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
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.
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
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
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
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.
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
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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