Joint Committee on Corporate Governance
Current Governance Standards - TSX Guidelines
Themes in the Report

The final report of the Joint Committee on Corporate Governance (known as the Saucier Report after committee chair Guylaine Saucier) was released in late 2001. The Toronto Stock Exchange (TSX) and the Canadian Venture Exchange (CDNX) are considering the report and its recommendations. If these recommendations are implemented:

  • it will be a condition of a company's listing that its board selects an independent board leader;
  • there will be a number of changes to the existing TSX guidelines and therefore to the corporate disclosure that Canadian companies with shares listed on the TSX are required to provide to their shareholders each year; and
  • CDNX Tier 1 listed issuers will be required to make the corporate governance disclosure currently required of most TSX-listed companies.

Joint Committee on Corporate Governance

The Joint Committee on Corporate Governance was sponsored by the Canadian Institute of Chartered Accountants, the CDNX and the TSX. This is the first report on corporate governance in Canada since the Dey Report was released in 1994.

The committee issued an interim report in March 2001. It received over 60 comment letters, many of which objected vigorously to various aspects of the report. The report changed significantly in its final form. Among other things, the 27 recommendations contained in the interim report were reduced to 15 in the final report and were softened considerably in many regards.

The Saucier Report suggests certain actions that boards should take and behaviours or practices they should adopt to enhance the value they add to the corporations which they serve. Some of these are set out in the report's recommendations. Others have been left simply as suggestions for improved governance. The report also proposes certain amendments to the TSX guidelines and, consequently, to the disclosure that Canadian companies with shares listed on the TSX are required to make.

Current Governance Standards - TSX Guidelines

The TSX guidelines comprise 14 guidelines for good corporate governance recommended by the Dey Report in 1994. The TSX does not require compliance with any of the TSX guidelines and in fact recognizes that it may be appropriate in many cases for listed companies to adopt different approaches to governance, tailored to their own needs. The discipline imposed by the TSX guidelines is one of disclosure. Canadian companies with shares listed on the TSX are required to disclose in their annual report or information circular whether their governance practices are consistent with each of the TSX guidelines. To the extent that governance practices differ from the TSX guidelines, companies are required to disclose why they are different.

Themes in the Report

Two themes run through the report. As the title of the report suggests, the first relates to issues which the committee believes are fundamental to building a healthy governance culture. These include:

  • the relationship between the board and management;
  • the role of the board in selecting the chief executive officer (CEO) and in corporate strategy; and
  • the role of the board where there is a significant shareholder.

The second is disclosure. The report does not recommend legislation or regulation of any of its suggestions or recommendations (with the exception of the listing requirement relating to the independent board leader). Like the Dey Report, the Saucier Report recommends using the disclosure requirement to motivate companies to adopt governance practices that meet or exceed best practice standards.


The report recommends that the board develop, approve and disclose a mandate that sets out its responsibilities. It identifies the following five core responsibilities and recommends that TSX Guideline 1 be amended to reflect these responsibilities (to the extent not already reflected):

  • choosing the CEO and ensuring that the senior management team is sound, focused and capable of successfully managing the company;
  • setting the broad parameters within which the management team operates. Examples include (i) adopting a strategic planning process and approving a strategic direction; (ii) defining a framework to monitor the management of business opportunities and risks; (iii) in defined circumstances, approving corporate decisions; (iv) approving a communications policy that includes a framework for investor relations and a public disclosure policy which may involve a process for monitoring the relationship between the corporation and investment dealers;
  • coaching the CEO and management team;
  • monitoring and assessing the performance of the CEO, setting the CEO's compensation and approving the compensation of senior management (and taking remedial action where warranted, including replacing the CEO if necessary); and
  • providing assurance to shareholders and stakeholders about the integrity of the corporation's reported financial performance.

Role of the board in corporate strategy
The report recommends that the TSX guidelines clarify that the board's responsibility with respect to strategic planning involves more than adopting a strategic planning process, but should include the following:

  • contributing to the development of strategic direction;
  • approving a strategic plan that takes into account an identification of business opportunities and business risks;
  • overseeing management's systems for managing business risk; and
  • periodically reviewing with management the strategic environment, the emergence of new opportunities and risks, and the implications for the company's strategic direction.

The independent board leader
The report recommends that corporations have an independent board leader as a condition to listing on the TSX. This is less aggressive than the recommendation in the interim report, which was for the positions of chair and CEO to be separated. The separation of these positions remains the committee's preferred approach, but the report acknowledges that Canadian corporate governance practices evolve in an international context and that the issue of non-executive chair is not an issue under active debate in the United States. As a compromise, it recommends the establishment of the position of independent board leader. This could be the board chair, but only if that position is separate from the position of CEO.

