Canada: Developments In Corporate Governance: Looking Ahead To 2010

A number of developments occurred in corporate governance during 2009. This bulletin recaps some of the key developments affecting Canadian companies and reviews where things stand as we head into 2010.

Canadian Securities Regulators Back Off Overhauling Corporate Governance

Canada's securities regulators have decided not to proceed with their proposed overhaul of the corporate governance regime. The proposals would have introduced a more principles-based regime, including eliminating the bright-line tests in the current definition of independence. Market participants expressed mixed reactions to the proposals, some questioning whether they would bring about meaningful improvements in governance and others expressing concern about introducing significant changes in the face of challenging economic conditions and the upcoming transition to International Financial Reporting Standards.

The regulators are still considering possible changes to the corporate governance regime, but have stated that no changes will take effect before the 2011 proxy season. In 2010, the Ontario Securities Commission (OSC) is planning to review compliance with the existing corporate governance disclosure requirements, as discussed further below. We also expect the regulators to publish proposals in early 2010 aimed at improving communication with beneficial shareholders and access to proxy materials under National Instrument 54-101, Communication with Beneficial Owners of Securities of a Reporting Issuer.

By contrast, in the United States, lawmakers and regulators are considering significant corporate governance reforms. Congress is considering such measures as staggered boards, separate chair and CEO roles, independent risk committees, independent compensation committees and compensation consultants, majority voting for directors, clawbacks of executive pay after financial restatements, shareholder voting on golden parachutes (compensation on a change of control), employees hedging their risk from equity-based compensation, and shareholder approval of executive pay greater than 100 times a company's average wage.

In addition, the Securities and Exchange Commission (SEC) has implemented enhanced disclosure requirements addressing the impact of a company's compensation policies on employees' risk-taking incentives (if the risks are reasonably likely to have a material adverse effect on the company), whether the roles of CEO and chair of the board are separate, directors' qualifications, the board's role in risk oversight and potential conflicts of interest of compensation consultants.

The SEC is also proposing proxy access for shareholders of U.S. public companies, meaning that shareholders wishing to nominate a director would no longer have to incur the expense of mailing their own proxy circular. The proposal is controversial and is still being considered by the SEC. The proxy access rule would not affect foreign private issuers, including MJDS (Multijurisdictional Disclosure System) companies, because they are exempt from the U.S. proxy rules. We have not seen any indication that the Canadian regulators are considering a similar proposal.

"Say on Pay" Gaining Momentum

More than a dozen large Canadian public companies have decided to provide shareholders with a non-binding, advisory vote on executive compensation, commencing in 2010. The Canadian Coalition for Good Governance (CCGG), which represents the interests of institutional shareholders, is actively encouraging companies to adopt "say on pay" as a way of giving shareholders an opportunity to express directly to the board their satisfaction or dissatisfaction with the prior year's approach to compensation. The CCGG has published an Engagement and Say-on-Pay Policy ( Say on Pay PolicyOct 22 2009 working draft for Release.pdf ) that includes a model say-on-pay resolution.

In the United States, a say-on-pay vote is already mandatory for companies receiving federal bailout funds, and legislation has been introduced in the Senate to extend the requirement to all U.S. companies. A number of U.S. public companies have voluntarily decided to provide say-on-pay votes.

Institutional Shareholders Becoming More Activist

The CCGG is in the process of coordinating meetings with directors and compensation committee members at 25 Canadian public companies to discuss their compensation and governance regimes and to encourage the adoption of the CCGG's recommended best practices. The CCGG has published extensive guidance on what it views as effective corporate governance and disclosure practices and is actively promoting those practices in discussions with regulators and public company boards of directors. The CCGG's guidance includes Executive Compensation Principles ( (which summarize its latest thinking on how to design an effective compensation program that links pay and performance); Best Practices in Executive Compensation Related Information (; Best Practices in Disclosure of Director Related Information ( Practices 2009.pdf); and Corporate Governance Guidelines for Building High Performance Boards ( Guidelines v1 %2D November2005.pdf ) (the updated version of which is expected to be published early in 2010).

