“May you live in interesting times” the Chinese curse goes. Today’s directors, and in particular today’s TSX resource company directors, definitely live in interesting times. Directors of mining companies listed on the TSX Venture Exchange (TSX-V) may make things less interesting for themselves by doing a little homework and being aware of the guidelines and recommendations in TSX-V Corporate Finance Manual Policy 3.1 – Directors, Officers, Other Insiders & Personnel and Corporate Governance (Policy 3.1) and National Policy 58-201 – Corporate Governance Guidelines (NP 58-201) and applying them as appropriate. In this article we will review those guidelines and recommendations and make some suggestions as to which ones a TSX-V mining board should consider applying.
TSX Venture Exchange Policy 3.1
Some of the key guidelines of Policy 3.1 relate to the need to have a properly constructed board made up of directors with the right qualifications, profile, expertise and experience. The board does not have to be big, but it should be highly skilled with experience and technical expertise relevant to the company’s business and industry. Policy 3.1 does not purport to be an exhaustive statement of corporate governance requirements for TSX-V issuers (it specifically says that it must be read in conjunction with applicable corporate and securities laws including NP 58-201), but it does help us to construct the profile of a strong board.
Policy 3.1 specifically provides that the TSX-V considers the directors to be an important factor in determining whether to accept or maintain a listing. However, it also points out that the TSX-V will exercise discretion in considering all factors relating to directors and other insiders in deciding whether an issuer would be appropriate for listing. In particular, in exercising its discretion, the TSX-V may review the conduct of directors in order to satisfy itself that the business of the issuer is and will be conducted with integrity and in the best interest of the security holders and the investing public and that the TSX-V requirements and the requirements of the other regulatory bodies, such as the Canadian securities regulators, will be complied with. In addition, the TSX-V retains discretion to prohibit a particular individual from serving as a director.
Typically the TSX-V will not accept an initial listing where a director or other person involved with the issuer does not meet the applicable minimum requirements set out in Policy 3.1. In addition, on an on-going basis, the directors must continue to meet the requirements set forth in Policy 3.1 or the TSX-V may halt, suspend or de-list the securities of the issuer.
Here are some of the key qualification and duties Policy 3.1 identifies as being required for directors of TSX-V companies:
- they must be at least 18 years old and of the age of majority in the jurisdiction where they reside;
- they must be qualified under the corporate and securities laws applicable to the issuer to serve as a director;
- they must act honestly and in good faith with a view to the best interest of the issuer;
- they must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances; and
- they must ensure that the issuer complies with the applicable TSX-V requirements and corporate and securities laws.
Policy 3.1 also sets out requirements concerning appropriate board composition, which include that each issuer must have at least three directors with at least two independent directors (as determined by the board). In addition, the directors (and/or management and the officers) must have adequate experience and technical expertise relevant to the business and adequate reporting issuer experience in Canada or a similar jurisdiction.
Policy 3.1 sets out a number of factors by which the TSX-V will determine whether the board members or management have satisfactory industry specific technical experience and sufficient reporting issuer experience. These factors include:
- the person’s previous involvement with other public and private issuers (including the number of boards on which the person has served);
- the positions and the length of time the person was a member of management or a director;the history of the corporate and financial success of any issuers with which the person was involved;
- any regulatory or securities law violations or infractions by the person;
- the prudent and responsible business conduct and practices of any issuer with which the person was involved;the industry in which the other issuer was involved and the extent of the experience obtained by the person;
- the stock exchange or market on which the other issuer or its securities were traded;
- any management position held by the person with the other issuer;the financial success of the other issuer; and
- whether the person has satisfactorily completed one or more corporate governance and reporting issuer management courses acceptable to the TSX-V.
In addition to the above requirements, the TSX-V specifically recommends that at least one independent board member and a minimum of two members of the board has satisfactory corporate governance experience.
National Policy 58-201
In addition to the requirements of Policy 3.1, TSX-V boards must consider the requirements of NP 58-201 which provides guidance on corporate governance practices from a securities law perspective. Although NP 58-201 applies to all reporting issuers, other than investment funds, the guidelines in NP 58-201 are not intended to be prescriptive and are more in the nature of encouragement from the Canadian securities regulators for issuers to develop their own corporate governance practices.
The following corporate governance guidelines are contained in NP 58-201:
- establish and maintain a board consisting of a majority of independent directors;
- appoint a chair of the board or a lead director who is an independent director;hold regularly scheduled meetings of independent directors at which non-independent directors and members of management are not in attendance;
- adopt a written board mandate;develop position descriptions for the chair of the board, the chair of each board committee, and the chief executive officer;
- provide each new director with a comprehensive orientation, and provide all directors with continuing education opportunities;
- adopt a written code of business conduct and ethics;
- appoint a nominating committee composed entirely of independent directors;
- adopt a process for determining the competencies and skills the board as a whole should have, and apply this result to the recruitment process for new directors;appoint a compensation committee composed entirely of independent directors; and
- conduct regular assessments of the board effectiveness, as well as the effectiveness and contribution of each board committee and each individual director.
Policy 3.1 and NP 58-201 together provide a full menu for a TSX-V mining company board. The key for the board is to determine which items from the menu are most appropriate for the issuer given its age, stage, capitalization, industry and future. However there are a handful of obvious choices which most boards should choose to adopt including the following:
- the board should be composed of no less than 3 to 5 directors with a majority of independent directors (as determined by the board in accordance with applicable securities law requirements);
- some (but not necessarily all) directors should have meaningful public company experience with a track record of success;
- include directors with expertise in public company accounting, National Instrument 43-101 reports (after all, it is a mining company) and corporate governance;
- appoint committees but be mindful of the size of the board and whether the issuer will really need them (TSX-V issuers always require an audit committee comprised of at least three directors the majority of whom are independent and should have a compensation committee and a governance committee);
- meet at least quarterly as a board with separate audit committee meetings and in camera sessions for independent directors and take good (although not necessarily long) minutes of all meetings;
- adopt good mandates (they are easy to find) for the board and each of the committees; and
- go and see the issuer’s mines or properties (this is not on the list but experience tells us it is a good thing to do for any director of a TSX-V company).
In addition to the above, an individual director should take steps and make choices that seem reasonable in the circumstances for the board (it helps sometimes to consult with counsel and the issuer’s auditors). As long as a director considers the guidance of Policy 3.1 and NP 58-201, uses his or her judgement and experience and acts with a bona fide regard for the interests of the corporation, the director will be on solid ground and hopefully life as a director will not be at all interesting.