Lexpert Magazine

60 LEXPERT MAGAZINE | MARCH 2017 Stephen Erlichman, Executive Director of the Canadian Coalition for Good Gov- ernance (CCGG), which comprises many of the largest pension funds and other insti- tutional investors in Canada, says concerns about a "failed board" are overblown. "Ma- jority voting exists in countries other than Canada and the US without huge problems occurring. ere are ways in which these procedural issues can be worked out." He points to the US, where the Council of Institutional Investors draed a provi- sion for the Model Business Corporation Act under which decisions regarding director nominees who win a plurality — but not a majority — of votes would be held over for 90 days, while the directors who gained a majority would appoint directors to fill their seats. "is is a solution, but it doesn't have to be the solution," says Erlichman. In a submission to Industry Canada dur- ing its CBCA consultation, the coalition contended: "e fact that the majority of Canada's largest issuers have had majority voting policies in place for years and the prospect of 'failed boards' has not materi- alized is evidence that the concern is un- warranted. e important point is that the principle of shareholder authority in direc- tor elections should prevail." Hansell says the TSX listing standard has "gotten us most of the way" to majority voting. "When people say it's just a [TSX] rule, I'm not sure what the problem with that is. In order for the rule to be changed, it has to go through the Ontario Securities Commission. It's a big deal." A TSX survey of 200 listed issuers in 2013, before the TSX rule was even ad- opted, found that 76 per cent already had majority voting policies. Since the TSX's adoption of the requirement, some corpo- rate boards have invoked the "exceptional circumstances" exemption to reject the res- ignations of directors who failed to win a majority. e Davies Governance Insights 2015 report revealed that in 2015 only one of 10 directors who failed to achieve major- ity support from shareholders had their res- ignation accepted by the board. e latest Davies Governance Insights 2016 report, however, suggests that this tendency may be changing: in 2016, in all cases where directors of issuers on the S&P/TSX Composite and SmallCap indi- ces received less than majority approval, the boards accepted their resignations. "It's not clear at the moment that there's a problem in that regard that needs to be addressed," says Hansell. Disclosure on Diversity Bill C-25 requires "prescribed corpora- tions" to report annually on diversity among their boards and senior manage- ment. e companies will need to comply with National Instrument 58-101, adopted in 2014 by the Canadian Securities Ad- ministrators (CSA). In 2015, for the first time, TSX listees had to disclose in their proxy circulars the number and proportion of women in direc- tor and executive positions. Under "comply or explain," an issuer that hasn't adopted a policy on the identification and nomina- tion of women directors or given consid- eration to their level of representation is required to explain why. In addition, Bill C-25's regulations would require public corporations to re- port annually whether they have "adopted a written policy relating to diversity other than gender amongst the directors and members of senior management." If the corporation has adopted such a policy, it must provide "a short summary of its ob- jectives and key provisions." If the corpora- tion has not adopted such a policy, it must explain "why it has not done so." Moore finds it encouraging that, with respect to gender diversity, Ottawa has chosen to dovetail its regulations with the existing securities law requirements. How- ever, he says, "it begs the question whether overlapping regulations are really necessary in the first place. ere is also the risk that over time, Industry Canada will not keep up with changes in the securities rules, so we then have to deal with inconsistencies." "e federal government as well as the [Canadian Securities Administrators] are trying to move diversity forward at the board level," says Erlichman, "and [Bill C-25] is just an additional way of doing so. e more people who are trying to get to a certain result, the more likelihood they will get to that result sooner rather than later." Of all the board seats of issuers on the S&P/TSX Composite Index and the S&P/ TSX SmallCap Index, only 12.3 per cent were held by women in 2014, rising to 17.7 per cent in 2016, according to Davies Governance Insights 2016. Of board seats on TSX 60 issuers, the percentages held by women was slightly higher: 20.1 per cent in 2014 and 24.6 per cent in 2016. "We amended our corporate governance guidelines in response to the [securities] rule," says HudBay's Donnelly. "We didn't impose a firm quota for female directors, but we made it clear that in assessing our director nominees, our corporate gover- nance and nominating committee would consider a number of factors, including diversity. And not just gender diversity, but also experience backgrounds and other de- mographics." HudBay's board now has 20 per cent fe- male directors, and expects to reach "at least 30 per cent in the next couple of years." e board also has a Hispanic director. Sears Canada's Mohtadi says one of the company's eight directors is female. e board did have two female directors, but one quit and was replaced by a male direc- | IN-HOUSE ADVISOR: CORPORATE GOVERNANCE | DAVID REID > DLA PIPER (CANADA) LLP It's one thing to have it as an advisory or a 'should comply with,' but the CBCA will be the only regime in North America that makes these practices an absolute. I'm concerned that it's removing effectively the board's discretion in terms of its fiduciary duties.

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