Canada: New Disclosure Rules And Guidance Related To The 2018 Proxy Season

Last Updated: February 11 2018
Article by Goodmans LLP

Reporting issuers in Canada are subject to continuous disclosure obligations imposed by securities laws and the rules of stock exchanges. From time to time, the securities regulators and stock exchanges revise these disclosure rules or publish guidance to clarify points that may be ambiguous in the rules themselves. In addition, proxy advisory firms such as Institutional Shareholder Services Inc. and Glass, Lewis & Co. publish annual voting guidelines, providing issuers with guidance on what the advisors consider best practices for disclosure. Finally, the Canadian Coalition for Good Governance publishes annual "best practice" guidelines for disclosure by reporting issuers and additional policies relating to specific matters.


This Update does not provide a comprehensive description of the documents referenced below. It is advisable to review each of those documents in connection with the preparation of this year's annual proxy materials. Copies of any or all of the materials can be provided by any member of our Corporate Securities group upon request.

Summary of Relevant Updates and Guidance

The following briefly summarizes the primary updates to, and guidance in respect of, the disclosure and proxy rules for the 2018 proxy season described in this update.

Guidance and Areas of Focus for 2018

  • the Canadian Securities Administrators (CSA) published a review of compliance with gender diversity disclosure requirements;
  • the Ontario Securities Commission (OSC) published its corporate finance branch annual report highlighting concerns in respect of continuous disclosure including deficient disclosure in management's discussion and analysis ("MD&A"), non-GAAP financial measures and forward-looking information, among others;
  • the CSA published a summary of a CSA roundtable on responses to cyber security incidents re-iterating the CSA's focus on cyber security as set out in CSA Multilateral Staff Notice 51-347 - Disclosure of Cyber Security Risks and Incidents ("Staff Notice 51-347");
  • the CSA provided disclosure expectations for reporting issuers using social media;
  • the CSA published a consultation paper on re-evaluating the criteria for director and audit committee member independence; and
  • Institutional Shareholder Services Inc. ("ISS") and Glass, Lewis & Co. ("Glass Lewis") released their annual proxy paper guidelines in the areas of gender diversity, director overboarding, pay for performance, board responsiveness, advance notice provisions and dual-class share structures, among other matters.

Changes in Disclosure and Proxy Rules

  • the Toronto Stock Exchange (TSX) issued final amendments to the TSX Company Manual (the "Company Manual"), which (a) require TSX-listed issuers to make available on their websites the current, effective versions of certain corporate governance documents (the "Website Amendments") by April 1, 2018 and (b) revise the disclosure requirements for security-based compensation arrangements effective for financial years ended on or after October 31, 2017 (the "Security-Based Compensation Amendments");
  • the TSX provided guidance on majority voting and advance notice policies;
  • Bill C-25, which proposes to amend the Canada Business Corporations Act (CBCA) with respect to director election matters, notice and access and gender diversity disclosure, among other matters, received second reading in the Senate on November 23, 2017 and is currently at the committee stage, with the committee report presented with amendments on December 14, 2017; and
  • Bill 101, a private member's bill, was introduced to amend the Business Corporations Act (Ontario) (OBCA) with respect to director election matters, shareholder thresholds, diversity disclosure and shareholder proposals on executive compensation, among others. Bill 101 received second reading on March 9, 2017 and was referred to a standing committee.

The following summarizes the areas where the CSA and OSC have provided new guidance or have indicated they intend to focus during their subsequent reviews of continuous disclosure materials. Please refer to the text of the applicable staff notices for a full description of the guidance provided by the CSA and OSC.

CSA Multilateral Staff Notice 58-309 – Staff Review of Women on Boards and in Executive Officer Positions – Compliance with NI 58-101

On October 5, 2017, the CSA published its third consecutive annual review of compliance by 660 reporting issuers with the gender diversity disclosure requirements set out in National Instrument 58-101 - Disclosure of Corporate Governance Practices ("NI 58-101").

The findings revealed a small 2% improvement in the number of women on boards, compared to the results reported in the CSA's review published in 2016. The number of issuers having at least one female executive officer has improved from 55% in 2016 to 61% in 2017.

