Industry Committee on Nov. 16th, 2009

[The Chair, Conservative, Michael Chong]

Good afternoon, members of the committee, and good afternoon to our witnesses. Welcome to the 43rd meeting of the Standing Committee on Industry, Science and Technology, this 16th of November, 2009.

We're here pursuant to the order of reference of Wednesday, April 22, 2009, and section 136 of the Canada Business Corporations Act to conduct a statutory review of the act.

In front of us today we have Mr. Wayne Gray, who is a partner at McMillan LLP; Mr. Tim Draimin, who is the executive director of Social Innovation Generation; Madam Laura O'Neill, who is the director of law and policy at the Shareholder Association for Research and Education; and finally, Madam Judy Cotte, who is the general counsel and director of policy development at the Canadian Coalition for Good Governance.

Welcome to you all.

I understand there are briefs and speaking notes that have been distributed for Mr. Draimin and Mr. Gray. I believe all members of the committee should have them.

Without further ado, we'll begin with ten-minute opening statements from each of our witnesses, beginning with Mr. Gray.

[Wayne Gray, Partner, McMillan LLP, As an Individual]

Thank you very much.

I wanted to come here today to encourage the committee and Industry Canada to dig a little deeper with the CBCA and consider some further amendments. A lot of very good work was done in 2001 to bring the CBCA up to speed at that time with developments that had taken place provincially and territorially in the country, but some issues were left behind in 2001 for another time, and there was to be a five-year review.

Since that time there's been quite a bit of development at the provincial level in Canada, and I'll go through some of that and explain why it is important for the CBCA. What I'm really here to do is not to advocate for specific reforms, but more to advocate that these reforms be looked at and that there be a process developed that would include a consultation paper, some public consultation, submissions, and a serious look at keeping the CBCA competitive and cutting edge, as it should be.

Since 2001, as I mentioned, there have been some developments. They include, just earlier this year, in June, the Canada Not-for-Profit Corporations Act, which contains some differences between it and the CBCA, which are improvements over the CBCA, and highlight some of the deficiencies in the CBCA. So there's some need for harmonization with its own federal statute.

More recently, there has been the Quebec Business Corporations Act, which has received at least first reading on October 7 in the Quebec legislature, which is also built on the same statute but which contains further improvements, particularly for small business, and I think a number of innovations. I'll touch on just a couple of those.

In 2007 the Ontario Business Corporations Act was amended in some significant respects, and in particular to coordinate with the Securities Transfer Act that was brought into Ontario at that time. And a lot of other provinces have done the same.

Going back a little bit further, in 2005 Alberta, in their Business Corporations Act, brought in some amendments, some of which have been picked up in the Quebec legislation, which also should be looked at. And going back even further, in 2002 British Columbia brought in a new statute, which contained a lot of other innovations.

So since 2001 a lot of the leading provinces in the country—and I would also include Nova Scotia in that—have amended their corporate laws to not only catch up to the CBCA, but to surpass it in some respects. I'll go into some specifics, but the most compelling reason to take a look at it is the work that's been taking place in Quebec, where Quebec has, for the first time since 1981, amended their corporate law, or are proposing to amend their corporate law, and include a CBCA-like statute. This is a very positive development for the country, but I think, again, the statute contains some improvements.

Just to give you some flavour of what they've done in Quebec, if you have a one-person corporation and a unanimous shareholder declaration, you don't need to have bylaws. For annual meetings, you don't have to pay your lawyer to draft up the same forms every year. You don't have to have directors. So they've stripped away some of the formalities that are just hardwired into the CBCA, and other statutes that are built off the CBCA, and made things a little bit simpler for small business, which really don't need these formalities on an annual basis. Those are just some examples.

It's quite logical for a unanimous shareholder agreement that strips away all board powers. What's the purpose for having a board of directors of that particular corporation? So they've done some rather innovative things in Quebec that ought to be looked at, that's all I'm saying.

I divided the types of changes you could be looking at into policy issues, which I'll go into in some detail, and then some more technical issues, which I've listed on the second side of the handout. On the first page are the five policy issues. The first one has to do with the securities transfer laws and the advent of the securities transfer acts in the provinces; we talked about this in the spring of this year with respect to the not-for-profit corporate law.

