Canada: 5 Key Developments in Canadian Corporate Governance Rules in 2017

In 2017, Canadian legislators, regulators, and stock exchanges have implemented—or taken steps toward implementing—new rules and guidance in a number of areas relating to public company governance. As the year winds down, our Canadian Special Situations team reviews five key legal and regulatory developments in 2017, and what they mean for Canadian public companies.


Changes to corporate statutes

If CBCA and OBCA amendments pass, more issuers will be required to adopt majority voting, annual, individual election of directors, and diversity disclosure—if they have not already.

The past year has seen significant steps to amend both the Federal and Ontario corporate statues. If implemented, the main practical effect of the proposed amendments to the Canada Business Corporations Act (CBCA) and Ontario Business Corporations Act (OBCA) would be to require all Federal and Ontario public companies to adhere to majority voting, annual, individual elections for directors, and diversity disclosure, regardless of the exchange on which they are listed.

In doing so, the amendments would bring the CBCA and OBCA largely into line with existing requirements for TSX-listed companies. In addition, the amendments would fill certain perceived gaps in exchange requirements. The amendments would make these practices increasingly the norm, even where issuers may not be technically obliged to adopt them.

The Federal amendments, which were first introduced in September of 2016, are likely to pass in something close to their present form. They are now being considered in the Senate. However, the Ontario amendments, which were first introduced in March of 2017, are much less likely to pass, given that they were put forward in a private member's bill (though by a government MPP).

Both sets of amendments include:

  • Majority voting for directors: Under Canadian corporate laws, shareholders can either vote for a director or "withhold" their vote. This means that directors can be elected by just one "for" vote, even if they receive more "withhold" votes. The amendments provide that public company directors can be elected in uncontested elections only if they receive a majority of "for" votes. This addresses the fact that under the TSX rules requiring a majority voting policy, directors who do not receive a majority of votes are only required to tender their resignation, with the board deciding whether to accept it. While resignations must be accepted absent "exceptional circumstances", in practice this provision has frequently resulted in defeated directors remaining on boards.
  • Annual, individual election of directors: The amendments mandate that public company directors be elected annually and individually, largely mirroring existing requirements on the TSX and TSXV.
  • Mandatory diversity disclosure: The amendments require that prescribed information with respect to diversity be given to shareholders. Under the CBCA regulations proposed in December 2016 to accompany the amendments, all public companies must disclose the number and proportion of directors and executive officers who are women. They also must disclose policies with respect to gender and other forms of diversity or explain why they have not adopted such policies.

In addition to these changes, the CBCA amendments allow CBCA public companies to take full advantage of notice-and-access by removing technical impediments.

The OBCA amendments include lowering the ownership threshold for shareholder proposals to nominate directors to shareholders collectively owning at least 3% of a company's shares, rather than the current 5% under the CBCA and OBCA. However, whereas the current OBCA provision allows a proposal to include "nominations for the election of directors", the amendments allow a proposal to nominate only a "single individual". The amendments also lower the threshold for requisitioning a meeting to shareholders collectively owning at least 3%, rather than the current 5% under the CBCA and OBCA. They also include allowing shareholders to make a proposal that a company adopt an executive compensation policy for officers and directors. If such a policy is adopted, the company would be required to set compensation in accordance with the policy.

Greater scrutiny for related-party transactions

Parties in related-party transactions will face more regulatory scrutiny of their process, especially with respect to fairness opinions.

On July 27, 2017, the Canadian Securities Administrators (the "CSA") published Multilateral CSA Staff Notice 61-302. The guidance advises that regulators in Ontario, Quebec, Alberta, Manitoba, and New Brunswick (Staff) will be reviewing related-party transactions covered by Multilateral Instrument 61-101 (MI 61-101) on a "real-time basis". It also provides clarity around the areas on which Staff will focus.

Overall, the guidance underscores the importance of ensuring a fair and rigorous process when undertaking a related-party transaction.

