Canada: The Balancing Act: Directors' Duties In Canada vs. The U.S.

When evaluating major corporate decisions, such as potential merger-and-acquisition opportunities, a corporation's board of directors is tasked with exercising its management or supervisory role with a view to the best interests of the corporation. Interpretation of what or who makes up "the corporation", however, and particularly which stakeholder interests may be validly considered when making corporate decisions, varies between jurisdictions.

In the United States, this notion of a director's duty is generally interpreted to be synonymous with the best interests of the corporation and its shareholders and, particularly, shareholder value is to be prioritized. In Canada, on the other hand, the notion is not as wedded to maximizing shareholder value, as a director may properly take into account the interests of shareholders, as well as other stakeholders such as employees, creditors, consumers, the environment and the community at large in determining the best interests of the corporation.

However, while there are differences in the interpretations of the legal scope of directors' duties between Canada and the U.S., in practice, boardroom discussions can generally be expected to be quite similar in both jurisdictions.


Canadian and U.S. judicial interpretations of directors' fiduciary duties have historically differed.


The maxim that the best interests of the corporation are generally synonymous with those of the shareholder dates back to at least the 1919 Michigan Supreme Court decision in Dodge v. Ford Motor Company, 204 Mich. 459, 170 N.W. 668, 3 A.L.R. 413 (1919). Dodge v. Ford Motor Company concerned a dispute between Ford Motor Company and brothers John and Horace Dodge, shareholders of Ford Motor Company, who objected to a decision by Henry Ford to withhold special dividends in favour of investing profits back into the company.

Henry Ford's rationale for using the profit to expand the business rather than pay a special dividend, as quoted by the Court in its reasons, was "to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes." The Michigan Supreme Court, in finding Henry Ford's "philanthropic and altruistic" sentiments improperly applied as corporate policy, held that "[a] business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end."

This conception of the role of the corporation and the directors who guide it has become a basic tenet of U.S. corporate law, informing subsequent developments such as the Revlon duty (which provides that directors must act reasonably to maximize the short-term value of the consideration to be received by shareholders in a sale or change of control transaction). Overall, American jurisprudence is generally clear: boards of directors are responsible for maximizing shareholder value above all other considerations, especially when the company is the target of an acquisition or sale transaction.


The duties owed by directors to a corporation in Canada consist of two distinct facets: the duty to act honestly and in good faith with a view to the best interests of the corporation (commonly referred to as the "duty of loyalty"), and the duty to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances (commonly referred to as the "duty of care").

The duty of loyalty and the duty of care, often collectively referred to as the "fiduciary duties" of directors, apply whenever directors act in furtherance of corporate ends. Canadian courts have held that such fiduciary duties are owed by directors to the corporation itself, rather than to the shareholders of the corporation.

In addition, Canadian courts abide by the "business judgment rule" pursuant to which appropriate deference is given to a good faith decision by directors, provided that the decision is reached on an informed basis and is within a range of reasonable alternatives.

In the seminal case of BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, 2008 SCC 69 (the "BCE Decision"), Canada's highest court considered, among other concepts, the duty of loyalty and held that in determining what is in the best interests of the corporation, directors of a Canadian corporation may look at the interests of a variety of stakeholders, including shareholders, employees, creditors, consumers, governments and the environment to inform their decisions. The Supreme Court of Canada clarified that, unlike the predominant view in the U.S. context, there is no principle in Canada that one set of stakeholders' interests, such as the interests of shareholders, should automatically prevail over all other interests. Instead, it is a matter for the directors' business judgment as to what is in the best interests of the corporation in any particular situation. Importantly, the court also noted that, where the corporation is a going concern, directors should be looking to the long-term interests of the corporation in exercising their duties.


One context in which Canadian directors may be afforded greater leeway than their U.S. counterparts to consider alternative courses of action may arise when faced with an activist shareholder proposal. While there is an ongoing debate regarding the role and consequences of shareholder activism, it is fair to say that, historically, some courses of action initiated by activist investors have positively impacted long-term corporate value, while others have negatively impacted long-term corporate value.

An activist shareholder may propose, for example, remedying a perceived underperforming stock by engaging in a share buyback, issuing debt, increasing dividends, downsizing or engaging in another corporate activity that could be expected to result in an immediate increase in shareholder value. Such corporate action, designed to have the effect of raising shareholder value in the short term, may adversely affect the corporation's long-term prospects. For example, downsizing may result in a loss of customers, or taking on debt may limit the company's flexibility to make value-enhancing investment in research and development, staff training and capital expenditures.

Rather than creating corporate value, which can be imagined as growing the size of the "pie", certain of such proposals may in fact just shift value between stakeholders, such as from employees or creditors to shareholders, thereby reallocating the pieces of the same-sized corporate value "pie" onto the plates of shareholders. In the Canadian context, such value-shifting initiatives may be properly criticized as prioritizing the interests of shareholders over other stakeholders, which may not result in corporate actions that are in the best interests of the corporation. Whereas in the U.S. context, directors might not be faulted for increasing shareholder value in such a manner.

