Regulators Keep Tight Reins on Corporate Behaviour
May 6th, 2016
Canadian securities regulators are serious about corporate transparency and the need to maintain investor confidence in capital markets.
To achieve that objective, the regulators follow one set of rules in all provinces and territories and they apply to public companies, income funds, limited partnerships and some other entities. While the guidelines are voluntary — aimed at allowing business to tailor governance to their specific situations — companies that don’t comply with the disclosure rule will be breaking securities law and could face enforcement proceedings, as well as sanctions.
The governance guidelines set out a series of recommended best practices, including:
- Maintaining a majority of independent directors on the board.
- Appointing an independent chairman of the board or lead director.
- Holding regularly scheduled meetings of independent directors without the presence of non-independent directors and management.
- Adopting a written board mandate.
- Outlining board responsibilities such as reviewing and showing satisfaction with the integrity of the company’s top officers and their efforts to develop a corporate culture of integrity.
- Approving strategic plans at least once a year; actively taking part in succession planning; and overseeing internal controls.
- Developing job descriptions for the board chairman, the chief executive officer and board committees.
- Providing each new director with a comprehensive orientation, and all directors with continuing education opportunities.
- Adopting a written code of conduct and ethics that deals with: conflicts of interest; protection of corporate assets; fairness toward shareholders, customers, competitors and employees; confidentiality; legal compliance, and ways to report illegal or unethical behaviour.
- Appointing a nominating committee and a compensation committee composed entirely of independent directors.
- Adopting a process for determining the competencies and skills of the board as a whole and applying this to the recruitment of new directors.
- Assessing on a regular basis the board’s own effectiveness, as well as the contribution of each board committee and individual director.
Under the disclosure rule, companies must file a Corporate Government Disclosure Form with the provincial or territorial securities commission that requires information about each recommended governance practice, including:
- Information about the independence of directors and the names of other boards they sit on.
- Disclosure of whether the independent directors hold separate meetings and an explanation if they don’t.
- Disclosure of whether the board has adopted the recommended governance policy and if not, how their governance practices differ from the recommended standards and why that is appropriate to the company’s circumstances.
- Descriptions of the policies in effect and how they achieve the desired governance goals.
Companies are also required to file a copy of their ethics and conduct code (or any change to it) on the System for Electronic Document Analysis and Retrieval (SEDAR) by the date on which the issuer’s next financial statements must be filed.