On March 7, 2016, the Institute of Corporate Directors (ICD), a
not-for-profit director association consisting of more than 10,000
members across Canada, published guidance to help boards of
Canadian public companies develop a shareholder engagement approach
to corporate governance.
Recent changes to Canada's corporate landscape, including an
increased focus on enhanced corporate governance practices, higher
degrees of active investment management by institutional investors,
the rise of activist investing and the increased use of proxy
advisory services, have led significant shareholders and public
company boards to review their current approach to
The ICD viewed the lack of a standard framework as one of the
greatest obstacles to increased dialogue between directors and
significant shareholders of Canadian public companies. As a result,
the ICD has developed the following "flexible and
universal" guidance to help Canadian boards institute a direct
shareholder engagement approach tailored to the specific needs of
the company and its shareholders. This guidance, summarized below,
is designed to reflect the distinct qualities of Canadian markets,
while being consistent with the Shareholder-Director Exchange (SDX)
Protocol's recommendations for U.S. companies.
Know Your Most Significant Investors.
Establish a regular process whereby management provides the board
with information regarding the company's most important
shareholders, including: (i) their investment rationale and the
size of their share position (including any material short
positions); (ii) their general investment strategy, philosophy and
track record; (iii) the structure and hierarchy of their
decision-making process; (iv) how they vote their shares and
whether they outsource voting to proxy advisory firms; and (v) any
material policy restrictions.
Recognize the Key Benefits of
Engagement. The board should recognize that
shareholder engagement provides directors with an opportunity to
gain valuable insight into how the company and its management are
perceived and whether the company's strategy is understood,
while also providing shareholders with better visibility into the
company, its strategy and its decision-making process. Improved
shareholder communication can enhance understanding on both sides
and therefore reduce the risk of proxy battles, contentious
say-on-pay votes and contested director elections.
Tailor a Process That Works for You.
Each board should take a strategic context-based approach to
shareholder engagement that establishes when it will engage with
shareholders, the criteria for identifying shareholders with whom
it will engage and the frequency of that engagement.
Set Topics of Discussion. The board
should develop a clear agenda of governance-related topics prior to
any meeting between directors and shareholder representatives.
Appropriate topics for engagement by directors may include (i)
board oversight of the company's strategy, risks and internal
controls; (ii) the board's composition and decision-making
process; (iii) succession planning; and (iv) executive
compensation. Directors should avoid discussing operational and
performance matters, but should listen to shareholders' views
on those topics and provide assurance that they will be conveyed to
Invite the Right Participants.
Selected directors should be identified to participate in
shareholder engagement meetings and be prepared to address the
agenda items within the limits prescribed by applicable securities
laws. The ICD recommends that consideration be given to having
senior executives present in appropriate circumstances, on the
understanding they may be excused to provide the shareholder
representatives with an opportunity to discuss executive
performance in camera.
Review and Consider What You Learned.
Directors participating in shareholder engagement meetings should
share the results of these meetings with the entire board. This
will help the board assess the questions that need to be posed to
management, based on input from the company's most important
investors and the messages it may need to convey to the market. The
ICD recommends that shareholder engagement be on the board's
agenda at least once per year.
With Canadian shareholders becoming much more proactive, the
need for a proper shareholder engagement strategy is critical. As
companies develop their approach to shareholder engagement, the ICD
guidance provides a useful road map of important elements that
should be considered. If your organization is considering a
shareholder engagement strategy or policy, our team of governance
experts can assist.
A complete copy of the ICD guidance on director-shareholder
engagement (which includes the SDX Protocol) can be found here.
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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