With an ever-shifting regulatory landscape filled with complex and evolving risks, public companies need to be vigilant in ensuring that their governance policies appropriately reflect current best practices. However, one size does not fit all, so it is critical to both understand the particular context of the organizational structure, as well as the menu of practices that facilitate the proper running of a public company, with appropriate checks, balances and safeguards in place, to facilitate long-term value creation for stakeholders, within an acceptable risk profile.
Companies will often update and adopt written governance policies in connection with their initial public offering and/or listing on a stock exchange. Thereafter, such policies are periodically revisited by the board of directors or a committee thereof. However, is enough attention consistently being given to this process in the face of significant external and internal developments and do the policies reflect actual practice within the organization?
For example, consider the following developments:
Insider Trading Policy: The Securities Act (Ontario) now provides, in addition to the insider trading and "tipping" prohibitions, that persons in a special relationship with an issuer, who have knowledge of a material fact or material change with respect to the issuer that has not been generally disclosed, cannot recommend or encourage, other than in the necessary course of business, anyone to purchase or sell securities of the issuer. Each public company should take measures to promote an awareness among personnel by including the "encouraging or recommending" prohibition in its insider trading policy.
Consideration should also be given to trading "black-out" periods and whether, from both a legal and reputational perspective, they commence at the appropriate time and cover the appropriate people, as well as when, after the release of previously non-public material information the trading "black-out" period should end (typically one full trading day should now be sufficient for large well-publicized issuers).
Diversity Policy: Public companies incorporated under the Canada Business Corporations Act will, commencing January 1, 2020, be required to provide "comply-or-explain" disclosure in respect of Aboriginal Peoples, persons with disabilities, members of visible minorities and women in senior management positions and as members of the board of directors (see our June 2019 Blakes Bulletin: Additional Diversity Disclosure Required of CBCA Corporations in 2020). Each such issuer should consider what, if any, revisions should be made to an existing diversity policy or if now is the time to adopt one.
Social Media Policy: Often covered lightly as a section with a public company's disclosure policy, the Canadian Securities Administrators recommend that issuers instead develop specific policies and procedures for the use of social media (see our March 2017 Blakes Bulletin: New Medium, Same Expectations: CSA Cautions Canadian Public Issuers on Use of Social Media).
Committee Charters: When a public company's majority voting policy or diversity policy assigns responsibility to a committee of the board of directors, the charters of such committees should also provide for such responsibilities so that committee members have a central document to consider when fulfilling their duties.
Disclosure Policy: Speaking engagements (e.g., at industry conferences) during "quiet periods" and private meetings with investors, analysts or other members of the investment community at any time, are each fraught with risks that should be appropriately addressed in the disclosure policy.
Risk Committee: Once the job of audit committees, a standalone risk committee has become more common, although it may not be necessary or appropriate for all organizations. Further, each committee of the board of directors should be responsible for overseeing the management of risks within the scope of its charter.
Autumn is a great time of year for a governance policy check-up, with enough time left to implement any necessary changes prior to proxy season and the drafting of management information circulars.
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