A few areas of the guidance are particularly noteworthy:

  • While MI 61-101 requires special committees of independent directors only for insider bids, Staff now believe that they are advisable for all material conflict of interest transactions.
  • Staff will expect meaningful and full discussion of the review and approval process, and have identified a number of common deficiencies, including:
    • inadequate disclosure of the context and background to a proposed transaction; 
    • failure to provide a meaningful discussion of the board of directors' or special committee's process and their rationale for supporting a proposed transaction; 
    • failure to provide disclosure of dissenting views of directors in respect of a transaction; and 
    • overly one-sided disclosure regarding a recommended transaction that did not identify potential concerns or available alternatives 
  • In the wake of the InterOil decision, Staff have raised their expectations for fairness opinions. When a fairness opinion is obtained, Staff now expect that issuers will:
    • disclose the compensation arrangement (though not necessarily the amount);
    • disclose how the board and special committee took the compensation arrangement into account when considering the advisor's advice;
    • disclose any other relationship between the financial advisor and the issuer or an interested party;
    • provide a clear summary of the methodology, information and analysis underlying the opinion; and
    • explain the relevance of the opinion to the board and special committee in deciding to recommend the deal.

Heightened expectations on diversity disclosure

Securities regulators are showing increased impatience at boilerplate or vague diversity disclosure.

CSA Multilateral Staff Notice 58-309—Staff Review of Women on Boards and in Executive Officer Positions—Compliance with NI 58-101 Disclosure of Corporate Governance Practices provides the CSA's third annual survey of compliance with National Instrument 58-101 and specifically, with its comply-or-explain diversity disclosure regime.

The review, released October 5 2017, notes that for the sample of 660 issuers reviewed this year, 14% of board seats were occupied by women, as against 11% 2 years ago. Similarly, the number of issuers surveyed with at least one woman on their board rose to 61%, from 49%. The review also notes that 26% of board vacancies in the sample were filled by women (a figure the CSA first reported this year).

Nonetheless, the CSA has noted that disclosure deficiencies continue in a number of areas, and reminds issuers that:

  • Disclosure must include both the number and the percentage of women on an issuer's board of directors and in its executive officer positions.
  • If a written policy regarding the representation of women on the board of directors has been adopted, a description of the policy and an explanation of how the policy applies to the identification of women directors, must be included.
  • If gender targets have been adopted, disclosure of annual and cumulative progress in achieving those targets must be included.
  • If there is consideration of the representation of women in the identification and selection of directorship and executive officer candidates, a description of the process must also be disclosed.
  • If term limits or other mechanisms for the renewal of the board of directors have been adopted, a description of the limits and/or other renewal mechanisms as well as their contribution to board renewal, must be disclosed.

New continuous disclosure guidance for the internet and social media era

Securities regulators and exchanges are making clear that issuers must maintain consistent, high-quality disclosure regardless of the venue in which disclosure occurs. The TSX will also expect key governance documents to be placed on an issuer's website.

While social media and company websites may lack the formality of SEDAR, the same expectations around the quality and consistency of disclosure still apply. Overall, there is an emerging expectation that issuers present one face to the public—not different information in different venues—and that basic governance documents be accessible.

On March 9, 2017, the CSA published Staff Notice 51-348—Staff's Review of Social Media Used by Reporting Issuers. The CSA noted that 72% of the sample of 111 issuers reviewed were actively using at least one social media website.

In reviewing social media disclosure, the CSA identified a number of issues that will attract the CSA's scrutiny and potential corrective action, including:

  • Selective disclosure on social media, including in the following respects:
    • Forward-looking information disclosed only on social media;
    • Lack of co-ordination about the timing of social media announcements; and
    • Third-party posts on social media which suggest missing continuous disclosure (ie. third parties are disclosing information that the issuer ought to have disclosed itself).
  • Unbalanced or misleading disclosure on social media, including in the following respects:
    • Misleading or untrue statements, including statements inconsistent with information on SEDAR or that rely on non-GAAP figures; and
    • Analyst reports and other articles provided on social media (in contravention of the obligation to provide the names and/or recommendations of all independent analysts who cover the issuer, or to links that contain forward-looking information).