In response to a request for a submission put out by Industry Canada and the Department of Finance in 2007, wanting input from the Canadian Bar Association and other stakeholders as to how federal security transfer laws should be updated and modernized, we responded in a 35-page brief. I believe that has been circulated or will be handed out.

At that time we noted that this would be a good thing for the feds to withdraw from, that it was really provincial law, modernized, comprehensive, and it was not fitting subject matter for corporate statutes any longer. That submission is out there. We never really got a response to that, but I think it's something that ought to be looked at, not only for the CBCA, but all the other cognate federal statutes--the financial services statutes in the Canada Cooperatives Act.

This would include some flexibility around the issuer's jurisdiction definition that corporate statutes can provide for--that's an option--and dematerialization, a corporation being able to issue its securities, its shares, without having a security certificate. Currently the CBCA doesn't afford that as an option. But Ontario does, B.C. does, and now Quebec will. So there is another instance when we don't have to go through the formalities of having share certificates if investors don't want them. So that's one area.

The second area is trust indentures. This is part 8 of the act. The development there is that the Uniform Law Conference of Canada is just about to embark on a project to study trust indentures. There is a significant amount of lack of uniformity in the country, so this is an area where uniform laws would be helpful.

The problem with the federal law--if I can just give you one example of why the federal law doesn't work the way it is--is that a federal issuer is regulated in the CBCA. But there is an exemption if the trust indenture is subject to the laws of a jurisdiction that provides comparable protection. That exists in Ontario and British Columbia, for example, which have similar laws, and it also exists in the United States.

So if the CBCA issuer is subject to the Securities and Exchange Commission, an exemption is available. But if they're issuing in England, where they don't have a similar law, then you have this anomaly where the CBCA standard is applicable to this trust indenture where it's subject to the laws of England, whereas England doesn't require any similar provisions. So Canadian law is protecting investors in a foreign jurisdiction. It doesn't seem very logical.

The third issue is board residency. This is something that was left behind in 2001. It was reduced from 51% down to 25% in 2001. But other jurisdictions.... British Columbia got rid of their requirement, and in Canada now, of the 12 jurisdictions, I believe seven of them do not have a residency requirement. So that includes all of the maritime provinces except Newfoundland, Quebec does not and has not, and British Columbia got rid of theirs. And none of the territories have this residency requirement. So we have quite a patchwork of residency requirements. I think it's time to ask ourselves why we have such a rule, what it's doing, and if it serves any purpose.

The fourth issue deals with insider trading and tipping. Currently the CBCA provides for insider trading and tipping liability, both for publicly traded corporations or distributing corporations, and non-distributing corporations, private companies. It's really not too relevant in the case of private companies, I would submit, but it is very important in the case of publicly traded corporations. The flaw that the CBCA has adopted is that they require a matching between the buyer and the seller. So if an insider instructs his or her broker to dispose of securities in the market, there is no civil liability unless there is a person opposite that transaction who can be found.

You may wonder why that's a problem. Well, the way the securities markets work today is that it's the indirect holding system, so people trade into the market. They don't know who their buyer is going to be. There is going to be a buyer out there somewhere but the broker will be transacting a lot of transactions in the day. Everybody wants to buy and they'll match it against everybody who is wanting to sell and it may not be possible to then match buyer and seller.

There are models to avoid this kind of unnecessary complication. I would analogize it to people throwing dirty water in the lake, and the person who takes the dirty water out of the lake needs to be able to identify who put that water in there. It's very difficult, as a matter of proof, and unnecessary.

The final issue is the modified proportionate liability regime. Again, this is an issue that's being studied, this time by the Law Commission of Ontario. Professor Poonam Puri at Osgoode Hall is doing a study of not only the federal provision but also the more recent provisions that have been adopted at provincial levels through the securities act dealing with the liability of secondary market disclosure. The model is not the CBCA model, so again we're seeing a patchwork of proportionate liability regimes. There has been no case law at all under the federal provision. Unfortunately, or fortunately, it seems the federal law has very few options in terms of regulating liability for auditors, because constitutionally it's primarily a matter of property and civil rights in the provinces and it's regulated through negligence acts. Federally, you're limited by the fact that you have to have a federal corporation, so it is only regulating the audited financial statements issued by CBCA corporations and Canada cooperatives. It is a very limited scope provision and I think it's time to look at that again.

