Venture Issuers Disclosure Revolution or Evolution

December 3, 2019 | Bruno Caron

The Canada Business Corporations Act (CBCA) has undergone in June of this year changes clarifying the scope of the duty of directors and senior officers to act in the best interest of the corporation.  Some other changes to the CBCA will enter into force on January 1, 2020, and will affect the disclosure contained in annual meeting proxy circulars of venture issuers governed by it.

Other changes to the CBCA dealing with (i) compulsory separate voting for candidates to directorship and (ii) “majority voting” are expected to come into force later in 2020.  The following is a summary of these changes.

Changes in Force or Soon to be in Force

Duty to Act in the Best Interests of the Corporation

On June 21, 2019, Section 122 of the CBCA was amended by Bill C-97 to codify elements of the Supreme Court of Canada decision in BCE Inc. vs. 1976 Debenture Holders (BCE) regarding directors’ and officers’ duty to act in the best interests of the corporation.  Traditionally, the “best interests of a corporation” was interpreted to be the interests of shareholders as a whole without any reference to other stakeholders.  However, in BCE, the Supreme Court of Canada stated that the “interests of the corporation” should not be equated with interests of shareholders alone, but also with the interests of other stakeholders which include, among others, employees, pensioners and debenture holders.

The new Section 122 (1.1) of the CBCA states that, when acting in the best interests of the corporation, directors and officers may consider, but are not limited to, the following factors: (i) the interests of shareholders, employees, retirees and pensioners, creditors, consumers and governments; (ii) the environment; and (iii) the long-term interests of the corporation.  Consequently, directors and officers should be mindful of this new change when evaluating courses of action and making decisions for the corporation.

Diversity Disclosure Requirements

On January 1, 2020, certain changes proposed by Bill C-25 related to disclosure on diversity will come into force.  These changes will affect all public corporations governed by the CBCA, including venture issuers.

The new diversity disclosure goes a step further than the gender-based disclosure currently required from non-venture issuers pursuant to National Instrument 58-101 – Disclosure of Corporate Governance Practices as it is wider in scope including, at a minimum, disclosure concerning the place of women, Aboriginal people, people with disabilities and members of visible minorities on boards and in senior management positions.

The new disclosure rules are based on a “comply or explain” regime with a view to encourage discussions within a corporation.  According to Industry Canada, because of its “comply or explain” nature, this new disclosure will impose a relatively minimal burden on non-venture distributing corporations and venture issuers.

The new disclosure on diversity will include:

  1. Board Renewal: whether the corporation has adopted term limits or other mechanisms of board renewal and either a description of those mechanisms or, if no such mechanisms, the reasons for not adopting any;
  2. Diversity Policy: whether the corporation has a written policy relating to the identification and nomination of directors from designated groups (namely, women, aboriginal people, persons with disabilities and members of visible minorities) and either the reasons for not adopting such a policy or if there is a policy, the following information:
    • a short summary of the policy’s objectives and key provisions;
    • a description of the measures taken to ensure effective implementation;
    • a description of the annual and cumulative progress in achieving the objectives of the policy; and
    • whether or not the effectiveness of the policy is measured and, if so, a description of how it is measured.
  3. Consideration of Level of Representation: whether the level of representation of the designated groups is considered when nominating individuals for directors or appointing members of senior management and either a description of how that level is considered or, if not considered, the reasons why;
  4. Existence of Targets and Level of Achievements: whether there are targets for representation on the board and among senior management for each group referred to in the definition of designated groups and, if so, the progress in achieving the targets and either, for each group with a target, the annual and cumulative progress in achieving that target or, if there are no targets, the reasons for not adopting such targets; and
  5. Actual Data: the number and proportion (in percentage terms) of directors and members of senior management from each group referred to in the definition of designated groups on the board and in senior management positions.

The new diversity disclosure is required to be provided to each shareholder (except to shareholders who informed the corporation in writing that they do not want to receive that information) by sending the new diversity information along with the notice of meeting or by making it available alone with the annual meeting proxy circular.

Changes Not in Force but Expected to Come into Force in 2020

The clarification of the duty to act in the best interests of the corporation and the new disclosure on diversity were introduced by Bill C-97 and Bill C-25, respectively.

Bill C-97 also proposes changes to the CBCA to require new disclosure with respect to (i) the well-being of employees, retirees and pensioners; (ii) the recovery of incentive benefits or other benefits paid to directors and members of senior management; and (iii) the corporation’s approach with respect to remuneration of directors and senior management.  Similarly to the diversity disclosure, this new disclosure will need to be sent to each shareholder who has not indicated expressly in writing their desire to opt-out, by making such information available in the corporation’s annual meeting proxy circular or by sending it along with the notice of annual meeting.

At this point, we do not know when the changes proposed by Bill C-97 will come into force. However, we anticipate these changes to come into force after June 2020, following the 2020 proxy season.

Other changes to the CBCA proposed by Bill C-25 and Bill C-97, which are not yet in force but which will have an impact on public corporations, including ventures issuers, include:

Separate Voting

In the past, publicly traded corporations have adopted the practice of nominating a group of directors (a “slate”) and required shareholders to vote for the entire slate on an “all-or-none” basis.  This practice has been criticized on the basis that presenting a slate of nominee directors for election does not permit shareholders to express their approval or disapproval of individual nominees.  In fact, this practice of “slate” voting has been prohibited by the TSX, which requires separate voting since December 31, 2012. This change is included in Bill C-25 and once it will come into force it will apply to all publicly traded companies. However, it is not known at this time when it will come into force.

Majority Voting

Currently, the CBCA permits the election of directors by “plurality” voting.  Under “plurality” voting, the candidate receiving the most votes wins the election to the board, even if the candidate did not receive the votes of a majority of shareholders.  Under the current plurality system, shareholders can only vote for or abstain from voting for a director candidate.  Abstentions do not count as votes against a candidate.  This means that, technically, a candidate to the directorship of a CBCA corporation can be elected to a board with only one vote in favour of his/her election and the rest abstaining .  Under Bill C-25 proposal, which will introduce “majority” voting, each candidate to directorship will be elected only if the number of votes cast in its favour represents a majority (i.e. 50% + 1) of the votes cast for and against this candidate by shareholders who are present in person or represented by proxy, unless the articles of the corporation require a greater number of votes. It is unknown when these changes will come into force.

Annual Say-on-Pay Votes

The new amendment related to say-on-pay (new Section 172.4 of the CBCA), contained in Bill C?97 will require CBCA distributing corporations to hold annual say-on-pay votes and to develop an approach to remuneration of directors and senior management.  The approach to remuneration will need to be sent to shareholders through the proxy circular and a non-binding say-on-pay vote will need to be held at every annual meeting of shareholders.  This change is anticipated to come into force after the 2020 proxy season.


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