Board governance law in Canada is a complex and evolving body of law that sets out the roles and responsibilities of boards of directors. It is based on the principle that boards of directors are accountable to shareholders for the management of the corporation or stakeholders in a not-for-profit organization.
There is no single piece of legislation that governs board governance law in Canada. Rather, it is a patchwork of federal and provincial laws, regulations, and guidelines. The most important piece of federal legislation is the Canada Business Corporations Act (CBCA), which sets out the minimum requirements for board governance for all federally incorporated corporations.
The CBCA requires public companies to have at least three directors, at least two of whom must be independent. Independent directors are those who are not officers or employees of the corporation or its affiliates, and who do not have any other material relationship with the corporation.
The CBCA also requires public companies to adopt a majority voting policy for the election of directors. This means that each director must be elected by a majority of the votes cast by shareholders.
In addition to the CBCA, public companies are also subject to the rules and policies established under provincial securities legislation and with applicable stock exchange rules. These rules and policies contain corporate governance guidelines and related disclosure requirements.
For example, the Canadian Securities Administrators (CSA) has issued National Policy 58-201, Corporate Governance Guidelines (NP 58-201), which recommends that the chair and a majority of the board of public companies be independent. NP 58-201 also contains guidelines on other aspects of board governance, such as board composition, board meetings, and director compensation.
While the CBCA and provincial securities legislation set out the minimum requirements for board governance, public companies are encouraged to adopt best practices in board governance. The Institute of Corporate Directors (ICD) is a leading organization in Canada that promotes good corporate governance practices. The ICD has developed several resources for boards of directors, including the ICD’s Canadian Director Handbook.
What are the key duties of boards of directors in Canada?
The key duties of boards of directors in Canada include:
- Duty of care: Directors must act with the care, diligence and skill that a reasonably prudent person would exercise in a comparable situation.
- Duty of loyalty: Directors must act in the best interests of the corporation and avoid conflicts of interest.
- Duty of good faith: Directors must act in good faith and in the belief that their actions are in the best interests of the corporation.
How is board governance law enforced in Canada?
Board governance law is enforced by a variety of bodies, including:
- Securities regulators: Securities regulators in each province and territory have the authority to investigate and enforce violations of securities laws, including corporate governance requirements.
- Courts: Shareholders can bring lawsuits against directors for breaches of their duties.
- Market participants: Market participants, such as institutional investors and proxy advisors, can also play a role in enforcing board governance law by scrutinizing the corporate governance practices of public companies and holding directors accountable for their actions.
Conclusion
Board governance law in Canada is a complex and evolving body of law that sets out the roles and responsibilities of boards of directors. It is important for directors to understand their duties and to comply with the applicable laws and regulations.
This article is for informational purposes only and is not legal advice. Contact us today to discuss your specific situation.