As I said, there were a number of other technical issues that I would also identify. I don't propose to go through all of those.

Thank you for your time.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Gray.

Mr. Draimin.

[Tim Draimin, Executive Director, Social Innovation Generation]

Thank you very much, Mr. Chairman.

My name is Tim Draimin. I'm the executive director of Social Innovation Generation. We are a national partnership including the J.W. McConnell Family Foundation in Montreal, the PLAN Institute in Vancouver, the University of Waterloo, and MaRS in Toronto.

Our mission is to promote the use of social innovation to address intractable social challenges, with much of our work focused on the non-profit sector. As you may know, the non-profit sector, charities, and non-charitable non-profit organizations encompass over 161,000 organizations, with revenues well in excess of $100 billion, directly employing over 1.5 million people.

My objective in speaking with you today is to draw the committee’s attention to a major gap in Canada’s legislation governing corporate activity, specifically the lack of any hybrid corporate structure for business serving public benefit. By hybrid I mean a blend of an organization that would have the social purposes of a non-profit, like benefiting the community, with the business model of the for-profit sector.

Social Innovation Generation is proposing policy changes to assist Canada’s non-profit sector in becoming more financially stable and less dependent on the decreasing revenue streams from government and philanthropy in order that more innovative ideas, services, and products meet the social needs of Canadians.

You may have noticed in today's paper that Statistics Canada is announcing a big drop in donations to registered charities. While the dominant paradigm for the sector in the past half-century has been income primarily from government and charitable donations, that is changing. Earned income is now over 35% of total income, and growing. In fact, a significant expanding thrust is building new business models that allow non-profits to meet their mission in financially self-sustainable ways.

We propose that the Government of Canada introduce a new optional legal structure under federal law that enables the creation of a hybrid public benefit corporation or community enterprise. A hybrid structure would encourage much broader access to capital for the social and community sector. A hybrid structure would allow for contribution of charitable dollars as well as non-charitable shareholder investments.

The model we are suggesting has been successfully incubated in both the United Kingdom and the United States in the form of community interest companies, CICs, and low-profit, limited liability corporations, or L3Cs.

We all know the importance of the non-profit and charitable sector in terms of the services it provides, but we may not be aware of the revenue model that supports this work. Overall, non-profit revenue received is about half from governments, over a third from fees and earned income, and about one-tenth only from philanthropy.

In a recent Wellesley Institute research report, it was found that the most significant charitable issue, selected by 63% of respondents, was the requirement that “all of a charity’s activities must be charitable”, a requirement that is at odds with funder expectations that charities be sustainable and entrepreneurial. It is also at odds with reality if you take into account the percentage of revenue from earned income.

The existing legislative and regulatory regime was designed in a different era.

Canada’s community non-profit and social sector has challenges accessing capital and diversifying their sources of operating income because of restrictive tax regulations and capitalization options. These financial barriers are unnecessary obstacles for a new breed of social entrepreneur that is emerging and limits the potential impact of their innovations. The sector needs the flexibility to explore new forms of social finance.

Our SiG partner MaRS has advised hundreds of clients, including non-profit enterprises, on their marketing strategy, business plans, and funding options. Outlined here is just one example of a social enterprise that has encountered problems due to regulatory restrictions or lack of capital options.

As a social enterprise of Eva’s Initiatives, the Eva’s Phoenix Print Shop provides an award-winning print training program for homeless youth that works with businesses to offer them a socially and environmentally responsible commercial print service option. The print shop is located at Eva’s Phoenix, an internationally recognized transitional housing and employment facility for homeless youth.

Eva’s Phoenix Print Shop operates in a commercial environment and requires state-of-the-art printing equipment to remain competitive. While the print shop has sought to expand its services due to increased demand, it has faced significant funding challenges. In a traditional print shop model, a combination of revenues and working capital loans would be the obvious choice. However, this social enterprise must depend on grants and donations to expand.

In traditional non-profit structures, loans to the enterprise are considered risky and thus an option rarely considered by the boards of those organizations. Furthermore, they have no legal way to access any other form of financing, such as equity.

