Evidence of meeting #47 for Industry, Science and Technology in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was board.
A recording is available from Parliament.
Liberal
February 16th, 2017 / 9:45 a.m.
Liberal
Frank Baylis Liberal Pierrefonds—Dollard, QC
Thank you, Mr. Chair.
Thank you to the witnesses for being here.
I notice there is a difference between the ICD's view and the CCGG's view with respect to majority voting. Mr. Fortier, could you explain specifically why your association favours a policy versus a standard?
Vice-President, Policy, Institute of Corporate Directors
There are a couple of points.
First, we believe that majority voting has been addressed through the TSX rule, and it applies to companies of significant size. It doesn't apply to venture companies, but there are very good reasons for that.
For instance, not a lot of shareholders go to the AGM, and therefore, if you have a group of shareholders who go to the AGM of a venture company, that could actually facilitate the change of the board. That may or may not be a good thing. That would be one point. We think that it's addressed very effectively through the TSX rule.
The policy side of things, which is what the TSX addresses, also allows boards to reject the resignation of a director who has been voted against. Now, you can say, “Well, that doesn't sound right”, except that, in exceptional circumstances—such as that this is the only person on the board who understands financials or who has a CPA designation, for instance—we need to keep this person for a while until we find somebody new or—
Liberal
Frank Baylis Liberal Pierrefonds—Dollard, QC
Just out of curiosity.... If I understand, you're sitting on 8,000 people who have said they're ready, willing, and able to serve, so if someone is rejected—for example, someone with financial expertise—I can't believe that there isn't someone else to—
Vice-President, Policy, Institute of Corporate Directors
Fair enough. What I would say is that it takes quite a while—
Liberal
Liberal
The Chair Liberal Dan Ruimy
Welcome back, everybody.
Oh, the humanity.... You'll have to use your fingers to push the buttons.
Vice-President, Policy, Institute of Corporate Directors
Am I the guinea pig?
Vice-President, Policy, Institute of Corporate Directors
I'll get back to your question about majority voting. You said that if we have thousands of people who are ready and willing to sit on boards, the switchover should be fairly easy. I take the point, but I think it's important to recognize that onboarding takes a while, that understanding the company takes quite a while. This can and should be improved, but usually it takes about two years before a director feels comfortable.
I think we just have to be realistic that we can't just put somebody in. That would be my answer.
Liberal
Frank Baylis Liberal Pierrefonds—Dollard, QC
I'll pass it over to you, Ms. McCall, because at CCGG you have a different view with respect to majority voting. Perhaps you could explain that.
Executive Director, Canadian Coalition for Good Governance
The Toronto Stock Exchange majority voting listing rule was adopted in 2014. In effect, it's a majority voting policy that CCGG published in 2006. It took eight years for the TSX to adopt the rule after CCGG published it. The TSX rule applies only to TSX companies, as Catherine said. There are over 1,500 TSX venture companies that are not covered by the rule that should be covered. This is a matter of principle. There is no reason why they shouldn't be covered.
The TSX also is a for-profit company, and the TSX could change this majority voting listing requirement if it wishes.
I was the co-chair of the global network of investor associations until last summer. That's an association of investor organizations around the world, akin to CCGG. I also am a member of the International Corporate Governance Network. Based on my discussions in these various groups, I can tell you that the fact that Canada does not have legislated majority voting is looked at around the world as a huge negative for Canada's corporate governance. Canada is an international outlier in this regard. It's Canada and the U.S., basically, that are these outliers.
In fact, I'll go further. I'll give you an anecdote. I sat beside a senior person in the securities regulator in Chile at a dinner several years ago. Somehow, we started talking about majority voting, and I explained to him that we have a plurality voting system in Canada, not a majority voting system. He started to laugh, and I asked him why he was laughing. He said, “Well, Steve, you're telling me a joke.” I said, “No, I'm sorry, this is not a joke. This is exactly the way it is in Canada and in the U.S. We have plurality voting, not majority voting, for directors.” His response was, “Steve, we are a third-world country in Chile, and yet we have majority voting.”
Liberal
Frank Baylis Liberal Pierrefonds—Dollard, QC
I don't mean to cut you off, Mr. Erlichman, but is it safe to say then that you're happy with the proposed legislation to address that issue?
Executive Director, Canadian Coalition for Good Governance
If there need to be words to tweak what it says, we're okay with that, but the principle, majority voting for directors, needs to be there.
Liberal
Frank Baylis Liberal Pierrefonds—Dollard, QC
Thank you. I would tend to agree with that because I think if we're looking to get diversity.... First of all, if there's a director who has no support except for one person and we can't remove that person, I don't see how we can get diversity.
I want to move on to another point quickly: say on pay. That's another place where I've heard diverse opinions between ICD and CCGG.
Your organization, ICD, is against say on pay. I'll let you speak to it, Mr. Fortier.
Vice-President, Policy, Institute of Corporate Directors
No, I wouldn't say that we're against say on pay at all. I think we're against legislating or regulating say on pay uniformly across the markets. I think that advisory say on pay votes within companies can be very helpful, if that's what the shareholders want and demand.
I think it's important to recognize that Canada isn't the U.K. or the U.S., and we have—we've seen a few—very few egregious pay packages. Now, that's not an excuse for not going to say on pay, but if the shareholder group wants to inform the board on how to compensate its executives, absolutely, they should. I just don't know if we want to legislate or regulate that across the board.
Liberal
Vice-President, Policy, Institute of Corporate Directors
I think what happens once you start regulating all companies the same is that you're not recognizing that Canada's markets are very different. Not every company is a TSX 60 company. We have a lot of very small companies and issuers that should not be subjected to the same rules and standards, and that applies to majority voting as well, as I mentioned in my remarks. With regard to majority voting, I would just say that we already have it in Canada. We have phenomenal corporate governance, and I would argue, as Steve said, that Chile's a third-world country. Canada is far ahead in many respects.
Liberal
Liberal
Frank Baylis Liberal Pierrefonds—Dollard, QC
Are you sure? I was tracking myself, and I know I was cut off. I see I have 45 seconds, but you know....
Conservative
