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The Toronto Stock Exchange Broadcast Centre is shown in Toronto on June 28, 2013. The Toronto stock market headed for steep declines at the open Tuesday as the TSX reopens following the Thanksgiving holiday and catches up to the heavy losses racked up on New York markets in the previous session. THE CANADIAN PRESS/Aaron Vincent Elkaim

Aaron Vincent Elkaim/THE CANADIAN PRESS

When we think of elections where voters have no choice and the winners are predetermined, we think of repressive dictatorships and not modern democratic Canada.

Yet directors of Canadian companies come to office after "elections" that take place under rules designed to fix the results. Shareholders are given the choice to either vote in favour of candidates put forward by the company – a roster that exactly matches the number of available seats – or to "withhold" their votes. There is no way to vote against a director. At the extreme, it means a director can be elected if only one shareholder – say, the director himself – votes in favour, even if everyone else withholds their votes. So much for shareholder democracy.

This voting process is not the product of some nefarious corporate manipulation. It is the system laid out in Canada's federal and provincial business statutes. They are in sore need of a major overhaul.

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The federal government has launched consultations on possible amendments to the Canada Business Corporations Act, including changes to allow votes for or against director nominees. In Ontario, a government-appointed panel of legal experts has tabled a new report recommending changes to the Ontario Business Corporations Act to allow shareholders to vote against directors, setting the stage for elections that are not foregone conclusions.

Canada's largest shareholder coalition, the Canadian Coalition for Good Governance (CCGG), has lobbied hard for voting reform, arguing Canada and the United States are outliers in a world where most major countries allow shareholders to vote against directors. But the proposal faces opposition from others in the corporate community who warn negative votes could lead to weak boards that lack required skills, and could even cause "failed elections" if too few directors are elected to constitute a board.

That's a fair concern – and there are straightforward solutions to address it. In the unlikely event too few directors are elected to legally constitute a board, for example, companies can have a new election. And if a board urgently needs more accounting experts on its audit committee, it can appoint them immediately, and have them stand at the next election. Fundamental fairness has to trump possible administrative inconvenience.

Canada has already had a taste of how a new voting process would work. Despite the absence of legislative reform, many companies have adopted voluntary "majority voting" policies, requiring directors to submit their resignations if they receive a majority of withhold votes, creating an indirect form of a "no" vote. The boards can then decide whether to accept the resignations. Last year, the Toronto Stock Exchange adopted a rule requiring all of its listed companies to adopt majority voting policies, ensuring a core of major Canadian companies offer shareholders a mechanism to try to vote out unpopular directors.

Shareholders have so far used the powers sparingly, with only one TSX 60 company director – Michel Lavigne from the Quebecor Inc. board – losing a vote so far this year. He offered his resignation, which the board declined. There have been no "failed elections" in which all directors got withhold votes. The track record suggests shareholders do not act rashly. Why would they? Shareholders are, after all, the owners of the company. They would be throwing their asset into turmoil if they voted out an entire board in an uncontested vote when there are no other directors proposed for election.

But the Quebecor example highlights the weakness of the current system. Mr. Lavigne lost his vote last year and received just 28 per cent support this year, but he remains on the board. Shareholders were powerless to remove him as their elected representative. They voted, but had their votes ignored by the board. The majority voting policy proved to be too indirect a tool.

Even if other majority voting policies are treated with more respect by other companies, the TSX requirement is still a flawed workaround. The stock exchange is run by a private company, and its listing standards are subject to change or elimination. Only legislative reform can ensure a new voting system is enshrined in law.

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And even if majority voting is enshrined in legislation, that's only a half-solution. Shareholders will still be faced with a closed slate of the directors they are offered by the company. Imagine if you had only one candidate for MP in your riding in the next federal election. Imagine if you could vote yes or no, but had no choice beyond that.

The CCGG are urging regulators to consider additional changes that will allow large shareholders to propose nominees whose names would be added to the proxy ballot. The question today is not whether majority voting should be legislated – it should be – but why governments aren't going further to strengthen shareholder democracy, and give shareholders a real vote on their board representatives.

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