Expansion is an option that would rely solely on the generosity of donors and not on their increased revenue potential, which severely prevents them from being competitive in furthering their social mission. The proposal outlined in this document represents an opportunity for the Government of Canada to support the community non-profit sector in ways that build sustainability and resilience by enabling organizations to exploit opportunities for growth and independent financial well-being. Support for a new hybrid corporate structure will strengthen the country's community non-profit sector, and help it access much-needed capital. It will demonstrate that Canada wants to unleash the creative energies of previously unexploited financial resources and capacities in order to help advance social entrepreneurship sustainability and self-reliance in the community non-profit sector.

Thank you very much.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Draimin.

We'll now hear from Madam O'Neill.

[Laura O'Neill, Director, Law and Policy, Shareholder Association for Research and Education]

Good afternoon.

Institutional investors and their advocates—and SHARE is in the latter group—have recommendations for substantive amendments to the CBCA. The changes to the act that we seek indicate that it's been in force for eight or nine years now and over that time expectations and requirements of investors in our public companies, on which we're focused, have continued to evolve. The CBCA can and should keep pace with changes in our investment marketplace.

SHARE speaks primarily on behalf of socially responsible institutional investors. While these investors form no monolith, they have in common the view that the selection, retention, and realization of investments cannot be carried out in a fully informed manner without considering the environmental, social, and governance profiles—or ESG profiles—of those investments.

Socially responsible investors aren't alone in this anymore. Around the world and here at home so-called mainstream investors are learning that with respect to realities such as climate change they need to know if companies are paying attention and preparing their operations to minimize risk exposure. Investors need to be able to compare the ESG risks of various investments to determine which ones will best help them protect and grow the assets with which they've been entrusted.

What they need is relevant and detailed information, and they aren't getting enough right now under either Canadian securities or stock exchange disclosure requirements. This is a huge topic and we're going to deal with it at length. We are trying to find out what can be done within the CBCA to help with this. We will treat this matter in our written submission, which we'll provide in the coming days.

There are other aspects of the CBCA that we think warrant broad consultation. I want to start by saying that I've had the opportunity to speak with Judy Cotte about the CCGG's position on the issues. With respect to the issues she will raise with you, I'd like to say that SHARE is supportive of the CCGG's views.

I'll move on to the matter of how shareholder votes are conducted under the requirements of the CBCA and its provincial counterparts.

By virtue of section 141 of the CBCA, shareholder votes on proposals may be carried out by a show of hands rather than a ballot. You look out to the shareholders that have gathered. Everybody in favour, up with the hands. Those hands all represent different numbers of shares, sometimes very different numbers of shares. But it's just a look-around: if it looks like enough, great, it's passed. We want to see actual votes recorded on a ballot. It's a public company we're dealing with here.

A public company's report on the results of the votes on resolutions considered at its annual meeting often reads like this: “All of the resolutions we presented at the meeting were passed by a show of hands”. Then they list the resolutions. There's less information there than on the ballot in the first place. When a company holds votes by a show of hands, it makes the report spectacularly uninformative.

The most frustrating thing about show-of-hands voting is that the overwhelming majority of shareholders vote by proxy, so the numbers are readily available to the company. They've tabulated them. All they need to do is keep track of the shares held and votes cast by the much smaller percentage of shareholders who actually attend the meeting.

In the U.S. and the U.K., public corporations must provide numerical tallies of their vote results, and that information helps us as we analyze the vote outcomes in those jurisdictions. We can get a much clearer sense of shareholder sentiment. The CBCA should be amended to require that votes at a shareholder meeting be by ballot so we all know on each issue how many shares were voted for and how many against.

I want to address the issue of electronic or virtual shareholder meetings as permitted under subsection 132(5) of the CBCA. This option makes sense for private companies but not for public ones, in which the owners and the managers of the company are typically not the same people.

Recently Intel, which is a large U.S. corporation, announced that it was going to do a web-only annual meeting in 2010. In a letter to Intel, U.S. investment firm Walden Asset Management, which would fit firmly within the socially responsible investor category, noted that

There is no substitute for the personal and sometimes subtle interactions that can take place at in-person meetings. These “look you in the eye” moments between shareholders, management, and directors at an official business meeting are available just one time a year.

