In a low commodity price environment, it may become tempting for
management and the board to reduce their focus on legal compliance
in an effort to conserve resources. In some cases, growth energy
companies have not established an internal compliance program under
the supervision of the board.
Our view is that this is not a viable strategy for directors.
Directors face significant potential liability under Canadian law
for their failure - and perhaps more significantly for the failure
of the companies that they supervise - to comply with legal
Before joining any board, or continuing their service on an
existing board, directors should ensure that appropriate insurance,
indemnities and legal compliance programs are in place. Given that
the personal assets of directors are exposed to potential
plaintiffs as a result of board service, it is essential that
directors make a legal compliance programs a necessary requirement
of board work.
Beyond personal risk, it is our experience that an effective and
well-designed legal compliance program is a leading indicator of
the long-term ability of the business to generate value and avoid
unnecessary expenditures on legal activity. Good compliance
practises are good for business.
What should directors look for in a legal compliance program
before they commit to serve on a board?
Focus on Indirect Liability
In practical terms, the most important liability directors'
face is the Corporation's failure to comply with its public law
obligations. A conscientious director can avoid breach of fiduciary
duty and other personal misconduct, but it is much more difficult
for the director to regulate the behavior of the corporation. A
robust compliance program should first concern itself with the
steps the corporation will take to avoid legal noncompliance by the
officers and employees.
Make Sure it Matters
Directors can begin the process of creating a culture of
compliance by engaging in design of the compliance program.
Management should propose the program, but the directors should set
aside time in a board meeting to assess its scope, objectives and
review mechanisms. The foundation of many defenses available to
directors is the degree to which they directed the corporation to
establish mechanisms to ensure compliance. Perhaps more
importantly, the directors have a unique opportunity to establish a
culture of compliance from the top by making the program a
A good compliance program can be understood by all of the members
of the organization and is not overly formalistic. The law can be
complicated and its requirements obscure unless it is effectively
distilled to its core principles in a way that allows all employees
to participate in the compliance effort. It is more important that
a program is understood than it is lengthy, or cover every
conceivable aspect of legal risk.
Support a Culture of Improvement, Not
Some compliance programs suffer from the fact that they discourage
the discussion of near misses or lessons learned from situations in
which compliance was not achieved. Reality dictates that is not
always possible to achieve perfect compliance. Although full
compliance is always the objective, managers and employees should
be encouraged to openly discuss, reflect on and use lessons learned
from their efforts to improve the program. The board can strongly
encourage this effort by consistently reviewing the performance of
the compliance program, the efforts being made to improve it and
benchmarking the program against the efforts of others.
Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
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