Canada: Amendments To Canadian Corporate Governance And Audit Committee Regimes Proposed

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Securities Regulation, January 2009

The Canadian Securities Administrators (the CSA) have published for comment proposed revisions to the existing corporate governance and audit committee regimes (the Current Materials). The CSA are requesting comments on revised versions (the Proposed Materials) of the following:

(i) National Policy 58-201 – Corporate Governance Guidelines (proposed to be renamed "Corporate Governance Principles") (the Governance Policy),

(ii) National Instrument 58-101 – Disclosure of Corporate Governance Practices (the Governance Instrument), and

(iii) National Instrument 52-110 – Audit Committees (the Audit Committee Instrument), and the related Companion Policy 52-110CP.

The Proposed Materials depart from the prescriptive language used in the Current Materials in favour of a more principles-based corporate governance framework. The CSA state that they are intended to enhance the standard of governance and confidence in the Canadian capital markets. The comment period for the Proposed Materials ends on April 20, 2009. If the proposals are accepted, the CSA have stated that they intend to provide at least six months' advance notice of implementation in order to allow issuers time to familiarize themselves with the new corporate governance and audit committee regimes.

The basic structure of the Proposed Materials is to set out principles-based governance guidelines and to require issuers to disclose the practices they use to achieve the objectives of each such principle.


The CSA recognize that there is no single model of good corporate governance and that the structures and practices that are most appropriate will vary among issuers. The proposed Governance Policy reflects this recognition in that it does not purport to establish minimum standards or "best practices", but rather it would establish governance principles that a board would need to consider.

Although many of the key guidelines from the current Governance Policy are proposed to be retained, the proposed Governance Policy would recast and broaden corporate governance guidelines under the following nine core corporate governance principles:

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 who 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.

Each proposed principle is accompanied by commentary that provides relevant background and explanation, along with examples of practices that could achieve its objectives (collectively, the Governance Principles). While many aspects of the Governance Principles will be familiar to issuers, the proposed Governance Policy is broader in scope than the current Governance Policy as, among other things, the current Governance Policy does not expressly address the subject matter of Governance Principles 6, 7 and 9, which are discussed in greater detail below.

Managing Conflicts of Interest

The proposed Governance Policy states that issuers should have practices in place to identify, assess and resolve actual and potential significant conflicts of interest, such as when there is a significant divergence of interests among shareholders or when a contract, arrangement or transaction is entered into between an issuer and a control person or significant shareholder. The proposed Governance Policy states that the objectives of this Governance Principle can be achieved by establishing an ad hoc or standing board committee to, among other things, identify situations where actual or potential conflicts of interests could arise.

Recognizing and Managing Risk

Pursuant to the proposed Governance Policy, risk oversight and management should focus on identifying the most significant areas of uncertainty or exposure that could have an adverse impact on the achievement of an issuer's goals and objectives. The proposed Governance Policy states that such objectives can be achieved by, among other things, developing, approving and implementing policies and procedures for the oversight and management of certain principal risks.

Engaging Effectively with Shareholders

The CSA state that issuers should engage with shareholders as a means to encourage the board to stay informed of shareholders' views in order to facilitate board accountability to shareholders. Suggested methods of engaging with shareholders include (i) posting on an issuer's website a clear description of the voting process for registered and beneficial shareholders, (ii) giving shareholders the option of voting electronically, and (iii) giving shareholders or proxy holders the option of attending meetings through electronic means.


The CSA have stated that coupling the Governance Instrument's current "comply or explain" mandatory disclosure regime with the Governance Policy has resulted in some market participants perceiving the current Governance Policy as prescriptive (which is contrary to the policy's stated objective). The proposed Governance Instrument would replace these disclosure requirements with a new set of more general disclosure requirements based on the Governance Principles discussed above.