I've attended quite a few shareholder meetings and I agree with that statement. It can be powerful and constructive to put management directly in touch with the owners of the company and the shareholders. Subsection 132(5) of the CBCA should be amended to exclude public companies from its application.

Finally, let's consider the shareholder proposal mechanism. There was much ado about this in 2000, the last time the CBCA consultation was held.

SHARE supports the right of shareholders to file proposals. Indeed, we assist our clients as they exercise this right in Canada, most recently to ask the shareholders of a number of large public companies if they want a say on executive pay. The CBCA framework on shareholder proposals clearly works pretty well, because all of the companies where our client, Meritas Mutual Funds, filed “say on pay” proposals in 2006 and 2009 will in fact be polling their shareholders on pay in 2010.

There is one amendment to section 137, however, that we think is worth considering. It actually echoes something that Wayne mentioned.

As you likely know, Quebec has recently completed its public consultations. Bill 63 is now before the National Assembly, as Wayne indicated. Clause 199 of that bill contains a very useful provision that isn't in the CBCA or any of its provincial counterparts:

The presiding officer at a shareholders meeting must allow the person presenting a shareholder proposal to speak in respect of the proposal for a reasonable period of time.

I've attended annual meetings where the chair of the meeting treated shareholders as if that provision already existed, but I've certainly seen situations where it was sorely needed.

We have a few other recommendations involving the regulations to do with shareholder proposals. We still have some niggling concerns about subsection 137(5), which outlines the reasons why a company can reject a proposal, but they don't have to do with, and our solutions don't have to do with, the act itself, so I won't take up your time with them now.

Like Wayne, I was going to go through the effect of the CBCA over the years, and over the various years when the other provinces followed suit, but he's covered that, so I don't need to.

The CBCA is the corporate law bellwether for the Canadian marketplace, and it's certainly time for a broad consultation on how it can continue to fill that important role.

[The Chair, Conservative, Michael Chong]

Thank you very much, Madam O'Neill.

We'll now go to Madam Cotte.

[Judy Cotte, General Counsel and Director, Policy Development, Canadian Coalition for Good Governance]

Thank you.

The CCGG thanks the committee for the opportunity to appear before you and provide you with our perspective on what we think are important changes that should be made to the CBCA.

First, by way of introduction, the Canadian Coalition for Good Governance is a coalition of approximately 45 of Canada's leading institutional investors representing pension plans, investment managers, and mutual fund managers, and our members manage retirement assets of over $1.4 trillion, approximately half the retirement savings of all Canadians.

We promote good governance practices in Canadian public companies, and the improvement of the regulatory environment to align the interests of boards and management with those of their shareholders and to promote the efficiency and effectiveness of the Canadian capital markets.

The changes we're looking for are focused on shareholder democracy. Although we have managed to persuade some companies to adopt democratic reforms that aren't required by law, the CBCA should be updated to require all companies to adopt those reforms. We will be providing you with a written brief that will set out our submissions in more detail after today.

Prior to getting to the changes we would like to see, I'd like to take a minute to talk about why shareholder democracy matters. As the providers of capital and the ultimate owners of the company, shareholders delegate powers to the board of directors, including the power to set corporate strategy, to hire and fire executives who are supposed to implement that strategy, and to deal with risk management and crisis management. Directors really are the cornerstone of good governance for public companies. There's growing evidence that good governance leads to more efficient uses of capital and better returns.

We're looking to improve governance in CBCA companies in two basic ways: first, by requiring basic democratic norms, including a fair process to elect directors, and the ability of shareholders to remove directors, and a voting system that accurately records votes cast; and two, by having the CBCA enforce basic governance norms such as the separation of the chairman of the board and the CEO.

Turning first to basic democratic norms for investors, we'd like to see changes in four main areas.

First, the CBCA should give shareholders the right to vote for each director. Currently it's common practice for companies to propose a slate of directors and require shareholders to vote for all or none of them. This seems to happen simply because the act doesn't prohibit it. Approximately 25% of Canada's largest public companies still have this type of voting, which is referred to as slate voting, and I suspect that percentage would be even higher for smaller companies. The CBCA should be amended to prohibit slate voting.

