The Government of Canada has released proposed regulations to accompany the proposed amendments to the Canada Business Corporations Act under Bill C-25 (discussed here). These proposed regulations add detail to Bill C-25’s three major themes:
- Diversity disclosure;
- Majority voting in uncontested director elections; and
- Internet-based provision of meeting materials to shareholders (notice-and-access).
The proposed regulations were published on December 13, 2016 and will not come into effect until Bill C-25 itself takes force (it has passed second reading). As noted in our previous post, Bill C-25 is primarily an effort to bring the CBCA into alignment with recent developments in Canada’s securities laws and stock exchange rules.
When it becomes law, Bill C-25 will require certain CBCA corporations to provide shareholders with information about diversity policies at the board and senior management levels. The proposed regulations provide some details about what this means:
- The disclosure obligation only applies to “distributing corporations” (which for most part means public companies).
- The corporation must provide details of any gender-based diversity disclosure as prescribed by policy items 10 to 15 of National Instrument 58-101 Disclosure of Corporate Governance Practices, including:
- whether or not the corporation has adopted a written policy relating to the identification and nomination of women directors;
- if such a policy has been adopted, a short summary of the policy’s objectives and key provisions, measures taken to implement the policy and an assessment of progress made to achieve the objectives;
- if such a policy has not been adopted, an explanation of the reason for this;
- considerations by the board on representation of women in the director identification and selection process, in executive officer appointments and on setting targets for such representation (including a requirement to provide an explanation where no target has been set); and
- the number and proportion of women on the board and in executive officer positions.
- It must also provide details on any diversity policy not based on gender, including:
- whether or not the corporation has adopted a written diversity policy of this type with respect to the board of directors and senior management;
- if such a policy has been adopted, a short summary of the policy’s objectives and key provisions; and
- if such a policy has not been adopted, an explanation of the reason for this.
- “Senior management” is defined by reference to the definition of “executive officers” in National Instrument 51-102 Continuous Disclosure Obligations, which includes positions such as CEO, CFO, president, chair and vice-chair, among others.
While gender diversity has been a topic at the forefront of regulators’ and other industry participants’ agenda (see, for example, our Board Diversity Series here, here, here and here), the requirement in the proposed regulations to disclose information about non-gender based diversity shows a commitment on the part of Industry Canada to push for all types of diversity in corporate leadership roles.
While already required by the TSX Company Manual for TSX-listed issuers, Bill C-25 would implement a majority voting standard in uncontested director elections for all public CBCA companies (including those listed on the TSX-V venture exchange). Although the applicable provision in Bill C-25 provides for the possibility that a “prescribed class” of public companies may be exempted from the majority voting requirement, the proposed regulations do not in fact prescribe any such class. This means that the majority voting requirement would be broadened so as to encompass all CBCA distributing corporations (not just those listed on the TSX main exchange).
If a director does not receive a majority of votes in an uncontested election, the proposed regulations would permit the board of directors to reappoint the director only if this were necessary to satisfy Canadian residency requirements or the requirement that at least two directors not also be officers or employees of the company. The proposed regulations would also require that a form of proxy allow shareholders to vote for directors individually and to vote for or against each director (contrasted to the “vote for” or “withhold” options in past proxies) .
These changes would align corporate legislation with existing securities legislation while also broadening the reach of the majority-voting standard to all CBCA distributing corporations. At the same time, it would clarify the voting mechanics to be used to effect the majority-voting requirement for directors.
Since March 2013, the Canadian Securities Administrators have allowed issuers to provide meeting materials to shareholders through the Internet, by way of notice-and-access. This process has not been available to CBCA companies because of technical provisions of the CBCA. Bill C-25 and the proposed regulations would allow CBCA distributing corporations to include a link to their financial statements in their notice-and-access packages as an acceptable way of meeting their CBCA obligation to send financial statements to their shareholders. As well, in a move towards a request-based system that would reduce costs for issuers and better align with existing provincial securities regulation, where distributing corporations choose not to use notice-and-access or do not include a link to financial statements in their notice-and-access package, they will only be required to send financial statements to shareholders who request them. Non-distributing corporations would still be required to send financial statements to all shareholders other than those who say they do not wish to receive them.
Bill C-25 and the proposed amendments would also amend the time periods related to record-keeping and document production for documents that were received and accepted by the Director under the CBCA, among other technical and housekeeping changes.
Readers may also wish to review the explanatory note that accompanied the amendments.