2023 volume 33 issue 4

Corporate Governance and Disclosure Requirements


(left to right: David Frost, Partner; Myreille Gilbert, Partner; Farhiyah Shariff, Partner; Jonathan Brisebois, Articling Student, McCarthy Tétrault, LLP)

In preparation for the 2024 proxy season, the following are recent trends and developments in corporate governance and disclosure requirements impacting Canadian reporting issuers. 

1. Diversity Disclosure

(a). Proposed Amendments

In April 2023, the Canadian Securities Administrators (the CSA) published for comment proposed amendments to Form 58-101F1 – Corporate Governance Disclosure pertaining to Board nominations, Board renewal and diversity-related disclosure (https://www.osc.ca/sites/default/files/2023-04/csa_20230413_58-101_58-201_corporate-governance-rfc.pdf). 

The CSA presented two versions of Form 58-101F1. Both versions are generally on disclosure requirements for Board nominations and Board renewal, but take different approaches to diversity-related disclosure. 

Form A does not mandate disclosure in respect of any specific groups other than women and the issuer describes its chosen diversity objectives and how it measures progress. 

Form B mandates reporting on the representation of women, indigenous peoples, racialized persons, persons with disabilities and LGBTQ2SI+ persons on Boards and in executive officer positions. 

The CSA will provide further guidance once it completes reviewing comments. 

(b). Voting Recommendations 

Proxy advisory firms are typically recommending a withhold vote for the chair of the Nominating Committee where: 

  • women represent less than 30% of the Board of a TSX-listed issuer that is a Composite Index constituent; 
  • no women are on the Board of a TSX-listed issuer that is not a Composite Index constituent; or 
  • there is not at least one gender-diverse director on the Board of a TSXV-listed issuer. 

On November 30, 2023 Institutional Shareholder Services (ISS) Governance announced proposed changes to its benchmark voting policy (https://insights.issgovernance.com/posts/iss-governance-launches-open-comment-period-for-2024-proposed-benchmark-voting-policy-changes/). The change would implement a general recommendation to vote withhold where there are no apparent racially or ethnically diverse members on the Board of a TSX listed issuer that is a Composite Index constituent. 

2. Changes to the CBCA

(a) Majority Voting 

Majority voting requirements for issuers governed by the Canada Business Corporations Act (CBCA) came into effect in August 2022. These issuers must now allow shareholders to vote ‘against’ individual director nominees rather than ‘withhold’. The TSX indicated that this satisfies its majority voting requirement. Most issuers have repealed their majority voting policies and now rely exclusively on the CBCA majority voting framework. 

(b). Say-on-Pay Vote 

CBCA amendments that will require issuers to annually disclose their approach to the compensation of directors and executive officers and provide shareholders with a non-binding ‘say-on-pay’ vote are also on the horizon but not yet in force. 

Advisors expect a Board’s responsiveness to voluntary say-on-pay votes to correspond to the level of shareholder opposition. Advisors may recommend holding Compensation Committee members accountable for failing to adequately respond to such shareholder opposition. 

3. Director Overcommitment 

There has been a significant upward trend in the time commitment associated with acting as a director in the past decade. Now, proxy advisory groups generally recommend that shareholders oppose the election of a director who: 

  • serves as an executive officer of a public company while serving on more than one additional external public company Board; 
  • serves as an executive chair, or vice chair, of a public company while serving on more than two additional external public company Boards; or 
  • serves as a non-executive director on a total of more than five public company Boards. 

4. Decline in Auditor Ratification 

There are two apparent reasons behind the decline in shareholder support for auditor ratification. 

First, stakeholders are concerned that an auditor’s ability to exercise impartial judgment may be impaired if it receives significant revenue from non-audit services. Proxy advisors recommend voting against auditor ratification where more than half of the aggregate fees paid to the audit firm was for non-audit services. 

Second, some institutional investors will cast negative votes due to long auditor tenures. The period after which auditor refreshment is encouraged varies greatly between investors, ranging between five and 20 years. 

5. Environment Risk Oversight 

Companies with increased climate-related risk exposure should provide clear and comprehensive disclosure regarding these risks, including how they are being mitigated and overseen. 

In 2024, Glass Lewis will begin reviewing the disclosure of TSX 60 companies operating in industries where the Sustainability Accounting Standards Board has determined that the companies’ greenhouse gas emissions represent a financially material risk. This review will assess whether these companies have disclosed explicit and clearly defined Board-level oversight responsibilities for climate-related issues. 

CSA Staff Notices 51-358 – Reporting of Climate Change-Related Risks and 51-333 – Environmental reporting guidance continue to apply until the International Sustainability Standards Board’s disclosure standards are adopted in Canada. 

6. Cybersecurity 

In a recent survey completed by Control Risks, 43% of the respondents ranked tech disruption as their greatest concern (https://www.controlrisks.com/riskmap/top-risks/trust-deficit-digital-integrity-frays). 

Proxy advisors strongly encourage Boards and management to become well-versed on the technology used by their companies and the associated cybersecurity risks, to monitor regulatory developments (in particular with respect to artificial intelligence, where regulators across the world are in the process of adopting laws to oversee the use of AI technologies), and to provide clear disclosure concerning the role of the Board in overseeing issues related to cybersecurity. 

7. Streamlining Continuous Disclosure Requirements 

In May 2021, the CSA published a notice and request for comment regarding certain amendments to National Instrument 51-102 – Continuous Disclosure Obligations. The proposed changes would have streamlined disclosure requirements in the MD&A and AIF forms and addressed gaps in the current disclosure obligations. 

On October 3, 2023, the CSA announced that the amendments will not be implemented until an access model is chosen. In preparation for the 2024 proxy season, the following are recent trends and developments in corporate governance and disclosure requirements impacting Canadian reporting issuers.  

David Frost is a Partner at McCarthy Tétrault LLP. This article was written by Myreille Gilbert, Partner, Farhiyah Shariff, Partner and Jonathan Brisebois, Articling Student at McCarthy Tétrault LLP.

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