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The federal government is launching public consultation about possible new corporate governance rules for publicly traded companies – including whether firms should be required to hold say-on-pay votes on their executive compensation practices.
Federal Industry Minister James Moore announced the review this week, saying his department is considering whether to make amendments to the Canada Business Corporations Act (CBCA) that would affect companies incorporated under the federal legislation. That would include about half of Canada's largest publicly traded companies.
A consultation paper accompanying the announcement offers a long list of topics under consideration – ranging from gender diversity on boards to tax evasion and takeover-bid standards – but in most cases does not suggest what, if any, reforms might be introduced.
For example, the paper asks for comments on whether new measures are needed to promote diversity and get more women on corporate boards, but does not propose a favoured option. It notes that various countries have introduced quotas, targets or voluntary guidelines to encourage diversity.
The government said it is reviewing whether companies should have to offer annual advisory votes on executive compensation – known as say-on-pay votes – which are now mandatory for public companies in the United States.
The government also said it is reviewing whether there should be majority voting rules for directors, which require directors to get a majority of "yes" votes or resign from a board. Currently, shareholders can only vote "yes" for a director or have their votes withheld and not counted, which means directors can be elected with even a single vote if the rest are withheld.
The consultation paper also asks for input about giving shareholders greater access to propose directors for election; as well as a possible rule to give shareholders the right to vote on acquisitions that would significantly dilute the outstanding shares.
Ottawa is also seeking input on ways to improve transparency and reporting to combat bribery in international transactions, and is suggesting there could be improved disclosure rules for share ownership to reduce money laundering, terrorist financing and tax evasion.
The CBCA has been in force since 1975 and received comprehensive amendments in 2001, but corporate governance has evolved significantly since then. Mr. Moore said it is time to have "meaningful conversations" on governance issues. "That means having greater access to information on corporations in a timely and transparent manner, and being in a strong position to support law enforcement and other government agencies in the fight against money laundering, terrorist financing and tax evasion by improving the ability to trade and detect criminal funds in the Canadian financial sector," he said in a statement.
The Canadian Coalition for Good Governance, which represents most of the country's largest institutional investors, has been urging the government to reform the CBCA, said executive director Stephen Erlichman. He said a key change would be the introduction of a mandatory majority voting rule, because many companies have refused to adopt the practice voluntarily. Canada and the United States are the only major countries that do not require majority votes for directors to be elected to boards.
The coalition is also keen to win more access for shareholders to nominate directors to boards, improve the quality of proxy voting to reduce voting errors and to see more diversity on boards, Mr. Erlichman said in an interview.
"Our best bet right now to try to improve the corporate governance of Canadian public companies is to get this legislation changed, and if it doesn't happen now under this set of changes for the CBCA, it won't happen for a long time," he said. "Anybody in Canada who is concerned about this needs to provide comments during this 90-day consultation period."
Written submissions will be accepted for 90 days, until March 11, 2014.
Janet McFarland