Second, the CBCA should require directors to be elected by a majority vote. Currently, under the CBCA and securities legislation, shareholders do not have the power to vote for or against directors. Their only right is to vote for them, or to withhold their votes. As a result, a director can be elected if they receive only one vote; and if they are a shareholder, as they inevitably are, that vote can be their own. So as elected representatives, I'm sure you can see that while that system is advantageous for directors, it really doesn't benefit anyone else. What it really means is that a director can lose an election by any reasonable measure--getting less than 50% of the votes, or even getting one vote--and still not have to vacate their seat.

There was an article in the Wall Street Journal at the end of September that was making that exact point, and pointing out that as of the end of September in 2009, 93 board members in the U.S. in 50 different companies had all received less than 50% of shareholder votes, and not one had vacated his or her seat.

We have developed a majority voting policy that provides a framework for companies to get around the law as it stands, and to date our policy has been adopted by 98 of the 209 largest Canadian companies. But in our view, that isn't enough. The law should be changed to require majority voting in all CBCA companies.

Third, the CBCA should require that directors be elected annually. Currently, directors can be elected for up to three years and can be elected for terms of different lengths, referred to as staggered boards. Staggered boards impede the ability of shareholders to change the board because not all directors will come up for re-election at the same time. In our view, the CBCA should be amended to require annual director elections.

Fourth, the CBCA should require that voting results be reported, and Ms. O'Neill has touched on this already. The act provides that voting can be by way of show of hands, unless a shareholder present at the meeting demands a ballot. And if it's done by way of show of hands, companies are only required to publicly report the issue voted on and the result, not the actual numbers of votes cast for a director. We're particularly concerned about this with respect to director elections.

Again, as an analogy to our democratic system, imagine a federal election where the only result reported was the Liberals or the Conservatives won and the electorate was effectively asked to just trust that report.

As Ms. O'Neill also pointed out, the companies already have all the information about votes cast for or withheld in a scrutineer's report, so requiring them to publicly report those results would not impose any additional administrative burden.

We've been urging this as a matter of best practices, and some companies have already adopted it voluntarily, but 38% of Canada's largest public companies still do not report the details of the results of a director election.

We will deal with several other problems with the voting process in our written submissions. For example, shareholders who hold their shares through an intermediary, which almost all of us do, don't receive any confirmation that their votes have been received and tabulated, and that needs to be addressed.

With respect to basic governance norms that should be required, we would like to see two main changes. The CBCA should require the separation of CEO and chair of the board. The role of the board is to oversee management, particularly the CEO. If the chair of the board is also the CEO, it is impossible for the board to properly carry out that supervisory function. Good governance requires the chair to be independent of management.

We have been urging companies to separate the role of the CEO and the chair for some time. Of 157 of the largest issuers in Canada, only 72 currently have an independent chair of the board. The CBCA should be amended to require that the chair be independent of management.

Shareholders should also have the right to approve dilutive acquisitions. Under the CBCA currently, shareholders have a right to approve the sale, lease, or exchange of substantially all the assets of a corporation. Shareholders should similarly have the right to approve significant acquisitions paid for in shares that will dilute the holdings of existing shareholders in excess of 25%. The TSX recently changed its listing requirements to require shareholder approval in those circumstances; in our view, the CBCA should do the same.

The committee might find it interesting that of all three major pieces of legislation that have been introduced in the U.S. after the financial crisis, two of them will call for an end to staggered boards and all three will require a majority voting for director elections and the separation of the chair and the CEO. Internationally, there is an emerging consensus that these reforms are necessary to ensure that companies are well run and boards are accountable to their shareholders. Canada has an opportunity to become a governance leader by enshrining these reforms in the CBCA.

In closing, we would like to see improvement for shareholders in a few areas--for example, changes to minimize the cost to shareholders who seek a remedy under the act, but we will address those in our written brief.

Also, I would like to urge the committee to consider a broader consultation, as the other witnesses here today have. A number of groups would likely have useful input into ways to improve the CBCA, including academics, securities commissions, and other shareholder groups.

And finally, I would like to add that the coalition also supports the proposals put forward by Ms. O'Neill on behalf of SHARE.

Thank you.

[The Chair, Conservative, Michael Chong]

Thank you very much, Madam Cotte.

