Changes Afoot on the Canadian Governance Front

On September 14, 2016, Alberta’s securities regulator published for comment proposed amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101) and Form 58-101F1 Corporate Governance Disclosure. These changes include new “comply or explain” reporting rules requiring companies to disclose the following in their proxy circular or annual information form:

  • Policies regarding the representation of women on the board, if any;
  • Whether the board or its nominating committee considers the representation of women in the director identification and selection process;
  • Whether the issuer considers the representation of women in executive officer positions when making executive officer appointments;
  • Targets regarding the representation of women on the board and in executive officer positions, if any have been set by the issuer;
  • The number of women on the board and in executive officer positions; and
  • Director term limits or other mechanisms of board renewal.

This proposal is open for comment until October 14. The objective of these rules, according to the Alberta Securities Commission (ASC), is to provide transparency that assists shareholders when making investing and voting decisions and to bring Alberta in line with most other provinces (with the exceptions of British Columbia and Prince Edward Island) that adopted these reporting rules in 2014 and brought them into effect in 2015.

As of September 28, 2016, the Canadian Securities Administrators reported that Canadian companies are making some, but slow progress adding women to their boards. Canada’s largest companies have made more progress than small companies, the review said. A review of diversity disclosure reports filed this year by 677 companies listed on the Toronto Stock Exchange shows that 21 per cent clearly disclosed they have adopted a policy related to the identification and nomination of women, up from 15 per cent last year. 18 per cent have diversity policies that do not specifically address women, and 59 per cent do not have written policies. Regulators have previously said that they will give companies up to 2017 before reviewing whether to further toughen the rules in this regard.

As foreshadowed in the Spring 2015 Federal government budget, the Government of Canada introduced Bill C-25, to amend the Canada Business Corporations Act. The legislation follows over two years of stakeholder consultation and is aimed at modernizing Canada's legal and regulatory framework for nearly 270,000 federally incorporated corporations. The legislation would also amend the Canada Cooperatives Act and the Canada Not-for-profit Corporations Act. It passed first reading on September 28, 2016.

Some important changes proposed in the legislation include:

  1. Requirements for listed CBCA corporations to hold annual elections and individual votes for director candidates. This is in contrast to slate voting. These are requirements to which TSX-listed companies must already adhere and many companies had previously adopted these
    requirements voluntarily.
  2. Except in limited circumstances, directors now must receive a majority of votes in favour of their election. This aims to address concerns over failed director elections raised by many during consultation.
  3. Modification of the CBCA's requirements for paper-based communications by replacing this with a "notice and access" system, allowing corporations to use electronic communications to provide notice of meetings to shareholders and online access to relevant documents.
  4. Not unlike the previously mentioned “comply or explain” rules, legislative requirements for certain corporations to place before the shareholders, at every annual meeting, information respecting diversity among directors and among the members of senior management. This is a far cry from a quota regime, but there is not yet a consensus among academics and industry watchers that diversity quotas are the best approach.

Proposed changes like these on the regulatory and legislative fronts do not happen frequently, or swiftly, in Canada. They are often the result of numerous calls for change, academic and industry studies, activism (in many forms) and consultation. It’s early days, yes, but it appears that solid steps are being taken to catch up with the corporate winds of change in Canada.


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