June 26, 2014
Sources of Corporate Governance Rules and Practices
1 Primary sources of law, regulation and practice
What are the primary sources of law, regulation and practice relating to corporate governance?
The basic governance framework for Canadian corporations is set out in the corporate statutes (in addition to the standards established by the common law). A corporation may be formed federally or under the laws of any of Canada’s 10 provinces and three territories. Although the governance framework varies with the statute, the approach in the federal corporate statute, the Canada Business Corporations Act (CBCA) is the most common. References to corporate law requirements in this summary are based on the CBCA.
One of the most important remedies available to shareholders under the CBCA and many other corporate statutes is the oppression remedy. Any ‘complainant’ (which includes shareholders, directors and officers – and, in many cases, creditors) may apply to the court for an order on the basis that an action by the corporation or its directors is oppressive or unfairly prejudicial to or unfairly disregards the interests of any security holder, creditor, director or officer. The court may make any order it sees fit in connection with the matter. The oppression remedy is used frequently, particularly by minority shareholders and creditors. Courts have been prepared to provide relief under the oppression remedy even when there was a valid business purpose for the action taken by the corporation.
Securities regulation and stock exchange listing requirements are also important sources of corporate governance regulation. Securities law is currently a matter of provincial and territorial law in Canada and public companies may therefore be subject to securities laws in a number of jurisdictions. The federal government has announced an agreement in principle with the provinces of British Columbia and Ontario to establish a cooperative securities regulator. The government hopes that all provinces and territories with ultimately participate in the initiative.
2 Responsible entities
What are the primary government agencies or other entities responsible for making such rules and enforcing them? Are there any well-known shareholder activist groups or proxy advisory firms whose views are often considered?
Governance standards established in federal and provincial legislation are generally enforced through the courts. Many provincial securities regulatory authorities have the authority to make and enforce rules. The stock exchanges impose conditions of listing and continued listing, which must generally be approved by securities regulators.
Some of Canada’s largest institutional investors publish proxy voting guidelines setting out how they intend to vote in respect of particular governance matters. These guidelines have a significant influence on governance practices in Canada. In addition, the Canadian Coalition for Good Governance (CCGG), a membership-based organisation representing pension funds, mutual funds and money managers in Canada, issues position papers and recommendations on appropriate governance practices. It also promotes robust engagement between its members and the issuers in which they invest. Members of the CCGG have agreed to share information and to take the initiative to hold management accountable for growing long-term shareholder value.
In addition, certain organisations have provided leadership in establishing and promoting best practices. In particular the Institute of Corporate Directors, CPA Canada, ISS and Glass Lewis provide corporate governance research and related services to institutional investors and have been influential in the development of corporate governance practices in Canada. The CCGG and the International Corporate Governance Network are important organisations representing the views of investors.