CHAPTER 09 Governance in a Nascent Industry: Lessons from Canada’s “Green Rush”
Board Oversight: A Critical Board Function in Regulated Industries INTERNAL CONTROL AND REPORTING PROTOCOLS AND PROCEDURES ARE KEYS TO SUCCESS Although it is important to have the right people around the boardroom table to guide a nascent issuer, establishing effective management oversight and internal controls is crucial for a board to carry out its duties. It is also critical that issuers establish and implement robust policies and procedures for reporting to the board on key operational developments, risks and milestones, including a mechanism for timely communication of significant issues by management to the board. While the content of those policies will depend on, among other factors, the nature of the company’s industry, the board should ensure that it has oversight over internal controls as they relate to the issuer’s principal operations and risks. Particularly in highly regulated industries, such as the cannabis sector, it may be prudent for the board to have a more active monitoring role with respect to compliance. Boards of regulated issuers should be regularly meeting with management and receiving and probing operational reports from management, rather than deferring compliance matters to annual strategy sessions. For any issuer in the growth phase or operating in a monoline industry, the board should closely monitor and implement robust controls over critical activities or projects. In these circumstances, it may be advisable to establish new (or delegate responsibility to existing) board committees to oversee particular segments of the company’s strategies, major projects or operations.
Board members should also be aware that a line of case law is developing in the United States that requires boards to make good faith efforts to implement oversight controls relating to the corporation’s principal risks and to actively monitor (not solely defer to management to execute) operations, failing which directors risk facing personal liability. See Chapter 2, Risky Business: The Board’s Role in Enterprise Risk Management for further discussion about these so-called Caremark duties and how they can inform best practices for directors in carrying out their duties. As previously noted in this chapter, amid the fervour of the Green Rush, certain cannabis issuers exhibited less than ideal corporate governance practices. Next we consider the adequacy of the board’s response to the most publicized scandal in the cannabis space from 2019, which arose in part from a lack of board oversight in critical risk areas. THE CANNTRUST SAGA The following is a timeline of events that led to TSX- and NYSE-listed CannTrust Holdings Inc. having its licence suspended by Health Canada and ultimately filing for creditor protection. Boards of regulated issuers should be regularly meeting with management and receiving and probing operational reports from management, rather than deferring compliance matters to annual strategy sessions.
131
Davies | dwpv.com
Powered by FlippingBook