On December 11, 2013, Industry Canada launched a 90-day public consultation (the "Consultation") on the Canada Business Corporations Act ("CBCA") with the release of a discussion paper (the "Discussion Paper") inviting comments on a number of corporate governance themes and issues. The CBCA is Canada's principal federal corporate statute and provides the legal and regulatory corporate governance framework for nearly 235,000 federally incorporated businesses, including almost half of Canada's publicly traded corporations.
The Discussion Paper and related materials are available at www.ic.gc.ca/cbca-consultations.
The objective of the Consultation is to ensure that the governance framework for CBCA corporations continues to remain effective, foster competitiveness and support investment and entrepreneurial activity. The Consultation follows up on corporate governance issues identified in a 2010 Parliamentary Committee report reviewing the CBCA. Among other matters, the Discussion Paper focuses on a number of issues relating to greater shareholder participation in corporate governance. This is consistent with a trend over the past several years towards greater shareholder influence over corporate decision making and control.
Among the issues under review in the Consultation are the following:
Shareholder Review of Executive Compensation ("Say on Pay")
The Discussion Paper invites input on whether amendments to the CBCA should require shareholder advisory votes on executive compensation. Shareholder votes on executive compensation are now mandatory for many corporations in the United States under the Dodd-Frank Act, and, although not required by law, "say on pay" votes are increasingly held by Canadian public issuers listed on the Toronto Stock Exchange ("TSX").
Shareholder Voting, Board Accountability and Communication between Shareholders and Boards
The Discussion Paper also canvasses views on a number of matters relevant to shareholder voting, board accountability and communication between shareholders and boards. These matters include:
- election of directors, such as majority voting and individual voting as opposed to "slate" voting (see the Davies publication on director election requirements for TSX-listed issuers);
- "empty voting" of shares (the exercise of voting rights without, or with a reduced, economic interest relative to voting power);
- mandatory voting by ballot and disclosure of voting results at shareholder meetings;
- the elimination of staggered boards;
- improving the effectiveness of the shareholder voting provisions to address "over voting" (see the Davies publication The Quality of the Shareholder Vote in Canada);
- ensuring effective communication between shareholders and boards of directors, including through the use of "notice and access" for dissemination of proxy materials, equal treatment of OBOs and NOBOs and enhancements to the shareholder proposal mechanism;
- requiring the split of Chief Executive Officer and chairperson roles; and
- further empowering shareholders to increase the accountability of boards of directors, including through shareholder approval for dilutive acquisitions and the possibility of arbitration to resolve shareholder oppression claims.
The issue of "empty voting" arose in a recent dispute between TELUS Corp. and Mason Capital Management LLC. In that case, the B.C. Court of Appeal noted that under British Columbia's Business Corporations Act the courts did not have any authority to disenfranchise a shareholder on the basis of the shareholder not having an economic interest in shares voted, noting that any remedy for empty voting "must lie in legislative or regulatory change". The Consultation will provide stakeholders with an opportunity to suggest legislative changes that will prohibit or curtail empty voting.
The effectiveness of the shareholder voting system is also a current focus of the Canadian Securities Administrators ("CSA"). The CSA held a consultation on the issue earlier this year, as outlined in CSA Consultation Paper 54-401 Review of the Proxy Voting Infrastructure, and certain provinces have announced that they are holding further consultations in 2014.
Board and Management Team Diversity
The Discussion Paper raises the question of whether Canada should follow the lead of certain other jurisdictions to increase women's representation on boards of directors, such as legislating quotas for representation or mandating diversity targets.
Other Corporate Governance Issues Raised in The Consultation
The Discussion Paper raises other corporate governance topics and issues which are under consideration as part of the Consultation and for which input has been requested, including:
- greater transparency of the ownership of corporations for purposes of law enforcement and tax collection;
- whether more corporate governance rules are needed to meet Canada's obligations under the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions;
- socially responsible entities, as permitted in other jurisdictions, or hybrid for-profit and not-for-profit entities, and whether the CBCA can accommodate these entities without further amendments; and
- whether the CBCA adequately promotes corporate social responsibility objectives, including human rights and environmental issues.
Davies will be preparing a submission letter in response to Industry Canada's request prior to the March 11, 2014 deadline.
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.