Canada: CSA Report on Corporate Governance Disclosure in Canada

Last Updated: December 13 2010
Article by Leslie McCallum

The Canadian Securities Administrators recently conducted a review of the quality of issuers' corporate governance disclosure. The CSA report concludes that there is an unacceptable level of compliance and provides guidance on how issuers' corporate governance disclosure can be improved.

The CSA has provided sample disclosure in several areas, as well as governance-related questions for issuers to consider with reference to their own corporate governance practices. In general, the CSA is encouraging more robust disclosure that will allow readers to better understand the governance practices that an issuer has adopted and why it considers those practices appropriate. The regulators disapprove of boilerplate disclosure that is not fully responsive to the form requirements. The specific guidance, which is summarized below, should be helpful for issuers in drafting their corporate governance disclosure for 2011.

The CSA's guidance reflects some of the same concerns addressed by the corporate governance provisions of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act and new SEC corporate governance disclosure rules applicable to U.S. issuers' proxy statements. In both jurisdictions, the regulators are pushing for greater transparency about issuers' corporate governance practices, including the relationships between those practices and issuers' risk-management and executive compensation systems.

Directors' Independence

If a board's chairperson or lead director is not independent, the disclosure should go beyond stating that the issuer believes its current leadership structure is appropriate. The issuer should explain what specific steps the board takes to provide leadership to its independent directors.

The issuer should also disclose details about the nature of any material relationship that prevents a director from being independent. Vague or general statements like "the board takes all the factual circumstances into account in deciding whether a director is independent" are not sufficient.

Risk-Management Disclosure

The CSA report notes that risk-management practices are under increased scrutiny, and this is an area the regulators are monitoring closely in light of ongoing international developments. For example, the SEC's new rules mentioned above require U.S. issuers to disclose the board's role in the oversight of risk and whether the issuer's compensation practices lead to risk-taking that could have a material adverse effect on the issuer. The changes to executive compensation disclosure recently proposed by Canadian securities regulators would similarly require issuers to disclose whether the board considered the risk-management implications of the issuer's compensation policies and practices and, if so, the risks that are likely to have a material adverse effect on the issuer.

Meetings of Independent Directors

If a board does not regularly hold separate meetings of the independent directors, the issuer must disclose how the board facilitates open and candid discussion among them. It is not sufficient to make a general statement, without elaboration, that appropriate structures and procedures are in place to facilitate such discussion.

Position Descriptions

An issuer must disclose what the board does to delineate the roles and responsibilities of the chair of the board, the chair of each committee and the CEO. It is not sufficient to disclose that the issuer relies on a mutual understanding of these roles and responsibilities.

New Director Orientation and Continuing Education

Regardless of whether an issuer has a formal orientation program, it must disclose the measures the board takes to orient new directors. Merely stating that there is or is not an orientation and training program is insufficient. In addition, the issuer should not merely state that continuing education will be available when needed. Instead, it should specify how it encourages directors to maintain the skills and knowledge necessary to meet their obligations as directors.

Compliance with Code of Ethics

An issuer should disclose the steps it takes to ensure compliance with its code of ethics, rather than making a blanket statement that the board monitors compliance with the code or that action will be taken if a situation of non-compliance becomes known to management.


An issuer must describe its process for identifying new candidates for nomination as directors, even if it is informal. If no process exists, the issuer must explain why.

Performance Assessments

An issuer must describe the assessment process or describe how the board satisfies itself that the board, its committees and its individual directors are performing effectively. Merely disclosing that the board conducts regular performance assessments is insufficient.

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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