As most issuers begin the annual process of preparing their
meeting materials, they should take into account the just released
CSA staff guidance on corporate governance disclosure. This
guidance is the result of a review by Canadian regulators of
corporate governance disclosure of 72 reporting issuers (other than
investment funds) against the CSA's corporate governance
disclosure requirements set. Staff Notice 58-306 (the "Staff
Notice") summarizes the results of this review. The Staff
Notice can be accessed at http://www.osc.gov.on.ca/en/30005.htm.
Corporate governance disclosure requirements were introduced into
Canadian securities regulation in 2005 (and from 1995 to 2005 were
a TSX listing requirement). National Policy 58-201 provides
guidance on corporate governance practices for Canadian issuers,
but does not require issuers to adopt any particular practices.
National Instrument 58-101 requires issuers to disclose certain
aspects of their corporate governance practices to their
shareholders in the management information circular. These elements
together form what is referred to as the "comply or
disclose" regime in Canada. Issuers must explain their
governance practices with reference to the guidance provided by CSA
or disclose the practices that they have adopted and why they
consider those practices appropriate. Although the CSA has long
insisted that their corporate governance guidance is not intended
to be prescriptive, many think of the CSA guidance in NP 58-201 as
"best practice". In our view, the CSA guidance may well
be common practice, but "best practice" should be thought
of as the practice that promotes the most effective decision making
for the individual issuer.
The CSA has concluded that there is an unacceptable level of
compliance with its corporate governance disclosure requirements.
As a result of its review, more than half of the issuers reviewed
are being required to make prospective changes to their governance
disclosure (although none were required to refile). The most
significant and frequent deficiencies occurred in disclosure
related to: the board of directors, position descriptions,
orientation and continuing education, ethical business conduct,
nomination of directors and director assessments.
The Staff Notice sets out examples of disclosure in which
deficiencies were identified (with the name of the issuer redacted)
accompanied by CSA commentary explaining why the disclosure was
deficient. The Staff Notice is very readable and should be of
considerable assistance to issuers, their boards and management in
preparing for the 2011 proxy season. The CSA has sent a strong
signal that it will take issue with corporate governance disclosure
that it considers to be vague, boilerplate or incomplete. Issuers
should review their disclosure carefully against the Staff Notice
and change or refine their disclosure to respond to the issues it
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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