In September 2016, a bill amending the Canada Business Corporations Act (CBCA) was tabled for first reading in the Canadian parliament. The proposed changes (the Proposed Amendments) will affect the election of directors, communications with shareholders and disclosure of diversity policies and statistics involving directors and executive officers. The federal government has now published draft regulations (the Draft Regulations) that clarify how the Proposed Amendments will operate.
The Proposed Amendments include the following:
Election of directors
- Directors of public CBCA corporations must be elected on an individual and (subject to certain exceptions that have not yet been published) annual basis. Currently the CBCA allows directors to be elected as part of a slate and for up to a three-year term. The Draft Regulations confirm the election reforms relate only to public corporations.
- The Proposed Amendments introduce mandatory majority voting for the election of directors of public corporations where there is only one candidate nominated for each position available on the corporation’s board of directors (the Board). Shareholders can vote "for" or "against" each director nominee (instead of "for" or "withhold" under the current system) and each nominee must receive a majority of votes to be elected. Further, if a nominee does not receive a majority of votes, he or she may not be appointed a director by the Board before the next shareholders’ meeting at which directors are elected, except if required to comply with CBCA requirements to have at least two directors who are not officers or employees of the corporation or to satisfy Canadian residency requirements. Currently, under Toronto Stock Exchange (TSX) requirements, a director must offer to resign if he or she does not receive a majority of votes, but the Board has the option of not accepting such resignation in certain circumstances. In addition, the TSX requirements do not prohibit the Board from deciding to appoint a failed nominee as a director following the election.
- The Proposed Amendments regarding the election of directors are more stringent than the current TSX requirements and will result in the introduction of majority voting rules for federal TSX Venture-listed issuers. Unlike the TSX, the TSX Venture Exchange currently permits slate voting and terms of longer than one year (as long as securityholders agree) and does not require directors to be elected by a majority.
- "Notice-and-access" allows certain shareholder meeting materials to be made accessible online rather than physically mailed to shareholders. While securities legislation was amended in 2013 to introduce notice-and-access, the CBCA’s current provisions are not entirely compatible with the full use of notice-and-access by federal corporations. The Proposed Amendments, if enacted, will facilitate the use of notice-and-access by federal corporations. The Draft Regulations clarify that brokers and other intermediaries that hold shares on behalf of one or more shareholders will satisfy their obligations under the CBCA if they forward to those shareholders the notice-and-access proxy materials they receive, rather than forwarding physical copies of all of the relevant documents.
- Public corporations will meet their requirement to send financial statements to registered shareholders if they use notice-and-access and include a link to the financial statements as part of the notice-and-access package. If the public corporation does not use notice-and-access (or at least not in respect of its financial statements), it will only be required to send financial statements to those registered shareholders who specifically request them. This is a change from the current regime, where public corporations are required to mail annual financial statements to all registered shareholders, except those who have specifically stated they do not wish to receive them.
- The Proposed Amendments and Draft Regulations will change the time frame for a shareholder to submit proposals to a federal corporation to a range of 90 to 150 days before the anniversary of the previous annual meeting of shareholders (instead of a deadline of 90 days prior to the anniversary date of the notice of last shareholders’ meeting). This will allow shareholders to submit proposals closer to the annual meeting.
Diversity in the boardroom and in senior management
To support the representation of women on the boards of directors and in senior management of federal corporations, the Proposed Amendments will require listed issuers to annually disclose their diversity policies and targets, if any, as well as statistics regarding female representation on the Board and at the executive officer level. The Proposed Amendments bring the CBCA in line with Canadian securities regulations related to gender diversity applicable to TSX-listed issuers and expand the requirements so as to apply to TSX-Venture listed issuers and other reporting issuers as well.
Interestingly, the Draft Regulations expand the scope of diversity beyond gender lines and would require federal corporations to disclose the details of any written policies relating to diversity other than gender amongst the directors and executive officers. This introduces a higher standard of disclosure than that imposed by current securities law or TSX requirements.
The Proposed Amendments received second reading in the House of Commons on December 9, 2016. We will provide updates regarding any further proposed amendments and the final form of the legislation as information becomes available.