Industry Committee on Feb. 7th, 2017

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

Maybe I'll go at this a different way. Your dialogue—

[The Chair, Liberal, Dan Ruimy]

Alex, we're out of time. Sorry.

We're tight on time, and I want to make sure everybody gets in there.

Go ahead, Mr. Jowhari.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you, Mr. Chair. Thank you, witnesses. I'll be splitting my time with Mr. Sheehan.

Mr. Davies, I noticed that the last time a comprehensive amendment was made to CBCA was back in 2001, so it's been about 15 years. This is a long gap. I would appreciate it if you could shed some light on why it took so long. Also, has any consideration been given to providing a periodic review of this framework, and if not, why not?

[Mitch Davies]

On the last question about a periodic review, I understand it's been offered as a suggestion, and this is a matter for debate. The bill doesn't have that provision in it, and I imagine that can be debated in respect of this enactment. I wasn't there in 2001, so I can't directly speak to the experience between then and now.

I would only add one point of context. Some of this has to do with the places where some of the reform is unfolding. In the area of securities law, and particularly shareholder democracy, we see very active engagement in the provincial securities exchanges. In our country, we have this debate being carried out at multiple levels—provincial statutes, the securities exchanges, corporate statutes, the federal level. I would say that this change and this act intend to bring diversity front and centre, diversity in its broadest possible sense, as a policy objective and as a conversation between shareholders and the management and directors of the company.

The intent is also to bring shareholder democracy forward, and in particular to bring forward the majority voting standard. Those are the two big-principle policy aims of this enactment that are trying to move things forward at the federal level. What you will see over time is the interplay of things between the federal and provincial levels. Obviously it's a question for debate. Should there be more going on at the federal level at various times? That's something people can comment on.

[Majid Jowhari, Liberal, Richmond Hill, ON]

You also mentioned that there are other considerations that did not make it into this amendment. Is there any sense of when those will be considered for review and will make it back into the bill? There is no periodic review.

[Mitch Davies]

We continue to monitor the state of debate, the evolution of various matters. For example, there are different international models on “say on pay”. At the shareholder level there are movements, and people are availing themselves of the core governance mechanisms they have to press these forward. I think that issue can advance in other fora.

This bill doesn't require a particular review period, but the department's commitment is to monitor and engage on these debates and remain open to whether further reforms could come forward at the direction of the government.

[The Chair, Liberal, Dan Ruimy]

Mr. Sheehan is next.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Thank you very much.

We talked about diversity in respect of various groups. What about young Canadians? Were they consulted as a group? How will this encourage more young people to get involved in governance and in boards? What about young entrepreneurs? How might this affect them as they move up from sole proprietorship?

[Mitch Davies]

Thank you, Mr. Chair, for the excellent question.

I think this goes back to leaving quite open the diversity of approaches to diversity. I think you picked up on another one—representation of young people in a management company, people from different walks of life, young entrepreneurs. I think all this is possible in terms of how a company chooses to take this statute and use it in its operations. We expect to see a number of approaches taken to that, so pick one of them. Because it's not prescriptive, it allows for that.

I think at the early stage of a company, when it's probably not moved to a publicly traded position, these statutes, these changes, wouldn't apply. It's only when they've actually gone through an IPO and into the public market that they become a distributing corporation.

I think the emergence in the corporate sector of young leaders is an interesting phenomenon linked to the new economy, the digital economy. Some of the biggest companies in the world now are run by very young people, looking at the corporate sector as a whole. A lot of young people are managing very large enterprises, and often with a different mindset. I think this bill encourages people to embrace diversity in its full sense, because a lot of those companies are incredibly diverse in their makeup and include people from all over the world and from different backgrounds.

[The Chair, Liberal, Dan Ruimy]

Thank you.

Mr. Lobb, you have five minutes, please.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Thanks very much.

The first point I would like to make is that it's unfortunate that the minister isn't here today. I thought that would be nice. Seeing as how it's his first bill to come through Parliament as a minister, that would probably be the least he could do, to show up today for his own bill, but we'll leave that for what it is.

My first question to you gentlemen is with regard to class A and class B shares. Bombardier and Torstar would be two examples. How does that impact here, with this bill?

[Mark Schaan]

Split-share structures and voting versus non-voting were consulted about in the 2014 consultations on the CBCA, and there was no consensus. There is an ongoing debate in the corporate governance community about class A and class B, voting and non-voting shares.

[Ben Lobb, Conservative, Huron—Bruce, ON]

In the two examples I gave you, there are family interests in both. Does this bill apply to the way their structure goes and the way they have their voting structure?

[Mark Schaan]

If they're distributing corporations under the CBCA—you'll excuse me if I don't know, for those two specific examples, whether they're under the CBCA or they're provincial or both—then they will be required to meet diversity requirements. They will be required to put forward individual elections of their directors and have individual yearly terms.

With respect to whether or not this specifically addresses any changes to the class structure of shares, this bill is silent on that.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Okay.

You would have been familiar with the criticism around the election of the board members and the requirement about a majority. What is your interpretation of the meaning of “majority”? If a board of directors member doesn't receive a majority, it is assumed under this bill that it's now deemed that he will resign or that his membership not be included in the board.

Is that a criticism or an interpretation that you've heard of this bill?

[Mark Schaan]

The standard applied for any director election under the CBCA under these provisions would be that individual directors would be subject to election by all voting shareholders. Shareholders would have the capacity to be able to vote yea or nay on each director. If a director does not receive a majority of votes cast, that director would not be deemed elected.

There are provisions in place for failed elections—when, for instance, there's a lack of quorum or a lack of regional representation, as per the articles of the corporation. In all of those cases, there's a capacity for the board to be able to take appropriate action to allow business continuity. This act sets out the rules, and any corporation in Canada under the CBCA would be subject to them.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Do you see this as a potential loophole down the road, whereby special exemptions would be given to the boards to allow them to say, “Well, this person didn't get a majority, but we've looked at it, and we'll still accept them into the board”?

[Mark Schaan]

In the case of the Canada Business Corporations Act, this act is actually quite explicit in terms of what happens in the case of a failed election. A failed candidate is not able to be appointed by directors of the corporation except in extremely rare circumstances.

[Ben Lobb, Conservative, Huron—Bruce, ON]

But I think that number is like one in 10, isn't it?

[Mark Schaan]

The number you're quoting is the number under current securities rules, not under the CBCA. These are new provisions that would require a majority voting. In the current rules of the CBCA, the board of a CBCA corporation is elected for a three-year term and as a slate. This bill will require individual elections for annual terms, with a majority voting standard.

[Ben Lobb, Conservative, Huron—Bruce, ON]

In the whole idea of diversity and everything else that's included in that, will those new people still be required to fulfill the mandate of share ownership of directors and all these types of requirements? Will that still apply to them as well?

[Mark Schaan]

With respect to the obligations of directors, the law remains as is. The changes are to the elections process.

[Ben Lobb, Conservative, Huron—Bruce, ON]

What about multinational corporations that would have multiple layers of boards? How does that apply to them?

[Mark Schaan]

With respect to multinationals, if you're registered in Canada under the Canada Business Corporations Act, you're subject to the rules of the Canada Business Corporations Act with respect to your annual meeting of your corporation in Canada.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Okay.

Next, let's take the example of the Vancouver Stock Exchange. Is it provincial? If I have a business and I don't want to do this, I'm just going to start on the Vancouver Stock Exchange....