On September 28, 2015, the Canadian Securities Administrators
(CSA) released a staff notice summarizing the findings from its
review of the corporate governance disclosure of non-venture
issuers related to policies regarding director term limits and
other mechanisms for board renewal.
The review relates to the amendments to National Instrument
58-101– Disclosure of Corporate Governance Practices
and Form 58-101F1 Corporate Governance Disclosure
(Amendments), implemented by the securities regulatory authorities
of Manitoba, New Brunswick, Newfoundland and Labrador, Northwest
Territories, Nova Scotia, Nunavut, Ontario, Quebec, Saskatchewan
and Yukon (Participating Jurisdictions) on December 31,
The Staff Notice summarizes the CSA's review of the
corporate governance disclosure of 722 non-venture issuers (Sample
Group) listed on the Toronto Stock Exchange.
The CSA found that among the issuers in the Sample Group, only
19 per cent disclosed that they have adopted director term limits
and 56 per cent disclosed that they have adopted a mechanism for
board renewal other than director term limits. The most commonly
disclosed mechanism for board renewal was board assessments. Just
over 20 per cent of issuers in the Sample Group disclosed that they
did not have director term limits or similar mechanisms for board
The most significant indicator of whether issuers adopted
mechanisms of board renewal, and particularly director term limits,
was issuer size. For example, the CSA found that:
Issuers with a market capitalization of C$2 billion and
above were more likely to adopt director term limits
Issuers with a market capitalization of less than C$1 billion
were most likely to adopt mechanisms for board renewal other than
director term limits
Types of Term Limits
Of the 137 issuers in the Sample Group that disclosed they have
director term limits, just over half of that group disclosed they
have director age limits in place. Twenty-four per cent of that
group disclosed they have director tenure limits in place and the
remaining 23 per cent have both director term and age limits in
Reasons for No Term Limits
Several reasons were provided by the Sample Group issuers that
disclosed they have neither director term limits nor other
mechanisms in place. The most frequently cited reason for not
adopting term limits is the belief that they reduce continuity or
experience on the board. Other reasons include the belief that
director term limits are arbitrary and that they force valuable,
experienced and knowledgeable directors to leave the issuer's
board. Reasons for not adopting term limits or other mechanisms
include that the boards' effectiveness is regularly assessed,
that the issuer's industry is unique and retaining knowledge of
the board is desired, and the belief that annual elections are a
sufficient mechanism for board renewal.
In addition to setting out the findings of the CSA's review
of the corporate governance disclosure resulting from the
Amendments, the Staff Notice also provides some limited guidance to
assist issuers with the level and detail of disclosure that is
necessary to satisfy Item 10 of Form 58-101F1 Corporate
Governance Disclosure, which requires issuers to describe any
mechanisms of board renewal that the issuer has implemented other
than director term limits. The CSA Staff Notice provides that
non-venture issuers must not disclose only that a board assessment
process is in place, but also how such assessment relates to board
renewal. The Staff Notice includes an example of disclosure
compliant with that item of the Amendments.
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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