This difference may help to explain why shareholder class actions typical in the U.S., such as "stock drop" cases, are less common in Canada. As long as a board's decision can be justified as being in the best interests of the corporation as a whole, such decision is protected by Canada's business judgment rule, even if it fails to maximize short-term (or even long-term) shareholder value.

Another context in which Canadian directors may be afforded greater leeway to consider alternative courses of action is when a Canadian corporation becomes the target of a take-over bid. Like in the U.S., the board of a Canadian target corporation may determine to support a bid, even if a higher-priced bid has been proposed by another suitor (such as Family Dollar Stores Inc.'s board, which supported Dollar Tree Inc.'s lower-priced bid as it was perceived to involve fewer anti-trust hurdles, and therefore a greater likelihood of consummation, than a competing bid from Dollar General Inc.). However, unlike in the U.S., in the Canadian context, a lower bid could also be supported as being in the best interests of the corporation based on consideration of the impact on stakeholders apart from the shareholders.


Although directors of Canadian corporations are afforded with the additional flexibility to consider the interests of a myriad of stakeholder groups, the interests of shareholders still matter. As in the U.S., ultimately most transformative corporate decisions require shareholder support, either by way of a shareholder vote or through the tendering of shares.

Accordingly, a board of directors that seeks to pursue a decision that may, for example, forego an immediate increase in share price will need to convince shareholders that such a long-term view is in fact in the shareholders' best interests. The success of such a campaign can depend heavily on the types of investors comprising the shareholder group.

Further, while a board's decision to not support an activist shareholders' proposal or a premium take-over bid may be legally justified, in the context of a proxy battle, directors that fail to convince shareholders of the benefits of such a decision may ultimately be replaced by alternate candidates put forward by dissident shareholders. That is not to say, however, that the new replacement directors will ultimately make determinations to appease upset shareholders, as such directors are also equally tasked with acting in the best interests of the corporation as a whole. In the U.S., this was clearly demonstrated when three nominees of Air Products and Chemicals, Inc. were elected to the board of Airgas, Inc. and subsequently sided with the other members of Airgas' board in determining to reject Air Products' offer to acquire.


While there are differences in how directors' duties are viewed in Canada as compared to the U.S., in practice the process undertaken by Canadian boards in considering shareholder proposals or transformative transactions can be expected to be similar to that of their U.S. counterparts. Examples of such accepted cross-border best practices are as follows:

Engage. Ensure that all concerns are heard and that there is a clear and obvious process for communicating with stakeholders and managing their issues. Create a dialogue aimed at coming to a collaborative solution to such issues. In many cases, costly and protracted proxy or legal battles may be avoided by proactive engagement.

Act in good faith. Irrespective of whether shareholders as well as other stakeholder groups may be considered when taking corporate action, the directors taking such action must be independent and disinterested, they must have an honest belief that the action to be taken is in the best interests of the corporation, and there must be a rational business purpose for the transaction.

Follow a good process. Take "due care" in making decisions. The directors must have exercised "reasonable diligence" in informing themselves of all material information reasonably available to them. While it may not be necessary to go through a checklist to consider the impact of a corporate action on each stakeholder group, none should be unfairly disregarded. In particular, actions that are oppressive or unfairly prejudicial to the interests of a stakeholder may give rise to an oppression action under Canadian corporate law.

Document. Create a paper trail memorializing the steps taken by the board in ensuring that it is well informed, acting in good faith and has reached an appropriate decision. Any conflicts should be carefully documented and corporate minutes should show that board members acted with due care. Documentation is important when a board's decision faces after-the-fact scrutiny.

To conclude, while the judicial interpretation of what is in the best interest of a corporation may differ as between Canada and the U.S., in practice (i) on either side of the border, shareholder interests must be considered, (ii) the process that U.S. board members follow—especially when dealing with activist shareholders or competing take-over bid proposals—can be expected to be quite similar to that followed by Canadian boards, and (iii) it will be a rare occasion that the conclusions determined by a Canadian board will differ from a U.S. board in similar circumstances.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
24 Nov 2017, Seminar, Toronto, Canada

Blakes is proud to host our New to In-House Series, designed to bring together junior and mid-level in-house counsel for a candid exchange of insights to highlight and address some of the challenges and opportunities facing in-house lawyers in their roles today.

30 Nov 2017, Seminar, Toronto, Canada

This seminar will feature a panel of senior counsel who will discuss a range of current ethical issues that in-house counsel may face. Attendees will be provided with scenarios and encouraged to participate in the discussion.

30 Nov 2017, Seminar, Toronto, Canada

The economic climate of the past three years has seen a marked increase in the number of construction projects that have been terminated, suspended or threatened to be terminated. Please join us as we discuss some of the key issues that can arise from such terminations or potential terminations and practical tips for protecting existing rights and remedies under the project contract.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.