We'll now have about an hour and 20 minutes of questions and comments from members, and we'll begin with Mr. Garneau.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you, Mr. Chair.

I wish we had been provided with some written briefs on some of the presentations. We got a couple of them today just before the meeting. Obviously it's a little bit hard to follow some of the points that have been brought up by some of the other witnesses, but I'll give it my best effort.

Ms. O'Neill, talking about votes and the practice of using just a show of hands, at an annual meeting or whenever there's a vote, when proxy votes are sent in and when people vote at the meeting itself, is it always done simply based on one person, one vote or one hand, one vote at the moment? Are there any examples where the ownership of the votes is taken into account?

[Laura O'Neill]

Yes, there are. It's about 35% or so of the composite index that report a simple show of hands.

The big banks, for example, and larger CBCA issuers will do a ballot at the meeting. If you want to attend the meeting, you approach the registrar. You'll exchange the proxy you received in the mail that states you have so many shares for a sheaf of paper, depending on the size of the agenda, on which they've already indicated the share amount. You take that into the meeting hall. As the resolutions are presented, you tick your votes. And they send people around to collect them. And then they play a nice video, usually, of happy employees doing volunteer work, or something, while they tabulate the ballots.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you.

I have a second question. You said something has been brought in by the Quebec Business Corporations Act, following their review, and that is the notion of providing a reasonable time to speak, for somebody who wants to speak, which is not necessarily uniformly adopted. Again, the difficult question is what's a reasonable amount of time to speak. Having been at a meeting or two, I think sometimes people want to take over the meeting, if you like. Are you leaving it to the discretion of the chair of the meeting?

[Laura O'Neill]

Right. And I've actually seen more latitude given to certain shareholders who habitually attend and have contributions to make. And these are the companies that don't need this provision.

With others, it depends. Clearly, if people have something quite meaty they want to deal with, it would be nice to see them given some slack. And we think the provision could help make it clear to the company.

What I've seen in the worst case is sort of a Jumbotron at the front of the room, 20 feet high with 10-foot-high numerals. And the minute you start to speak, it starts clicking down from, say, three minutes. It's a very intimidating experience, and I think it's meant to be. For these sorts of companies, some indication that maybe this isn't the way to go about things would be very useful.

I don't think it makes sense to pin a particular time on it, because of the differences in what people might have to say. The meetings usually run about three hours with our largest companies. The video is twenty minutes. Surely we can allow a little more than three minutes to a shareholder who has a concern.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you.

I have a question for Mr. Draimin. You talked about what appears to be—and I may not have understood it completely—a kind of a hybrid model here of something that's in one sense a not-for-profit corporation and in another sense a for-profit corporation, at least a small-profit corporation, if I understood it correctly. This is something you're suggesting we need to bring in because it fills a required void. Which act would it best go under? Or do we need to create a new act?

[Tim Draimin]

That's a great question, and I wish I had a detailed answer for you about that. I'm not exactly sure how that would best come about and if it would need its own act.

Obviously, we have separate legislation for co-ops. We have separate rules governing charities. In the U.K. they created a specialized corporation, but it's all handled under their current corporate companies house. But I'm not exactly sure what it would mean for Canada.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

If I may, this question is for Ms. Cotte. I think I heard you mention the concept of eliminating staggered boards in the sense of having an annual vote for each of the directors. If I'm not mistaken, boards will argue that it's important to have that continuity from one year to the next and that if you do a wholesale change to the board, you will end up with no corporate memory, if you like, of what actions occurred in the year before. Do you have an answer to that argument?

[Judy Cotte]

That would presume the directors would change every year. And I think it's very unlikely, absent a concern, that shareholders would vote to change each and every director every year. That seems quite unlikely.

The evil it is trying to rectify, which is that of entrenchment, where there are directors who aren't doing a good job, is probably more of a concern. You would have to wait three years before their tenure comes up for renewal. I think that's a bigger concern.

But absent a real concern about performance of a director, it's very unlikely that shareholders would ever vote to replace every director, because shareholders, obviously, are concerned about continuity as well.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

I understand the point you're making; I'm just wondering whether there might be a tendency.... Let's say a public company had really bad results that year. There might be a tendency on the part of people to forget that they need continuity and that even though they're not happy with any of the board members they should keep a few. There is that possibility that somebody may do a clean sweep simply because they're so mad at how their shares have done. Is that a possibility?

