Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Act, and the Competition Act was introduced in the House of Commons in September of 2016. As we have discussed previously, there are various changes proposed to the CBCA and its regulations. Two of the proposed amendments have resulted in quite a bit of debate and discussion, specifically:
- Requiring majority voting for directors, including an option to vote against instead of withholding a vote.
- Requiring additional disclosure from issuers about diversity among directors and senior management.
Election of Directors
Discussion around the majority voting requirement includes both support and criticism. Generally, there is support for the concept of majority voting for election of directors, however some believe that the requirement that is currently part of the TSX Issuer rules is sufficient, and adding a second set of rules that CBCA incorporated issuers will need to comply with is excessive. The amendments to the CBCA, however, would also require issuers listed on exchanges other than the TSX to comply.
One of the concerns focuses on what would occur when directors are not elected because they haven't received the required majority. Under the current TSX rules, the director is technically elected, provided they receive at least one in favour vote. They are required, however, to submit their resignation, which the board can either accept, or reject in "exceptional circumstances." The issuer must also issue a new release that discloses the voting results, and, if any director resignation was not accepted, the full reasons for that decision.
Proposed Amendments
The amendments proposed in Bill C-25 originally required a director to resign immediately, which caused some to express concerns about the potential implications which one or more immediate resignations may have on the company and their ability to conduct business. There is also the possibility that removing a director may result in losing necessary expertise or being in default of the independence requirement. The term "sudden-death elections" was coined to describe this event. In response to this ominous sounding possibility, the Senate has proposed amendments to this section that would allow the director to remain in their position for up to 90 days, or until their successor has been elected or appointed, which aligns with the timeline in the TSX rules.
The discussion and debate around the proposed diversity disclosure requirement has mainly been around what exactly diversity means, and how it should be defined, if at all, in the CBCA or its regulations.
Concerns Regarding Diversity Amendments
When diversity is spoken of, it is often thought of in terms of gender diversity, which is considered to be one of the easier ways to measure it. For some, however, gender diversity isn't sufficient, especially given the multi-cultural nature of the Canadian population. On January 19, 2018, the proposed regulatory amendments were published, changing the word "women" to "designated groups," which was defined to include, but not be limited to, designated groups as defined by the Employment Equity Act. The designated groups in the Employment Equity Act are women, aboriginal peoples, persons with disabilities and members of visible minorities.
Bill C-25 received Royal Assent on May 1, 2018. Certain administrative changes have come into force, including amendments in the exemptions available to implement notice-and-access for certain documents required for shareholder meetings.
Other changes, such as the amendments impacting diversity disclosure, election of directors, majority voting, and voting for and against on directors require regulations to be drafted before they come into force. Computershare will continue to monitor the developments and will ensure we are taking any steps possible to assist our clients with any new requirements.