Independence of Financial Advisers

In January 2009, the OSC ruled that HudBay Minerals had to obtain shareholder approval for its proposed acquisition of Lundin Mining. The decision led to the transaction being abandoned. The OSC's reasons for decision included comments about potential conflicts of interest of financial advisers whose compensation is based on the success of a transaction. The OSC expressed the view that a fairness opinion prepared by an adviser who is paid a success fee "does not assist a special committee of independent directors in demonstrating the due care they have taken in complying with their fiduciary duties in approving a transaction." In practice, advisers' fees are negotiated, and there are commercial reasons why boards and their advisers tend to prefer a success-based fee structure. Directors take into account the potential conflict created by those fee structures in assessing how much weight they should give to the opinion, and they disclose the potential conflict so that shareholders can do the same. In light of the HudBay decision, we are seeing more examples of directors and special committees requiring a fairness opinion from financial advisers who are not entitled to a success fee.

TSX Requires Shareholder Approval of Dilutive Public Company Acquisitions

The Toronto Stock Exchange amended its rules, effective November 24, 2009, to require listed companies to obtain shareholder approval when acquiring another public company if the transaction involves issuing more than 25% of the listed company's outstanding shares (on a non-diluted basis). Previously, shareholder approval was generally only required in the case of an acquisition of a private company resulting in dilution of more than 25%. We expect that the new TSX rule, which provides for limited discretionary relief, will have a significant effect on public company M&A transactions in Canada, including higher acquisition costs and increased deal risk.

Regulators Scrutinize Executive Compensation Disclosure

In 2009, the Canadian securities regulators undertook targeted reviews of companies' executive compensation disclosure under the new requirements that came into effect at the end of 2008. The regulators identified deficiencies in many companies' disclosures. Most companies were asked to improve their disclosure in future filings and a handful were required to supplement their existing disclosure. The most common deficiencies were in the disclosure of benchmarking and performance goals and the lack of explanation of key compensation decisions in the Compensation Discussion & Analysis. The regulators summarized the results of their reviews in Staff Notice 51-331 – Report on Staff's Review of Executive Compensation Disclosure ( . We expect that executive compensation disclosure will continue to receive a high level of scrutiny from the regulators in 2010 and companies should therefore leave themselves ample time for review, feedback and comments from external advisers.

Corporate Governance and Environmental Disclosure

In 2009, the OSC undertook a corporate sustainability reporting initiative in response to a private member's motion approved by the Ontario Legislature. The resolution called on the OSC to establish best practice corporate social responsibility and environmental, social and governance reporting standards. During 2010, the OSC intends to issue a staff notice that will provide guidance on compliance with existing environmental disclosure requirements under National Instrument 51-102, Continuous Disclosure Obligations. The OSC also plans to conduct a review of the requirements of National Instrument 58-101, Disclosure of Corporate Governance Practices, including assessing the adequacy of corporate governance disclosure in information circulars or other documents filed by companies in spring 2010. The OSC plans to invite staff of the other securities regulators to participate in the corporate governance compliance review and the development of the guidance for environmental disclosure.

Insider Reporting Proposals

In December 2008, the Canadian securities regulators published proposals to modernize, harmonize and streamline insider reporting in Canada. The proposals include several changes to the insider reporting regime, which would bring the Canadian requirements closer to those in the United States and United Kingdom by, among other things, significantly reducing the number of persons required to file insider reports and accelerating the filing deadline for insider reports to 5 calendar days, from 10 calendar days. The proposals would also clarify the requirements and facilitate insider reporting for stock-based compensation arrangements by allowing issuers to file an "issuer grant report" similar to the current "issuer event report." We expect the regulators to publish the proposals in final form early in 2010.

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
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.