The proposed Governance Instrument would require disclosure of practices that an issuer uses to achieve the objectives of the proposed Governance Principles along with certain factual information. While some of the required disclosure will be familiar to issuers who comply with the current Governance Instrument, unlike the Governance Policy, there is very little overlap between the current and the proposed disclosure regimes. Issuers would need to revisit their existing corporate governance disclosure in order to comply with the proposed Governance Instrument. Moreover, the proposed disclosure requirements regarding managing conflicts of interest, risk management and effective shareholder engagement are new. For example, under the proposed Governance Instrument, issuers would be required to disclose, among other things: (i) their practices to identify, assess and resolve significant conflicts of interest and the roles and responsibilities of the members of any ad hoc committee appointed to address a significant conflict of interest, (ii) a summary of any policies on risk oversight and management which they have adopted, and (iii) their practices or policies related to the shareholder voting process or that promote a voting process that is understandable, transparent and robust and facilitates the board obtaining meaningful information on shareholder views.

Under the proposed Governance Instrument, issuers would also be required to disclose the name of any compensation consultant or advisor who assisted the board or the compensation committee since the beginning of the issuer's most recently completed financial year. Issuers would have to disclose (i) when such consultant or advisor was originally retained, (ii) whether such consultant or advisor performed any other work for the issuer and the nature of any such work, and (iii) the aggregate fees billed by such consultant or advisor in each of the last two financial years for professional services relating to executive compensation and professional services other than those relating executive compensation.

In addition, as a result of, among other things, the shift from the "comply or explain" disclosure regime, the proposed Governance Instrument would eliminate the distinction between "venture" (i.e., a reporting issuer that does not have any of its securities listed or quoted on the Toronto Stock Exchange or, with a few limited exceptions, any foreign exchange) and non-venture issuers that exists in the current Governance Instrument. This change would eliminate the reduced corporate governance disclosure regime that venture issuers currently enjoy, and would likely result in higher compliance costs for venture issuers, particularly in the

first year of implementation. The proposed Governance Instrument would also eliminate the requirement that an issuer file a copy of its code of business conduct and ethics on SEDAR(although a summary of any such code of business conduct and ethics adopted by the issuer, along with instructions on how to obtain a copy, would be required to be disclosed).


The proposed Audit Committee Instrument introduces, among other changes, a less prescriptive approach to determining whether a director is independent. This change also affects the proposed Governance Policy and the proposed Governance Instrument as they both define "independent" as set out under the proposed Audit Committee Instrument.

Definition of "Independent"

The current Audit Committee Instrument provides that a director is independent if he or she has no direct or indirect "material relationship" with the issuer, being a relationship which could, in the view of the issuer's board of directors, be reasonably expected to interfere with the exercise of his or her independent judgment. It also goes on to prescribe "bright-line" tests that deem certain circumstances to result in an individual having a material relationship with an issuer. Under the proposed Audit Committee Instrument, a director would be independent if he or she (i) is not an employee or executive officer of the issuer, and (ii) 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.

Also, the bright-line deeming tests would be eliminated. In addition, the CSA have included guidance for assessing independence in the proposed Companion Policy 52-110CP, but ultimately, determining independence is left to the reasonable judgment of the board of directors.

According to the proposed Companion Policy 52-110CP, a director's independence could be affected if he or she:

(a) has been employed by the issuer;

(b) is, or has been, employed by an affiliate of the issuer;

(c) has a close association with an executive officer of the issuer or is actively involved in the day-to-day management of the issuer;

(d) has family ties with an executive officer of the issuer;

(e) has, or had, a significant contractual or other business relationship with the issuer or an affiliate of the issuer, other than as a director, or is a partner, shareholder, director, executive officer or employee of an entity that has such a relationship;

(f) is, or was, a significant professional advisor or consultant to the issuer or an affiliate of the issuer, an executive officer or director of such advisor or consultant, or an employee of such advisor or consultant significantly associated with the service provided; and

(g) receives, or has received, significant compensation from the issuer, other than compensation for acting as a member of the board of directors or of any board committee or fixed amounts of compensation under a retirement plan.

