Industry Committee on Nov. 4th, 2009

[Wayne Lennon]

Well, securities law and corporate law are complementary. But corporate law, as Cheryl said, is a pretty wide beast. There are 195,000 corporations. Less than 1% of them are publicly traded. The SOX rules apply only to publicly traded corporations.

We have a percentage of publicly traded corporations. So for us to incorporate SOX-like rules just in the CBCA would create an unlevel marketplace for publicly traded corporations in Canada. That's why—at the present time anyway—Canadian securities administrators are the best locus for those kinds of protections for shareholders, and the market generally.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

You've reached and made a point that I wanted you to make, which is, let's not get confused about some of the shareholder requirements for large corporations that should be found in this particular act. They don't necessarily find their way into this particular act, and sometimes when we talk about shareholder rights, people get the two confused.

[The Chair, Conservative, Michael Chong]

Thank you, Madame Coady and Mr. Lennon.

Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

I thank you for coming and joining us today. I've seen a number of you a few times.

I just have a point for Wayne. The finance committee has committed to doing a study of pensions. The questions we're asking here would be great with the right witnesses. That study is to start sometime in December, if not after that. So if you have a colleague who will be witnessing for that, we'd be happy if you replaced him for that meeting. Anyway, that's another point.

Just as a little bit of a follow-up, we've been working on having a national securities regulator. Hopefully, we'll have such a regulator some day. I know you are talking about provincial securities regulators right now, but do you expect that to influence or change the act we're talking about here today, or will the act be able to sustain itself even with a national securities regulator?

[Wayne Lennon]

We'd have to see the statute and what powers it gives to a national securities regulator, and we would look for complementarities. There is some overlap between corporate law and securities law, and there are some aspects that are on parallel tracks. The corporate law in Canada works more or less hand in glove with securities law. The predominant thrust of our legislative agenda in 2001 was to eliminate duplication where possible or necessary, and to try to harmonize to the extent possible with the securities laws. Securities law can make rules, and the procedures are a little different from trying to get a bill through Parliament, so they can move much more quickly and adapt and be more flexible.

Again, it's a question of complementarity. I'm sure that in the event of a national securities agency, there would have to be some attention paid to the interface between the corporate law and the securities law.

[Mike Wallace, Conservative, Burlington, ON]

I'll be frank with you and say that the one figure that surprised me is that only 1% of the incorporated businesses in the country—and we have a lot them, 192,000, I think—are publicly traded. Is that what you're telling me, that only 1% are publicly traded?

[Wayne Lennon]

Yes.

[Mike Wallace, Conservative, Burlington, ON]

The rest's shares are held by the owners?

[Coleen Kirby]

The anecdotal evidence we have is that there are 1.5 million corporations in this country, and the TSX has slightly over 4,000.

Yes, there are more than 4,000, because there's over-the-counter trading and so on, but essentially there are only 4,000 on the TSX and 1.5 million corporations in total. So the focus is always on the public corporations, but they are a very small part.

[Mike Wallace, Conservative, Burlington, ON]

They are a very small part, yes.

[Coleen Kirby]

They are, however, a very large part of our economy. So one large publicly traded company can have a lot more effect than one mom and pop shop. But if you put all the mom and pop shops together, they're going to have a major effect on our economy and our hiring rates, and everything else.

[Mike Wallace, Conservative, Burlington, ON]

Okay, I appreciate that.

The other question I have you may not be able to answer. You're on the policy side of the equation of what the organization does. I don't know how much time you have to think about policy changes and where you should be going or whether it's about implementing policy that is already there.

Here's my question. I've been on the finance committee for three years. For the first time, we've heard that there are two different organizations, representing not-for-profits, that would like to develop something that exists in Britain and other countries. It would be a share capital corporation in which not-for-profits could trade shares. It would be a way for them to raise capital and give them an ability to invest in their businesses.

I would like to know, as an organization, whether you've had a chance to look at that. How do we bring that to you as something to get a response on?

[Colette Downie]

My understanding is that there is actually one organization that would like to come to this committee to talk about that issue. We've only relatively recently heard about this as an issue. It appears to us that these types of hybrid corporations are actually quite possible to incorporate under the Canada Business Corporations Act. It seems to us—and we'll be interested in hearing more if witnesses come forward to talk about this issue or this possibility—that it is more of a tax issue they are perhaps raising. It does seem possible under the Canada Business Corporations Act to create one of these organizations. The question is how they are treated in a tax context.

