ‘zombie’ directors
TORONTO The federal government has taken a concrete step toward killing off “zombie” directors — board members who can remain with corporations despite receiving support from fewer than half the shareholders.
A bill tabled in Parliament Wednesday will require public companies governed by the Canada Business Corporations Act to have majority voting for directors — which gives the option to vote for or against a director, rather than the current standard where votes are either made in favour or withheld.
In the absence of a majority-voting requirement, a director in an uncontested election simply needs one vote in favour to be elected.
The amendments to the Act, if they remain intact as the bill makes its way through Parliament, would also require all federally registered public companies to disclose the gender composition of their boards and senior management, and their diversity policies.
Those amendments are intended to increase diversity and the representation of women on corporate boards and in senior management.
The Canadian Coalition for Good Governance (CCGG), whose members include many of the country’s largest pension funds and money managers, has been pushing for more than 10 years for a law to require majority voting for directors.
At the same time, the coalition, which seeks to give shareholders a greater voice at the corporations they own, lobbied the Toronto Stock Exchange.
In 2014, Canada’s main exchange began requiring all TSX-listed companies — except those that are majority controlled — to adopt majority-voting provisions that require directors to tender their resignations immediately if less than 50 per cent of the votes are cast in their favour.
However, there are limitations, which have been criticized by some governance experts, including a provision that allows a board to reject the resignation of a director if there are “exceptional” circumstances that require his or her continued participation. These board members have been termed “zombie” directors by governance professionals because of their ability to carry on after being defeated in a majority vote.
In a report compiled last November, Toronto law firm Davies Ward Phillips & Vineberg LLP found that only one director had resigned within 90 days of a failed vote, while nine others were permitted to remain on their boards despite have failed to win majority support from shareholders.