[Judy Cotte]

It would be a technical possibility. But I think particularly for Canada, where ownership is so concentrated.... I know that our members typically control between 15% and 45% of the largest Canadian public issuers, and our members are sophisticated institutional investors who have a longer-term view than one set of annual results. So for that to happen, you would have to have a convergence of views among the institutional investors and a myriad of smaller and retail investors. It seems quite unlikely.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Okay. I'm just concerned about the situation where somebody says they're going to vote this way and they're sure somebody else will take care of holding on to a few people, but everybody ends up voting separately and they clean out the place. That's the only concern I have. Shareholders don't necessarily consult each other on how they're going to vote.

[Judy Cotte]

No, not necessarily, but certainly the largest institutional investors, all of whom would be members of the coalition, would be communicating their concerns about particular companies or directors. They may not all vote the same way, but they would certainly be aware of one another's concerns.

[The Chair, Conservative, Michael Chong]

Thank you, Madam Cotte.

Thank you, Mr. Garneau.

Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you.

My question is for Mr. Draimin. I read your document with great care. I agree with you on some points, especially with regard to the difficulties non-profit organizations are experiencing in attempting to obtain funding. At this time it is very difficult for businesses to find funding.

Your document states that the best way of obtaining it would be for these organizations to become businesses. You refer to a business called Eva’s Phoenix Print Shop which works in graphic composition and commercial printing. If I understand correctly, that company offers young homeless people a recognized training program in graphic design. That training is provided or was provided by a provincial or federal organization. The training program has provided employees to the organization that offers this printing service.

How are entrepreneurs reacting? In any region, if a non-profit organization hires people whose training is financed by a level of government, and if that organization generates profits, how would a profit-making business that could be offering the same services react?

[Tim Draimin]

Thank you very much for your question.

I could give you a specific answer with respect to Eva's, but I don't know whether it would answer your concern. Eva's print shop was set up by a charity whose mandate is to help homeless street youth. They created different programs, and as one of them they created the print shop to give all these young people direct experience in a print environment operated in a professional way. They created an advisory committee of people who run their own printing business. In a certain sense, Eva's provides a service to those print organizations, because they're training people who can then be absorbed into their businesses. They don't really see Eva's as a competitor; they see it as part of the farm league that's providing them with the talented people who are going to help their organizations grow.

So that example is not a good one to address the question—which is a general question, I know—whether people feel, if a business is set up by a charity or owned directly by a charity, that in some way the charity is inappropriately being subsidized or cross-subsidized to compete with a business. In the particular case of the model I'm proposing—to create a community interest company or a low-profit limited liability corporation—in actual fact the entities would be taxable, so the playing field would be level for them. But in most cases, if one of them were owned by a charity, it would be donating its profit back to the charity; it can donate up to 75% before it becomes liable for paying any taxes.

The question can also be looked at from another point of view. If we think that these organizations that have mandates to house the homeless or train marginalized people or take care of the vulnerable are doing a good job that nobody else is doing and that a gap is being created because the market isn't serving them, but they come up with an ingenious way to leverage market forces to help them do what they're doing, my sense is that society should be saying it's a really good thing for that innovation to happen. If it turns out that the innovation generated by that enterprising charity is such a good idea that it is picked up by the private sector, which copies and emulates it and carries it out successfully, that's even a better solution. That means that an idea that has been incubated in non-profits addressing community needs actually gets to go farther.

[Robert Vincent, Bloc, Shefford, QC]

When cities purchase lands we often hear promoters telling people in the municipalities that they don't have to do the entrepreneur's work and that it is not up to the municipality to purchase lands.

If the government subsidizes human resources or their training in a non-profit organization and if that organization is in direct competition with another business that is not non-profit but a capitalized business, there is competition there that may not be healthy. It is difficult for a commercial business to compete with a non-profit organization subsidized by the government, an organization that does not pay labour costs because the funding is provided from a government envelope. What do you think about that? Could this lead to friction?

I understand that arrangements can be made and that human resources can be provided. However, costs are completely different for those who pay their employees and those who do not.