The federal government has proposed amendments to the Canada Business Corporations Act (the "CBCA") generally aimed at, among other things, improving shareholder democracy and participation and gender diversity on boards and in senior management positions. Because the scope of the amendments will be set by regulations that have yet to be published, the proposed draft provides only a framework for how the amendments will apply; it remains to be seen which CBCA corporations will ultimately be affected should the amendments become law, and to what extent.
Shareholder Democracy and Participation
The amendments will set into law for certain prescribed CBCA corporations – which will be identified in the regulations – requirements similar, but not identical, to those that already apply to companies listed on the Toronto Stock Exchange (the "TSX"). In particular:
- Annual Individual Voting: directors of public corporations will be required to be elected individually, as opposed to by slate, on an annual basis, other than for certain prescribed corporations. Currently, the CBCA allows directors to be elected by slate for terms of up to three years.
- Majority Voting: the amendments will introduce a majority voting requirement for prescribed corporations where the election is uncontested. Currently, the CBCA allows elections of directors on a plurality basis, meaning that, like in a political election, a director could be elected with a single vote in his or her favour.
The majority voting requirements proposed in the amendments are drafted more stringently than the current rules of the TSX relating to majority voting. Those rules, which came into force in 2014 and operate under the assumption that shareholders will be required to vote either "for" a candidate or "withhold" their vote, require directors who do not receive a majority of votes in favour of their election to tender their resignation. In practice, however, many boards have not been willing to accept those resignations, and the directors have continued to serve.
Under the CBCA's proposed majority voting requirements, shareholders will be able to vote either "for" or "against" a candidate, and a candidate who does not receive a majority of votes "for" will simply not be elected to the board; further, that candidate will not be eligible to be appointed by the board later to fill a vacancy, except in certain prescribed circumstances. As a result, in contrast to the current TSX rules, which allow a board to circumvent a majority that has withheld its vote, the amendments represent a true majority voting requirement, as a matter of law, for certain CBCA corporations.
Current rules under certain provincial securities laws require reporting issuers listed on the TSX (and other "non-venture" issuers) to disclose information relating to gender diversity among their directors and executive officers. Specifically, each of these issuers must disclose (i) if it has adopted a written policy relating to the identification and nomination of women directors, (ii) if and how its board considers the level of representation of women on the board and in executive officer positions when making nominations or appointments and (iii) if it has adopted a target regarding women on the board and in executive officer positions. If not, the issuer must explain why.
Concurrently with the CBCA amendments, the Canadian Securities Administrators published Multilateral Staff Notice 58-308 (the "Notice"), which summarizes their review of gender diversity disclosure over the past year and compares it to a similar review conducted the previous year and set out in Multilateral Staff Notice 58-307. The current staff notice shows an increase in compliance with the gender diversity disclosure rules, an increase in female representation on boards and an increase in the number of issuers that consider the representation of women in director and executive officer positions. Further, the report indicates that companies with diversity policies and targets tend to have more women on their respective boards.
The CBCA amendments will require certain prescribed corporations to provide prescribed information regarding diversity. Whether the CBCA amendments will require disclosure beyond that which is currently required for certain reporting issuers, and for a broader range of issuers (including those listed on exchanges other than the TSX and other non-venture exchanges) remains to be seen.
Why This is Relevant
While the proposed amendments are not yet law and the regulations have not yet been published, it is clear from the text of the amendments themselves and the publication of the Notice that corporate governance and, in particular, gender diversity on the boards and in the executive offices of Canadian businesses, remain priorities for both the federal government and the provincial securities regulators. Not that anyone should be too surprised by this; after all, it's 2016.
Please contact any member of our Corporate Finance + Securities group to discuss the proposed amendments, disclosure requirements relating to gender diversity or corporate governance in general.
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