The report recommends a number of functions for the independent board leader to perform under the broad categories of:

  • providing leadership to enhance board effectiveness;
  • managing the board;
  • acting as liaison between board and management; and
  • representing the corporation to external groups.

Board composition when there is a de facto significant shareholder
The report was concerned that the TSX guidelines do not contemplate sufficient representation of minority investors on the board of directors when there is a de facto controlling shareholder.

The TSX guidelines define a 'significant shareholder' as a shareholder with the ability to exercise a majority of the votes for the election of the board of directors. TSX Guideline 2 recommends that if the corporation has a significant shareholder, the board should include a number of directors who do not have interests in or relationships with either the corporation or the significant shareholder, and which fairly reflects the investment in the corporation by shareholders other than the significant shareholder.

The report recommends that this guideline be reviewed and revised to reflect a definition of 'significant shareholder' that encompasses a de facto control block representing less than a majority of the voting shares. If the TSX makes this change to its guidelines, many issuers may have cause to review their board composition and consider the need to recruit directors who are independent of the de facto significant shareholder.

Role of the board when there is a significant shareholder
The report acknowledges that directors of control block companies face particular issues in dealing with the parent corporation, but notes that "this does not relieve the independent directors of their responsibilities to ensure that shareholders are protected". It states that the significant shareholder, controlled corporation and directors must be prepared to accept their responsibility to ensure that the proper functions of governance are carried out.

The report recommends that boards adopt the following four improvements to the recruitment process and that TSX Guideline 4 be amended to reflect these improvements:

  • The full board should engage in a disciplined process to determine what competencies, skills and personal qualities it should seek in new board members in order to add value to the corporation. This determination should be made in light of the opportunities and risks facing the company.
  • Boards should actively look beyond traditional sources in seeking men and women with the right mix of experience and competencies.
  • Boards should ensure that prospective candidates fully understand the role of the board and the contribution they are expected to make.
  • The independent board leader (with or without the CEO) should approach prospective candidates for the board to explore their interest in joining the board.

Board assessment
Board and director assessment has been the subject of focus in governance reports in recent years. The report makes the following recommendations in this area:

  • Responsibility for ensuring that these assessments are made should rest with the independent board leader;
  • The effectiveness of the board and committees should be assessed against their mandates and the results should be reported to the full board; and
  • Individual assessments should be given to those assessed to help them enhance their contribution.

Audit committee requirements
The report considered the extent to which audit committee standards in Canada should be harmonized with standards recently adopted in the United States. It recommends harmonization in some, but not all of the areas of recent change in the United States. Specifically, it makes the following recommendations:

  • Audit committees should be comprised solely of unrelated directors (although there should be some flexibility for CDNX Tier 1 companies).
  • All members of the audit committee should be 'financially literate', as defined by the board of directors.
  • The audit committee should adopt a formal written mandate which is approved by the board, a description of which should be disclosed to the shareholders. The mandate should (i) set out explicitly the role of the audit committee with respect to its relationship with and expectation of the external auditors and the internal audit function, its oversight of internal control and disclosure of financial and related information; and (ii) affirm that the external auditor is accountable to the board and the audit committee, as representatives of the shareholders and that they have the ultimate authority and responsibility to select, evaluate and, where appropriate, recommend the replacement of the external auditor.
  • The audit committee should regularly assess its performance against its mandate.
  • The audit committee should periodically request from management a review of the need for an internal audit function.

Application of the TSX guidelines to CDNX-listed companies
The TSX guidelines are currently not applicable to the 2,600 companies listed on the CDNX. The report recommends that the disclosure requirement be extended to CDNX Tier 1 issuers and that the CDNX work with those issuers to provide education, training and other support to assist them in meeting the disclosure requirements within a reasonable period of time. This recommendation follows from the report's comments that good governance benefits all companies - small and large - and that

    "entrepreneurs have a choice about whether to seek capital on public markets and, if they do, shareholders can reasonably expect as much accountability from the board of a smaller company as they can from a larger company".

The Saucier Report also recommends that CDNX Tier 2 issuers be encouraged, but not required, to disclose the extent to which they comply with the TSX guidelines.

Adding some teeth
The report recommends that listed companies which do not comply with the disclosure requirements face sanctions. It recommends that the TSX identify education, monitoring and enforcement measures that will ensure companies comply with the disclosure requirements.


The report provides food for thought for directors, management and auditors. The TSX has not yet responded to the recommendations for amendments to the TSX guidelines made in the report. Until it does, there will be no changes to the TSX guidelines or the corporate governance listing requirements to which most TSX-listed companies are subject.

For further information on this topic please contact Debra Forman at Davies Ward Phillips & Vineberg LLP by telephone (+1 416 367 6975) or by fax (+1 416 863 0871) or by email ([email protected]).