The CSA also highlighted the importance of having a social media governance policy covering matters such as, for instance, who can post, what can be posted, and who must approve the posts. The Ontario Securities Commission has also noted similar deficiencies in social media disclosure, and recommended a social media disclosure policy, in its Corporate Finance Branch Annual Report for 2016-2017.

In addition, amendments to the TSX Company Manual in October 2017 will require every TSX-listed issuer to put current versions of the following on its website effective April 1, 2018:

  • its articles of incorporation, or any other constating or establishing documents and its by-laws; and
  • if adopted, copies of its majority voting policy; advance notice policy; position descriptions for the chairman of the board and lead director; board mandate; and board committee charters.

New guidance on majority voting and advance notice policies

The TSX has tightened its guidance around majority voting policies and advance notice provisions, specifically criticizing a number of practices that some issuers have adopted which undermine the intentions behind such policies.

Since 2014, TSX issuers have been required to have majority voting policies. As discussed above, the intention of these policies is to enhance shareholder democracy by preventing directors being elected in uncontested elections without receiving a majority of votes cast.

Many issuers have also adopted advance notice provisions, which allow shareholders to nominate directors only if they give sufficient advance notice to the company. As with majority voting policies, advance notice provisions tend to enhance shareholder democracy, because they prevent shareholder ambushes which catch companies and their shareholders off-guard.

Nonetheless, over the past few years certain problematic practices have emerged. In TSX Staff Notice 2017-0001, issued March 9, 2017,the TSX identified a number of such practices. In its review of 200 majority voting policies, problematic features included:

  • in effect not requiring a director to tender his or her resignation immediately if he or she was not elected by a majority of votes cast;
  • not providing a time frame for the board of directors to render a decision as to whether or not to accept a resignation or a time frame outside the 90 day period permitted by the TSX;
  • not specifically requiring the board of directors to accept the resignation of a director who was not elected by a majority of votes cast, absent exceptional circumstances;
  • exceptional circumstances—that is, circumstances in which a director could refuse to resign—that were inconsistent with the policy objectives of the majority voting requirement (for instance, if a director is long-serving);
  • not requiring the issuer to provide a copy of the news release with the board of directors' decision to the TSX; and
  • additional requirements that may have the effect of circumventing the policy objectives of the majority voting requirement (such as elevated quorum requirements for director elections).

In its review of 25 advance notice policies, the TSX also identified a number of problematic features, including:

  • Requiring the nominating security holder to be present at the meeting at which his or her nominee is standing for election for the nomination to be accepted, notwithstanding the number of votes obtained by such nominee;
  • Requiring the nominating security holder to provide unduly burdensome or unnecessary disclosure (such as when the holding was acquired). However, the TSX does support disclosure of the nominating security holder's economic and voting position;
  • Requiring the nominee or nominating security holder to complete a TSX Reporting Form 4 — Personal Information Form (or its equivalent) (the "PIF") for the nomination to be accepted, unless the PIF is also required by the issuer from management and board nominees; and
  • Requiring the nominating security holder to complete a questionnaire, make representations, submit an agreement or provide a written consent in the form specified by the issuer, unless such questionnaire, representations, agreement or written consent is also required by the issuer from management and board nominees. 

Should you have any questions about what these policies mean for your company, please do not hesitate to contact a member of our Canadian Special Situations team:


About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.

Law around the world
nortonrosefulbright.com

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 Mondaq.com.

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

Authors
Similar Articles
Relevancy Powered by MondaqAI
Wildeboer Dellelce LLP
Stewart McKelvey
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Wildeboer Dellelce LLP
Stewart McKelvey
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions