CHAPTER 03 Corporate Governance
DIVERSITY As discussed above under the comply-or-explain governance model, a major development over the last few years has been the focus on increasing diversity of representation in corporate management. BOARD COMPOSITION Additional issues that are included in Canada’s comply- or-explain regime, such as separation of the positions of CEO and chair, director term limits and mandatory retirement policies, continue to attract the attention of proxy advisory firms and shareholder advocacy groups that focus on maximizing board accountability. It is also common for public companies to have in place skills or competency matrices and robust assessment programs as part of their ongoing review of board composition and effectiveness, as well as nominating and succession planning policies. MAJORITY VOTING Canadian public companies, other than issuers that are majority controlled, are required by the TSX rules to adopt majority voting. This allows investors to vote annually for individual directors rather than for a slate and provides for a mechanism whereby directors must tender their resignation if a majority of votes are withheld from them. A board is required to accept such resignations, other than in “exceptional circumstances” (which must be publicly disclosed). TSX guidance on the issue suggests that issuers proposing to retain a director who fails to receive 50% plus one shareholder votes in his or her favour must meet a high bar, requiring truly exceptional non-recurring reasons. Canada’s federal corporate statute now requires “true majority voting” – that is, each director must receive annually a majority of “for” votes cast by shareholders in order to
be validly elected. A director who fails to receive majority support may remain in office only until a successor is appointed or elected, up to a maximum of 90 days after the meeting. Furthermore, the undersupported director cannot be appointed to the board before the next shareholders’ meeting unless he or she is needed (i) to meet the corporation’s obligation to have at least two directors who are not officers or employees of the corporation or its affiliates; or (ii) to maintain a certain percentage of the board members that are Canadian residents. SAY-ON-PAY Although say-on-pay votes are not currently mandatory in Canada, annual advisory say-on-pay votes on executive compensation have become the norm. Most Canadian issuers that have adopted say-on-pay practices are putting forward advisory, non-binding resolutions substantially in the form recommended by CCGG. Some Canadian public companies’ say- on-pay votes have not been supported by their shareholders – typically those that received negative vote recommendations by ISS and Glass Lewis, due to pay-for-performance misalignments. SHAREHOLDER ACTIVISM Shareholder activism also continues in Canada – although the number of resulting formal proxy contests has declined dramatically since its record high in 2015. The decline in proxy contests belies a robust level of activism in its quieter form, with shareholders and boards engaging privately to effect change and reconcile their competing views on corporate strategy and governance. Boards are becoming more receptive to engaging with both significant shareholders and activist investors. Activists are increasingly achieving
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