The CSA drew issuers' attention to the following disclosure requirements, where disclosure was found to be vague, boilerplate or not provided at all:

  • disclosure of both the number and percentage of women on the issuer's board and in its executive officer positions each year;
  • if the issuer discloses it has adopted a written policy regarding the representation of women on its board, a description of that policy, including a clear explanation of how the policy applies to the identification of women directors;
  • if the issuer discloses it has adopted targets regarding the representation of women on its board and in its executive officer positions, annual and cumulative progress in achieving the targets;
  • if the issuer discloses it considers the representation of women in the director identification and selection process and/or when making executive officer appointments, a description of how it does so; and
  • if the issuer discloses it has adopted term limits or other mechanisms of board renewal, a description of those limits or other mechanisms and how they contribute to board renewal.

The CSA reminded issuers the gender diversity disclosure requirements in NI 58-101 are intended to provide transparency to assist investors when making voting and investment decisions. The CSA noted this objective is most effectively achieved if the disclosure provides a clear description of the corporate governance practices an issuer has adopted in relation to women on boards and in executive officer positions, or the reasons for not adopting such practices, as the case may be. Issuers should expect continued scrutiny and review of their gender diversity disclosure in 2018.

OSC Staff Notice 51-728 - Corporate Finance Branch 2016-2017 Annual Report

On September 21, 2017, the OSC published key issues raised by the Corporate Finance Branch's annual continuous disclosure review program. The following is a summary of some of the key findings:

  • MD&A Generally – The OSC noted many issuers continue to struggle with providing meaningful disclosure in their MD&A, especially in the following areas: (i) changes in accounting policies including initial adoptions; (ii) results of operations; (iii) risks and uncertainties; and (iv) liquidity and capital resources. The OSC reminded reporting issuers to avoid boilerplate disclosure in the MD&A that merely repeats information from the financial statements and to avoid disclosing information investors do not need or that does not provide insight into the issuer's past or future performance.
  • Non-GAAP Financial Measures – The OSC expressed concerns with reporting issuers (particularly those in the mining, real estate, technology and biotechnology industries) using non-GAAP financial measures in news releases, MD&A, prospectus filings, websites and marketing materials. The OSC noted that non-GAAP financial measures lack clarity regarding the manner in which adjustments and calculations are made. The OSC cautioned issuers it may take regulatory action if an issuer discloses information in a manner considered misleading or otherwise contrary to the public interest. The OSC noted it will continue to actively review this topic in the coming financial year.
  • Forward-Looking Information – The OSC raised concerns with forward-looking information, and in particular, disclosure of the assumptions and risks associated with such information, as well as the requirement to update previously disclosed forward-looking information. The OSC noted issuers must not disclose "financial outlook" unless it is based on assumptions that are reasonable in the circumstances and limited to a period for which the information can be reasonably estimated. The OSC cautioned issuers it may raise comments in respect of the reasonableness of the time period of forward-looking information presented.

The report also cautioned against early or selective disclosure on social media and strongly encouraged issuers to adopt a social media governance policy. The OSC also reiterated the need to provide detailed and entity-specific risk disclosure if cyber security is a material risk. Disclosure on social media and cyber security are two areas of focus for the CSA, as described in more detail below.

For a further discussion of the OSC's annual report and other findings highlighted by the OSC, refer to our September 28, 2017 Update, Highlights of OSC Corporate Finance Branch 2016-2017 Annual Report.

CSA Staff Notice 11-336 – Summary of CSA Roundtable on Response to Cyber Security Incidents

On April 6, 2017, the CSA published the results of its February 27, 2017 roundtable on cyber security issues. The discussions at the roundtable highlighted the interconnected nature of the Canadian securities markets and the importance of cooperation and information sharing in responding to a cyber security incident. The discussions covered elements of robust Incident Response Plans (IRPs) for entities and the importance of testing and updating IRPs, including communication and coordination protocols.

Cyber security continues to be one of the CSA's priorities through 2019. As such, the CSA expects regulated entities to continue to comply with ongoing requirements outlined in securities legislation, including the need to have internal controls over their systems and reporting security breaches.

The roundtable follows Staff Notice 51-347, which was published on January 19, 2017 and outlined the CSA's review of cyber security related disclosure by 240 issuers included in the S&P/TSX Composite Index. The results of the review were outlined in our January 24, 2017 Update, CSA Provides Guidance on Disclosure of Cyber Security Risks.

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The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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