The Canadian Securities Administrators have adopted a uniform final version of their proposed corporate governance disclosure rule, known as National Instrument 58-101 (the Rule), and the associated National Policy 58-201 (the Policy). While these instruments are scheduled to come into force on June 30, 2005, the Rule will only apply to information circulars or annual information forms, as applicable, filed following financial years ending on or after June 30, 2005. As a result, for most issuers with calendar year ends, the Rule will apply commencing in early 2006.
The Rule will apply to all reporting issuers, other than investment funds, issuers of asset-backed securities, designated foreign issuers and SEC foreign issuers (each as defined) and certain issuers of exchangeable securities, among other exemptions.
The Rule requires issuers to disclose their corporate governance practices and to file on SEDAR a copy of any code of ethics adopted (and amendments thereto). The Policy is designed to provide non-binding guidance on corporate governance practices.
The changes made to the earlier proposal (see our Securities Update regarding Corporate Governance dated December 2004) were modest.
They include the following:
issuers, except venture issuers, must now disclose attendance records of directors, as well as details concerning any compensation consultants retained to assist with director and officer compensation;
independence standards consistent with those that will apply under MI 52-110 (Audit Committees) have been adopted; and
independent directors have been encouraged to hold regularly scheduled meetings at which management and non-independent directors are not in attendance.
The following non-binding corporate governance guidelines are contained in the Policy:
maintaining a majority of independent directors on the board of directors;
appointing a chair of the board or a lead director who is an independent director;
holding regularly scheduled meetings of independent directors at which non-independent directors and members of management are not in attendance;
adopting a written board mandate;
developing position descriptions for the chair of the board, the chair of each board committee, and the chief executive officer;
providing each new director with a comprehensive orientation, and providing all directors with continuing education opportunities;
adopting a written code of business conduct and ethics;
appointing a nominating committee composed entirely of independent directors;
adopting a process for determining the competencies and skills the board as a whole should have, and applying this result to the recruitment process for new directors;
appointing a compensation committee composed entirely of independent directors; and
conducting regular assessments of the board effectiveness, as well as the effectiveness and contribution of each board committee and each individual director.
The regulators indicate that they intend to periodically review these instruments to ensure their continued appropriateness, and that they intend in particular to study the governance of controlled companies.
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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