On May 1, 2018, Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act, received Royal Assent – although, as noted below, not all of the provisions take effect immediately. From a public company perspective, Bill C-25 is primarily an effort to bring the CBCA into alignment with recent developments in Canadian securities laws and stock exchange rules along three major themes:
- Expanded diversity disclosure;
- Majority voting in uncontested director elections; and
- Online provision of meeting materials to shareholders (notice-and-access).
Expanded Diversity Disclosure
When regulations are finalized, Bill C-25 will require certain CBCA “distributing 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 corporation must provide diversity disclosure as prescribed by policy items 10 to 15 of Form 58-101F1 established under National Instrument 58-101 Disclosure of Corporate Governance Practices, with “members of designated groups” replacing “women”, including:
- whether or not the corporation has adopted a written policy relating to the identification and nomination of women, visible minorities, Aboriginal peoples and people with disabilities as 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, visible minorities, Aboriginal peoples and people with disabilities 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, visible minorities, Aboriginal peoples and people with disabilities on the board and in executive officer positions.
- “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.
- “Designated groups” must include designated groups as defined by the Employment Equity Act, which means women, Aboriginal peoples, persons with disabilities and members of visible minorities.
Importantly, while Canadian securities laws already require gender diversity disclosure for non-venture issuers, the proposed regulations expand the concept of diversity to include indicia of diversity and do not include exemptions for venture issuers.
Majority Voting in Uncontested Director Elections
Among other changes, Bill C-25 will implement a majority voting standard in uncontested director elections for all public CBCA companies. If a director does not receive a majority of votes cast in an uncontested election, the director would not be elected.
However, under “prescribed circumstances”, the Bill C-25 amendments will allow a board to use its appointment authority under s. 106(8) (adding additional directors) or s. 111(1) (filling board vacancies) to reappoint an incumbent director even though he or she did not receive majority support in the most recent election. More specifically, the proposed regulations would allow this in two circumstances: (i) where it is required to satisfy the CBCA’s Canadian residency requirement or (ii) where it is required to satisfy the CBCA’s requirement that at least two directors of a distributing corporation not also be officers or employees of the corporation or its affiliates. (It should be noted that, as a result of Bill C-25, the authority to appoint additional directors will now exist “unless the articles provide otherwise” rather than, as previously, only “if the articles … so provide”.)
Online Provision of Meeting Materials (“Notice and Access”)
Since March 2013, the Canadian Securities Administrators have allowed issuers to provide meeting materials to shareholders by posting the materials on the Internet, by way of notice-and-access. This process has not been easily accessible to CBCA companies because of technical provisions of the CBCA. The proposed amendments would align the regulations under the CBCA for distributing corporations with the provincial securities laws. While the regulations have yet to be implemented (see below for further details), on Royal Assent the CBCA Director’s powers have been broadened such that CBCA companies may now seek a full exemption from the delivery requirements of the CBCA essentially allowing for the use of notice-and-access in the interim period on the basis of any such exemption.
Many of the provisions in Bill C-25 do not take effect on Royal Assent, including those implementing majority voting and mandating diversity-related disclosure. Instead, the draft regulations under Bill C-25 must first be finalized and come into force. This process will normally take 6 to 24 months. As a consequence, corporations governed by the CBCA will probably not be required to comply with the new diversity-related disclosure and majority voting requirements until at least the 2020 or 2021 proxy season.