Moreover, the CSA state in their Request for Comment (but not in the Proposed Materials) that while a control person or significant shareholder is not disqualified from being independent, when making independence assessments, boards should consider the control person's or significant shareholder's involvement with the management of the issuer, and, depending on the nature and degree of involvement, this relationship may be reasonably perceived to interfere with the exercise of independent judgment.

The intent of the proposed changes would leave greater discretion to an issuer's board of directors to determine whether a director is independent for the purposes of serving on the audit committee or for other corporate governance purposes, given the removal of the "bright-line" deeming tests. However, as noted in comments by the Alberta Securities Commission, the proposed changes could actually reduce the discretion of an issuer's board to determine whether a director is independent as a result of people second-guessing whether a particular individual could be "reasonably perceived" to have a relationship with the issuer that interferes with the exercise of his or her independent judgment, even though the board, with its more intimate knowledge of the facts, may determine that no such relationship exists.

Also, while the current definition of independence looks at relationships which could "be reasonably expected" to interfere with a director's independent judgment, the proposed definition of independence concentrates on relationships which could "be reasonably perceived" to interfere with such judgment. The CSA believe the concept of perception to be broader than that of expectation and more appropriate in light of the deletion of the "bright-line" tests of independence. Afurther potentially significant change is the inclusion of language that suggests that an individual could never become independent if he or she had previously had a relationship that could "be reasonably perceived" to interfere with his or her independence, even if that relationship had ended (whereas the bright-line tests under the current Audit Committee Instrument in certain cases are limited to a three-year "look-back").

Other Proposed Changes to the Audit Committee Instrument

Other proposed changes to the current Audit Committee Instrument include:

  • The introduction of temporary relief from the requirement that all audit committee members be independent (i) for venture issuers that become non-venture issuers, and (ii) in the context of a reverse take-over where the acquirer is either a venture issuer or a non-reporting issuer, subject in either case to certain requirements being satisfied.
  • The removal of the existing exemption from the audit committee independence requirements for controlled issuers in light of the proposed new approach to independence.
  • The narrowing of the exemption from certain provisions of the Audit Committee Instrument currently provided to certain U.S. listed issuers, and certain subsidiaries of U.S. listed issuers, such that the exemption would only apply where, among other things, such issuers had equity (in the case of the subsidiary exemption) securities listed or quoted on the New York Stock Exchange or Nasdaq Stock Market (in contrast to the current requirements that relate to any securities listed or quoted on any "U.S. marketplace" registered under the U.S. Securities and Exchange Act of 1934). The proposed Governance Instrument would also narrow a similar exemption from corporate governance disclosure for certain subsidiaries of U.S. listed issuers in a similar manner (although such subsidiaries have been, and would still be, subject to the Governance Policy). It is noted that, as is currently the case, the proposed Audit Committee Instrument does not apply to "designated foreign issuers" or "SEC foreign issuers" as defined in National Instrument 71-102 – Continuous Disclosure and Other Exemptions Relating to Foreign Issuers.
  • The requirement that, in addition to an issuer not publicly disclosing its financial statements, MD&A or annual or interim earnings news releases without audit committee review (as is currently the case), an issuer not disclose information derived from any such documents without audit committee review.
  • Moving the required audit committee disclosure for non-venture issuers sending proxy circulars in connection with director elections to the information circular, instead of the annual information form, as is currently the case.


  • New principles-based Canadian corporate governance policy and related disclosure rule as well as revisions to audit committee rule have been proposed
  • Proposed corporate governance policy would be similar to, but broader in scope than, the current policy and would, among other things, address three new areas: managing conflicts of interest, risk management and effective shareholder engagement
  • Issuers would need to revisit existing corporate governance disclosure to address more general requirements, which would apply equally to "venture issuers" and non-venture issuers, replacing the existing "comply or explain" disclosure regime
  • Issuers would need to re-confirm director independence in light of proposed changes to definition, which would eliminate the current "bright-line" tests (other than in relation to employees and executive officers), leaving the determination of independence to a board's reasonable judgment based on principles, having regard to certain prescribed factors
  • If proposed changes are brought into force, the CSA intend to provide at least six months' advance notice of implementation

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.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.