Industry Canada recently announced the launch of a public consultation process to consider potential amendments to the Canada Business Corporations Act (CBCA). The CBCA governs federally incorporated companies, and according to Industry Canada, is the governing corporate law for almost half of Canada’s largest public companies. While many of its counterpart provincial corporate laws have recently undergone a modernization process, comprehensive amendments to the CBCA were last made in 2001 and certain changes have been long-awaited.
This consultation process follows a statutory review conducted by a House of Commons Standing Committee in 2009-2010. Citing the need to maintain a modern corporate regulatory structure reflective of marketplace changes and developments, the consultation papers asks for input on a wide range of issues, including those that could result in significant changes to shareholder rights and board accountability (such as proxy access and shareholder approval of dilutive transactions), as well as those that represent and reflect some of the latest developments in corporate governance (such as corporate social responsibility and board diversity). While having a direct impact on federally-incorporated companies if adopted, certain changes would also have the potential to set a trend for corporations in Canada generally.
Elements of the proposed consultation questions are highlighted below:
Corporate governance and corporate social responsibility
With respect to corporate governance, the consultation paper seeks feedback on a wide range of issues, including with respect to:
- whether the CBCA adequately addresses corporate best practices and other interests of stakeholders with respect to executive compensation, including shareholder advisory votes on compensation (“say-on-pay”);
- board accountability, including issues such as separation of the role of CEO and chair of the board;
- diversity of corporate boards and management; and
- adequacy of existing CBCA provisions (e.g. audit, corporate records, accounting standards) to combat bribery and corruption.
Corporate social responsibility also emerges as an important theme in the consultation paper, with questions raised as to:
- the incorporation of socially responsible enterprises and whether to allow for the incorporation of hybrid (profit and non-profit) enterprises;
- whether additional measures are warranted to promote corporate social responsibility under the CBCA; and
- disclosure by the board of the impact of social and environmental matters on a publicly traded company’s operations.
Shareholder voting and participation rights
In this area, Industry Canada seeks feedback on enhancement of shareholder voting and participation rights, including whether to:
- prohibit slate voting and require a majority vote for director elections;
- require mandatory voting by ballot and disclosure of voting results by public companies;
- impose maximum one-year terms and annual elections for directors; and
- allow electronic meetings for public companies and facilitate "notice and access."
Shareholder democracy and proxy-solicitation
Picking up on a number of market developments in this area, considerations relating to shareholder democracy span a range of issues, including:
- addressing “overvoting” and “empty voting;”
- improved access to the oppression remedy and shareholder approval for significantly dilutive acquisitions;
- provision of greater proxy access to allow significant shareholders to include alternate nominees for the board on management’s proxy circular;
- enhancement of the rights of shareholders to make proposals;
- the ability to send proxy-related materials to beneficial owners;
- raising or removing the current 50-shareholder threshold for proxy solicitation for private companies;
- raising the threshold for the mandatory proxy solicitation provisions by persons other than management to higher than 15; and
- whether beneficial owners of shares should be given more of the rights similar to those conferred on registered shareholders
Modernization of corporate law and other more technical considerations
Finally, a wide range of considerations are discussed with a view to modernizing certain elements of the CBCA, including:
- the holding and transfer of shares, including the removal of transfer provisions (now regulated by provincial securities transfer legislation);
- review of the CBCA’s regulation of insider trading, provisions relating to trust indentures and the CBCA’s proportionate liability regime;
- whether to maintain Canadian residency requirements for directors;
- enhancement of corporate transparency, including provision of greater access of information for regulatory authorities, disclosure of ownership information regarding bearer shares and bearer warrants and disclosure by nominee shareholders of information regarding the individuals for whom they are acting;
- arrangements under the CBCA and their use for restructuring insolvent corporations; and
- other administrative and technical matters, including whether there should be a time limit on how long shareholders must hold shares before they can exercise the right of dissent, whether the definition of "squeeze-out transaction" should be amended to remove reference to amendment of corporate articles and various considerations on property of dissolved corporations.
This process is at the consultation phase only and raises issues for consideration. Concrete proposals to amend the CBCA would be expected following Industry Canada’s review of the feedback received.
Industry Canada is accepting comments in regards to the discussion paper until March 11, 2014.