[Mike Wallace, Conservative, Burlington, ON]

Are you aware of anyone ever approaching you about trying to set up this way?

[A witness]

No, we are not.

[Wayne Lennon]

I just received a phone call a couple of days ago from somebody who asked if it were possible that he could send me more information on this. I said yes, and I also told him that the committee was undertaking hearings and that he may wish to approach the clerk.

[Mike Wallace, Conservative, Burlington, ON]

Mr. Chair, I tried to get my staffer to look up a name, but I couldn't find it in my pile. I'm going to find that name and see if we can invite them to the next meeting or so to see if they would provide some information.

Thank you very much.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Wallace. Just let the clerk know, and she will invite them.

We'll go to Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chair.

It is not easy to sit through all these rounds of questions to get to the most important one. I waited, but a lot of the questions did not even have to do with the CBCA. I have a question for you that does. It has to do with section 125. I believe you know it well.

You are no doubt aware of the recent economic developments that have really mobilized public opinion, especially in the papers. I want you to consider a report on Nortel, as one example. We were talking about pensions earlier, and I know that is not your area of expertise, but nonetheless. The government of Quebec was called upon to take over the pensions of 6,000 Nortel employees in Quebec so they could still collect their pensions. Meanwhile, Mike Zafirovski, a former Nortel executive who officially declared bankruptcy for the company, was demanding $12 million for himself, just one of a group of senior executives demanding a total of $25 million in pensions, salaries and bonuses. We want to protect shareholders and employees from the sometimes excessive compensation and bonus packages of directors, when a company's financial performance does not justify sacrifices on the part of its shareholders or employees in order for it to survive. Section 125 of the CBCA stipulates that the directors of a corporation may fix their own remuneration subject to articles with the company's consent or unanimous shareholder agreement. That gives directors a lot of discretion in determining their own salaries, and those salaries may go against the interests of shareholders and other employees, depending on the company's success or lack thereof.

I would like to know whether you anticipate making any amendments to section 125 in order to limit the compensation received by directors.

[Colette Downie]

We're not coming forward with specific proposals for amendments to the legislation. We're certainly going to watch the hearings with interest and we'll look forward as well to the committee's report.

Generally on the subject of executive compensation, the G-20 has looked into this issue, and it has made a number of recommendations with respect to financial institutions that are being implemented by the government and by financial institutions in Canada. They really are aimed at making sure that executive compensation is transparent, in particular, rather than at setting caps or limits around the compensation levels.

It should also be noted with respect to business corporations generally, not just those under the Canada Business Corporations Act, that the Canadian securities administrators' continuous disclosure obligations already implement disclosure requirements for salaries and compensation packages. These includes the public disclosure of salary, form of compensation, and the design characteristics of the compensation system, including performance measures and risk policies as well. This is very much consistent with what the G-20 also recognized.

[Robert Vincent, Bloc, Shefford, QC]

My question is simple: do you think we need to limit that compensation? I am not so sure that any executive is worth $12 million, $10 million, $25 million or $30 million, especially when you consider that in times of trouble, it is the poor workers who end up paying the price, who have to tighten their belts and endure pay cuts. Not to mention the fact that if the company does go bankrupt, the executive will get his money, but retirees take a direct hit to their pension fund. They will no longer have a pension fund. Do you think we need to set a cap?

We are talking about shareholder transparency. As I read in the act, shareholders have absolutely no say in terms of salary. When you talk about transparency, I think that is important. For instance, if I have shares in a company, I should be able to know how much the executives are paying themselves. If they are giving themselves $10 million, I want to know, because I do not make that kind of money, and I don't think that everyone involved in the stock market does either, and company employees are paying the price. Should we limit the salaries of executives?

[Colette Downie]

If we were to limit the salaries of executives through the Canada Business Corporations Act, perhaps by amending section 125, as you suggested, it would still leave all of the provincial statutes as options that corporations could change to or move to or incorporate under. So such a change would be--

[Robert Vincent, Bloc, Shefford, QC]

Things would have to be consistent across the board.

[Colette Downie]

It would not have an impact. If a corporation wanted to avoid it, it could do so fairly easily.

[The Chair, Conservative, Michael Chong]

Mr. Vincent, thank you for your questions.

Mr. Warkentin, you have the floor.