Good morning, Mr. Chair and members of the committee. It's our pleasure to be here today with you to speak to Bill C-25.
Innovation, Science and Economic Development's core mandate is to help make the Canadian economy and industry more productive and competitive in a global economy, thus improving the economic and social well-being of Canadians. One of the critical ways in which we accomplish this is by ensuring that our framework legislation is up to date and in line with international best practices. Maintaining effective legislative frameworks for business is a critical endeavour, since these laws lay out the ground rules for doing business in Canada.
We're in constant review of the laws administered by our department, how they compare to other jurisdictions, and how they meet the expectations and needs of Canadians. The Canada Business Corporations Act, or CBCA, is an important piece of framework legislation that sets out basic rules for federal corporations. This law establishes the legal regulatory framework for close to 270,000 federally incorporated companies. Allowing for ease of doing business by providing for clear and predictable operating rules is critical, as our laws act as a foundation for innovation in a growing economy.
Governing the relationship between a corporation and its shareholders is one of the most critical elements of a sound business landscape, and that's why it's important to make sure that the CBCA continues to meet its policy objectives. To this end, the department embarked on a broad stakeholder consultation in 2014 to canvass the views of those most affected by the CBCA. We received over 80 submissions with a range of viewpoints on how best to proceed.
Some of these areas we will continue to look into, where thought is still developing and experience abroad is still fresh. Others bore a clearer consensus among the competing viewpoints. It is this set of issues that we have chosen to address by way of Bill C-25 before you today, in order to optimize Canada's corporate governance law to allow our businesses to thrive and innovate within as modern and responsive a framework as possible.
The items you find in Bill C-25 concern the way corporate directors are elected, how diversity is promoted in the business sector, and how corporations communicate with their shareholders. Certain of these changes will be reflected not only in the CBCA but in its companion statutes that deal with co-operatives and the not-for-profit corporations as well.
Other elements of this bill concern the clear and unambiguous prohibition of unregistered instruments that can be misused for criminal means and an update to how affiliated entities are treated under competition law. The changes being made here are informed by best practices from here in Canada and at the provincial level, as well as from our main trading partners abroad.
To get more specific, Bill C-25 makes a number of discrete but important updates to Canada's corporate and co-operative laws, which I'll highlight briefly here, and we'll happily field questions that you may have afterward.
The bill makes three important changes to the process by which directors are elected. First, it ensures that elections are held for all directors annually, which is an update from the current requirement under the CBCA that allows directors to serve up to three years at a time, with staggered terms.
Second, it ensures that directors are elected individually, rather than as part of an all-or-nothing slate of directors. This rule, as well as annual elections, would bring the CBCA in line with existing TSX rules.
Third, if the number of spots open on a board of directors is equal to the number of candidates presented—that is, it is an uncontested election—voters will now have the option to vote against a candidate, rather than simply withholding a vote, and that candidate will only assume the directorship if a majority of votes cast are in their favour. This will prevent the nearly automatic election of directors on the basis of even a small number of “for” votes.
Bill C-25 will also support efforts to increase diversity on corporate boards and in senior management by encouraging an exchange of information on corporate practices in this regard between a company and its shareholders. The bill will require publicly traded CBCA corporations or distributing corporations, as they're referred to in the act, to make disclosures on diversity on their boards and senior management, including the policies they have in place. If no such policies exist, boards will have to explain why to their shareholders. It's a system commonly referred to as comply or explain.
Furthermore, the bill will leverage modern digital technologies and reduce paper burden by allowing corporations to send a notice to shareholders that sets out instructions on how to obtain documents from the corporation's website in advance of a shareholder meeting.
While it's not believed that bearer shares or bearer share warrants—unregistered financial instruments whose proof is in their possession—are in common use in Canada, the bill would nevertheless clarify in very certain terms that these instruments are prohibited. Any remaining holders of bearer shares would have the opportunity to convert them into a registered form of share ownership.
Bearer instruments have been identified as vehicles for money laundering and terrorism financing. These amendments would enhance transparency and support Canada's compliance with international standards.
Finally, the bill would make a targeted but important change to the Competition Act to provide business certainty and reduce administrative burden. The rules for determining which business entities are affiliated with one another would be applied more broadly to take fully into account modern unincorporated structures, such as partnerships and trusts. This revision would increase certainty for businesses by ensuring that they would not be needlessly investigated or sanctioned under law for dealings with their own affiliates as though they were competitors, and also sparing the Competition Bureau from a needless investigation or merger review in these circumstances.
There are other minor amendments in the bill of a more administrative nature, including streamlining documents required to form a co-operative and harmonizing English and French versions of these laws, but the items I've mentioned are the key features.
I and my colleague would be pleased to provide clarification and answer questions on these points. Thank you for your time.
