Canada: CSA Proposes Relaxed Independence Standards For Audit Committees And Revised Disclosure Of Corporate Governance Practices

Last Updated: January 20 2009
Article by Angie Redecopp and David Surat

Most Read Contributor in Canada, November 2017

On December 19, 2008, the Canadian Securities Administrators published for comment National Policy 58-201 Corporate Governance Principles and National Instrument 58-101 Disclosure of Corporate Governance Practices, together with amendments to National Instrument 52-110 Audit Committees (the Proposals).

The Proposals contemplate three major changes to the existing corporate governance and audit committee requirements:

  • relaxing the standards of independence for directors by removing the existing bright-line tests;
  • replacing the current corporate governance guidelines with nine core corporate governance principles; and
  • replacing the current 'comply or explain' disclosure requirements for corporate governance practices with more general disclosure based on the new principles.

The Proposals respond to the concerns of issuers with controlling shareholders who are currently disqualified from being considered to be independent as well as the concerns of small issuers. The Proposals are also intended to remove any suggestion of prescribed minimum standards or best practices in corporate governance and provide issuers with additional flexibility.

The Definition Of Independence

Under the Proposals, a director will be considered to be independent if he or she:

  • is not an employee or executive officer of the issuer; and
  • does not have, or has not had, any relationship with the issuer, or an executive officer of the issuer, which could, in the view of the issuer's board of directors having regard to all relevant circumstances, be reasonably perceived to interfere with the exercise of his or her independent judgment.

This definition is similar to the existing definition of independence except that it captures relationships that are reasonably perceived to interfere with independent judgment, rather than relations that are reasonably expected to do so.

The more significant change is the elimination of the specific relationships that categorically disqualify directors from being considered to be independent. The proposed companion policy to NI 52-110 sets out a non-exhaustive list of relationships that could affect an individual's independence and suggests that the board should review material relationships between a director and the issuer when assessing independence; however, there are no longer any clearly prohibited categories of individuals other than current employees or executive officers of the issuer. Under the Proposals, it is possible that a controlling or significant shareholder of the issuer, or his or her nominee, could be considered to be independent, depending on the board's assessment of that individual's involvement with management of the issuer. Similarly, board members who were recently employed by the issuer, received consulting fees from the issuer or have direct or family relationships with the issuer's auditor or advisors will no longer necessarily be disqualified from being considered as independent.

As under the current rule, all audit committee members of a non-venture issuer will be required to be independent. However, the proposed changes allow boards of directors considerable discretion as to the composition of an issuer's audit committee. The new definition of independence includes an objective standard – whether a relationship could be reasonably perceived to interfere with the exercise of independent judgment. The issuer is also required to disclose for each member of the audit committee the relationships with the issuer or its executive officers that were considered by the board and to discuss why the board considered that director to be independent. However, with the removal of the bright-line tests, it will be difficult to challenge the board's determinations.

The independence requirements in the United States under the Sarbanes-Oxley Act of 2002 and the rules of the U.S. stock exchanges are more restrictive than those contemplated by the Proposals. This divergence may make it more difficult for issuers with securities listed in the United States to take advantage of the increased flexibility allowed by the Proposals. Exemptions from certain of the U.S. requirements are available to Canadian issuers. However, given the renewed focus on corporate governance, issuers may face pressure from investor groups against making any changes that could be perceived as lowering governance standards.

Replacement Of Guidelines With Principles

Proposed National Policy 58-201 Corporate Governance Proposals sets out nine core principles that issuers should consider in designing their corporate governance structures:

  1. Create a framework for oversight and accountability – An issuer should establish the respective roles and responsibilities of the board and executive officers.
  2. Structure the board to add value – The board should be comprised of directors that will contribute to its effectiveness.
  3. Attract and retain effective directors – A board should have processes to examine its membership to ensure that directors, individually and collectively, have the necessary competencies and other attributes.
  4. Continuously strive to improve the board's performance – A board should have processes to improve its performance and that of its committees, if any, and individual directors.
  5. Promote integrity – An issuer should actively promote ethical and responsible behaviour and decision-making.
  6. Recognize and manage conflicts of interest – An issuer should establish a sound system of oversight and management of actual and potential conflicts of interest.
  7. Recognize and manage risk – An issuer should establish a sound framework of risk oversight and management.
  8. Compensate appropriately – An issuer should ensure that compensation policies align with the best interests of the issuer.
  9. Engage effectively with shareholders – The board should endeavour to stay informed of shareholders' views through the shareholder meeting process as well as through ongoing dialogue.

Most of these proposed principles address the areas covered by the current corporate governance guidelines, but in a more general fashion. Instead of indicating practices that an issuer should adopt, the proposed policy includes commentary and examples of ways in which an issuer can achieve the underlying objectives of each principle. In addition, by explicitly addressing conflict of interest, risk management and communications with shareholders, the proposed policy is somewhat broader than the existing guidelines. However, the content of the proposed policy generally reflects the basic duties of a board of directors and should not be controversial.

Disclosure Requirements

The disclosure requirements for corporate governance practices will be updated to correspond to the above principles. Under the Proposals, issuers will no longer be required to indicate whether they have complied with specific guidelines or explain why they have not. Generally, the new proposed requirements will require disclosure regarding board members, any practices or policies adopted in furtherance of the core corporate governance principles and consultants or advisors retained by the issuer in relation to those policies and practices. Codes of business conduct will no longer have to be filed but the applicable standards will need to be summarized. The new proposed requirements will apply to both venture and non-venture issuers. Accordingly, venture issuers will be subject to more extensive disclosure requirements than under the current rule.

The CSA noted that their review of disclosure under the current requirements revealed that issuers often provide inadequate disclosure of their corporate governance practices. The additional flexibility in disclosure of corporate governance practices may prompt issuers to reassess their corporate governance practices and disclosure. However, given general nature of the proposed disclosure obligations, issuers may not be required to significantly change their level of disclosure. Investor concerns, rather than the prospect of regulatory review, are likely to remain the primary motivation for issuers to consider enhancements to their governance practices and disclosure.

The CSA has requested comments on the Proposals by April 20, 2009. Please note that the Alberta Securities Commission has included additional specific requests for comment as Appendix A to the Proposals. The ASC is concerned that the Proposals my not substantially improve the current rules. The CSA has indicated that they intend to provide at least six months advance notice of implementation of the Proposals. Please click here for a copy of the Proposals.

About BLG

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.

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
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 you may opt out by clicking here

    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.

    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.

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