The federal government’s 2019 budget confirms and expands its focus on corporate governance that appeared in Bill C-25’s legislative push for diversity in corporate leadership last year. Bill C-25, which proposed changes to diversity disclosure requirements under the Canada Business Corporations Act (the “CBCA”), is discussed in our May 2018 blog post. Bill C-97, the implementation bill for this year’s budget, amends the CBCA to: (i) include investigative bodies within the scope of who may access a corporation’s “control register” (see our January 2019 blog post); (ii) add language in connection with the fiduciary duty of directors and officers; and (iii) indicate that additional disclosure requirements - relating to diversity, employee well-being and executive compensation - as well as a mandatory “say on pay” vote are afoot.
Access to the New Control Register
As noted in our January 2019 blog post, beginning on June 13, 2019, CBCA corporations will be required to maintain a register of all individuals with “significant control” over the corporation, which may be requested by the Director of Corporations Canada and the corporation’s shareholders and creditors. In a division entitled “Strengthening Anti-Money Laundering and Anti-Terrorist Financing Regime,” Bill C-97 includes amendments to the CBCA to permit certain investigative bodies, such as any police force or the Canada Revenue Agency (or similar provincial body), to access the list in certain circumstances, on reasonable suspicion. The complete list of entities and circumstances captured by Bill C-97 will be set out in the regulations, which have not yet been drafted, as further discussed below.
Fiduciary Duty to the Corporation
Under the CBCA, every director and officer of a corporation must “act honestly and in good faith with a view to the best interests of the corporation.” In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, the Supreme Court of Canada held that acting in the “best interests of the corporation” involves a multi-faceted assessment that may include consideration of the interests of shareholders, employees, creditors, consumers, governments and the environment. Bill C-97, in a division entitled “Enhancing Retirement Security”, appears intended to codify this list of stakeholders, though it adds retirees and pensioners to the list. In addition, the amendments specifically mention the long-term interests of the corporation, though this element does not track the BCE case in the same way.
Given the strength and breadth of the “business judgment rule” (a rule that provides deference to management’s decision if it lies within a range of reasonable alternatives), the non-exhaustive nature of the list and the permissive language of the amendments, the enshrinement of these additional “interests” in the statute may not significantly impact the corporate governance of CBCA corporations. However, this codification has not appeared in the provincial corporate statutes, and it remains to be seen whether this new distinction will result in a discrepancy in the fiduciary duties of directors and officers of federally- versus provincially-incorporated companies, should the common law evolve in a different way.
Enhancement of Disclosure Requirements and “Say on Pay”
Bill C-97 also states that certain CBCA corporations will need to meet additional disclosure requirements in their information circulars. Specifically, Bill C-97 requires that “prescribed corporations” provide “prescribed information” regarding diversity among the directors and members of senior management, the well-being of employees, retirees and pensioners and the clawback of benefits paid to directors and members of senior management. In addition, each prescribed CBCA corporation will be required to develop and disclose its approach to executive compensation and to put that approach to a non-binding shareholder vote. The non-binding vote, known as a “say on pay” vote, is a marked shift from the previous discretion enjoyed by corporations, only some of which chose voluntarily to seek this feedback from shareholders.
The details of exactly which corporations will be subject to these additional requirements and what information must be provided will be set out in the regulations, which have yet to be drafted. Although it is unclear when these regulations will come into effect, it is expected that there will be a consultation period during the enactment process, during which Canadians can express their views on the proposed changes. When the new disclosure requirements and mandatory “say-on-pay” vote come into force, assuming the “prescribed corporations” will include public companies, the obligations of CBCA-incorporated public companies at and for annual meetings will become more onerous than those of public companies incorporated under provincial corporate statutes.
If you have any questions about any of the matters discussed in this publication, please contact any member of our Corporate Commercial Law Group.
Stuart is the head of the Corporate Finance and Securities Group at Lawson Lundell. His practice focuses on corporate and commercial law, with an emphasis on corporate finance and securities and mergers and acquisitions.
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