Canada: Federal Budget 2019: Impact On Corporate Governance

Further to the release of the federal government's budget on March 19, Bill C-97 was introduced in April to implement certain provisions of the budget by amending many federal statutes, including the Canada Business Corporations Act (CBCA).

Best interests of the corporation: moving further away from shareholder primacy

Similar to the constituency statutes of our American neighbours, Bill C-97 codifies that directors and officers of both private and publicly traded corporations governed by the CBCA may take into account all stakeholders' interests in corporate decision making. Such interests may include, but are not limited to, those of shareholders, employees, retirees and pensioners, creditors, consumers and governments. The long-term interests of the corporation and the environment, which are top of mind for institutional investors, are also specifically listed as factors that directors and officers may consider.

Bill C-97 codifies certain elements of the BCE decision,1 in which the Supreme Court of Canada held that directors may consider the interests of various stakeholders while acting in the best interests of the corporation. The amendment adds retirees and pensioners to the list of stakeholders whose interests may be taken into account by directors and officers. It could have the effect of widening the range of interests that can be considered, while further rejecting the shareholder primacy model in Canada.

Say on pay: do as the majority does

While not currently mandatory, a majority of Canada's largest public corporations already hold a non-binding shareholder advisory vote on executive compensation (a "say on pay" vote). Only 10 issuers included in the S&P/TSX60 index did not do so in the last proxy season. The new provisions would make it mandatory for prescribed CBCA corporations2 to hold such a vote at their annual shareholders' meeting. We anticipate this requirement and the additional disclosure requirements described below will apply to all public CBCA corporations and possibly other CBCA corporations. Upon enactment of this amendment, Canada would follow in the footsteps of other jurisdictions such as Australia, France, the United Kingdom and the United States, where advisory votes on executive compensation are mandated by law.

Additional disclosure obligations

Bill C-97 also proposes imposing new disclosure requirements on prescribed CBCA corporations, in addition to the many disclosure obligations already imposed by securities regulatory authorities.

Disclosure on the well-being of employees: Canada as a world leader

Prescribed CBCA corporations will be required to place before shareholders, at every annual meeting, information to be specified in upcoming regulations on the well-being of employees, retirees and pensioners. In an era where environmental, social and governance matters (ESG) are top of mind for investors and high-profile bankruptcies are making the headlines across the country, it is no surprise that the federal government is requiring enhanced disclosure in that regard, becoming one of the first jurisdictions to do so. The scope of these new disclosure requirements will be determined by upcoming regulations associated with Bill C-97.

Disclosure related to diversity: let's strive for a culture shift

Bill C-97 also imposes disclosure requirements relating to diversity among directors and senior management. The federal government's intention is not only to ensure an adequate representation of women in corporate leadership positions, but also to change perspectives and mindsets with respect to various minority groups. This is why the proposed definition of diversity is much broader than in current CSA instruments.

Bill C-25, which amended the CBCA and received royal assent on May 1, 2018, sets out the global framework of these new diversity disclosure requirements for public CBCA corporations. The draft regulations under Bill C-25, which we expect will be enacted this fall, impose disclosure obligations on the representation of members of "designated groups" under Canada's Employment Equity Act among directors and members of senior management. These include women, visible minorities, Indigenous people and people with disabilities. Bill C-97 reiterates these requirements.

Disclosure related to clawbacks: recovery of incentive payments

It is considered a best governance practice for a corporation to put in place a mechanism for the recovery of incentive compensation paid to senior executives on the basis of financial results that were subsequently restated or where there was wrongdoing, commonly referred to as "clawback policies."

Proxy advisory firms such as ISS and Glass Lewis support clawbacks and consider the absence of such mechanism as a problematic pay practice. The adoption of such policies has become more prevalent recently among large Canadian public corporations. Bill C-97 would force directors of prescribed CBCA corporations to provide shareholders with some information, to be specified in upcoming regulations, on the recovery of incentive payments. Although the scope of such obligation is unclear at this time, prescribed CBCA corporations will most likely be required to "comply" and adopt a clawback policy or "explain" why they have not done so.


Absent strong opposition, Bill C-97 should receive royal assent in June 2019. Although the codification of BCE may be effective upon royal assent, we expect that other proposed changes to the CBCA will come into force after the enactment of associated regulations, to be expected in approximately 12 to 24 months, following a public consultation process.

The author wishes to thank articling student Sophie D'Entremont for her help in preparing this legal update.


1. BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, 2008 SCC 69.

2. The meaning of the term "prescribed corporation" in Bill C-97 will be clarified in the regulations.

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