On December 11, 2013, the Canadian minister of industry announced a public consultation on the Canada Business Corporations Act (CBCA) to identify ways the CBCA can potentially be amended to improve the corporate governance of corporations subject to its legislation (the Consultation Paper).
Comments will be received until March 11, 2014. This consultation announcement follows a statutory review of the CBCA undertaken in 2009 and 2010 by the House of Commons Standing Committee on Industry, Science and Technology (the Committee). The CBCA is a framework statute and is not intended to prescribe how a corporation is to be run. Notwithstanding this, the Consultation Paper covers a broad range of topics, several of which are already addressed in provincial securities legislation or stock exchange requirements.
The key areas identified for consultation include:
The Consultation Paper seeks input on whether the CBCA reflects best corporate practice in the area of executive compensation. Issues identified for consultation are the need for a mandated shareholder advisory vote on executive compensation and the appropriate roles of the CBCA and provincial securities legislation in regulating executive compensation. Disclosure of executive compensation is currently prescribed by provincial securities legislation. Say-on-pay votes, while not mandatory, have been adopted by many Canadian issuers.
The Consultation Paper is requesting comments on whether the CBCA should be amended to include mandatory ballot voting, disclosure of voting results, individual (versus slate) election of directors, annual (versus extended) term election for directors and majority voting.
The CBCA currently provides for up to three-year terms for directors, staggered boards and plurality of voting. Last year, the Toronto Stock Exchange (the TSX) introduced rules requiring listed issuers to annually elect directors individually and publicly disclose the votes received for the election of each director. The TSX further requires disclosure of whether an issuer has adopted a majority voting policy or not and requires the issuer to advise the TSX where a director receives a majority of "withhold" votes if the issuer does not have a majority voting policy.
In addition, the Consultation Paper requests comments on how to address the issues of "over-voting" and "empty voting" of securities to assess whether the CBCA's current shareholder voting provisions adequately facilitate shareholder democracy.
Shareholder and Board Communication
Comments are requested on certain matters regarding communication between shareholders and the boards of directors. The Consultation Paper sets out the following issues:
- the use of electronic meetings by public corporations and, in particular, whether public corporations should be allowed to limit shareholder communication to electronic means only;
- should the CBCA be further amended to facilitate notice and access? Notice and access allows the posting of shareholder materials on websites as a delivery method and was introduced by the provincial securities regulators prior to last proxy season;
- the ability of significant shareholders (greater than 5%) to require that alternate directors be included in the management proxy circular for election at a shareholder meeting; and
- whether the procedure for shareholder proposals should be amended to allow shareholders to more efficiently utilize the process, namely the filing deadline to submit a proposal and the speaking limit to explain a proposal.
The Committee recommended consulting on amending the CBCA to:
- require separation of the chief executive officer and chairman of the board positions to include a provision requiring shareholder approval of significantly dilutive acquisitions;
- streamline the oppression remedy to address potential problems regarding cost and delay that result in reduced access to the remedy; and
- require publicly traded corporations to disclose the board's understanding of the impact of social and environmental matters on the corporation's operations.
These consultations aim to determine whether the CBCA adequately balances the respective roles of boards and shareholders and enables shareholders to require appropriate accountability for boards of directors.
However, the TSX already requires securityholder approval in circumstances where the number of securities issued in payment of the purchase price for an acquisition exceeds 25% of the number of issued securities of listed issuers. In addition, securities regulators have already published guides on disclosure requirements relating to environmental matters.
Securities Transfers and Other Corporate Governance Issues
The Consultation Paper requests submissions on:
- the potential removal of CBCA provisions relating to securities transfers in light of the enactment of provincial securities transfer legislation;
- whether the CBCA's insider trading provisions remain relevant in light of provincial securities legislation;
- the continued need for Canadian residency requirements for directors;
- the regulation of trust indentures under the CBCA; and
- the need to reconcile the CBCA's modified proportionate liability regime with provincial liability regimes for financial losses arising from negligence.
Socially Responsible Enterprises
The Consultation Paper invites submissions as to whether the CBCA needs to be amended to support the incorporation of hybrid entities with both profit-making and non-profit-making goals that encourage social change.
The government is seeking comment on how the CBCA should address improved access to beneficial shareholder ownership information by competent authorities, including possibly through establishing a central repository of corporations, the disclosure of nominee shareholder information and the CBCA's current provisions that allow bearer shares.
Combatting Bribery and Corruption
The Consultation Paper recognizes Canada's memberships in global organizations that formulate policies directed at ensuring corporations are not used for tax evasion, money laundering or terrorist financing. The Consultation Paper asks for public comment as to whether the existing CBCA provisions relating to the keeping of corporate records, accounting standards and audits are sufficient to combat bribery in international transactions.
Diversity of Corporate Boards and Management
The Consultation Paper requests comments on whether the CBCA should be amended to include measures that promote diversity of corporate boards and management. The Ontario Securities Commission recently undertook a consultation regarding gender diversity of corporate boards and senior management of public issuers.
The CBCA currently provides that solvent applicants may use the legislation's arrangement provisions. The Consultation Paper requests comments as to whether the CBCA should be amended to specifically allow for the arrangement provisions to be used by insolvent corporations having regard to the safeguarding of creditors and other stakeholder interests.
Corporate Social Responsibility
Public consultation is being sought as to whether the CBCA should be amended to provide additional provisions that promote corporate social responsibility objectives.
The Consultation Paper includes a number of questions regarding potential technical amendments to the CBCA. These include amendments relating to:
- the dissolution and revival of CBCA corporations;
- the exercise of shareholder rights of dissent, which could be limited to shareholders who have owned their shares for a minimum period of time;
- the procedure relating to "squeeze-out" transactions;
- excluding rights of dissent for nominal changes in shareholdings upon the consolidation of shares; and
- whether the CBCA should more fully recognize beneficial owners by giving them more of the rights of registered shareholders.
A copy of the Consultation Paper can be accessed here.
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