House of Commons Hansard #23 of the 35th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was labour.


Witness Protection Program ActGovernment Orders

5:25 p.m.


Randy White Reform Fraser Valley West, BC

I am not sure how to spell the word hypocrite. I am sure it is somewhere in the dictionary.

Witness Protection Program ActGovernment Orders

5:25 p.m.

An hon. member


Witness Protection Program ActGovernment Orders

5:25 p.m.


Randy White Reform Fraser Valley West, BC

Hypogrit. Liberal, Tory, same old story. I present, therefore, an opportunity to my friends opposite to learn from past mistakes. This is not easy for them to understand.

Let us make sure that Bill C-13 does not miss its mark. Let us support Reform's proposed amendment that Bill C-13, in clause 16, be amended to allow for the following of each report that: (a) the number of agreements entered into and the law enforcement agencies involved; (b) the number of applications made; (c) the average amount spent on each agreement entered into; (d) the number of agreements terminated and the reasons for their termination; (e) the number and types of offences committed by protectees; (f) the total amount of all money from the consolidated revenue fund spent in relation to the operation of this act; (g) co-operative measures between the force and other law enforcement agencies with respect to witness protection; (h) the number of foreign witnesses admitted to Canada and the number of Canadian witnesses relocated outside Canada.

Committees Of The HouseGovernment Orders

March 28th, 1996 / 5:30 p.m.


Don Boudria Liberal Glengarry—Prescott—Russell, ON

Madam Speaker, if you were to seek it I believe you would find unanimous consent for the following motion which has been agreed to by all party whips. I move:

That the Standing Committee on Human Resources Development be authorized to tape for broadcast purposes its video teleconferences during its study of Bill C-12, an act respecting employment insurance in Canada.

Committees Of The HouseGovernment Orders

5:30 p.m.

The Acting Speaker (Mrs. Ringuette-Maltais)

Is there unanimous consent to move the motion?

Committees Of The HouseGovernment Orders

5:30 p.m.

Some hon. members


(Motion agreed to.)

Canada Business Corporations ActPrivate Members' Business

5:30 p.m.


Paul Szabo Liberal Mississauga South, ON

moved that Bill C-204, an act to amend the Canada Business Corporations Act (qualifications of directors), be read a second time and referred to a committee.

Madam Speaker, in the first session of Parliament I had introduced Bill C-345, an act to amend the Canada Business Corporations Act. This bill did not have an opportunity to come before the House but it has been resubmitted and now appears before the House as Bill C-204.

About a year and half ago I had the opportunity to attend the president's dinner of the Mississauga Board of Trade. The guest speaker was someone I know very well. The guest speaker was introduced as a senator of Canada; he was introduced as the chairman and chief executive officer of one of Canada's largest and most influential companies; and he was introduced as a director of some 26 different corporations. At the time I thought that surely this was a very busy person.

In the life of the corporate world, boards of directors do play an extremely important role. There is a lot of responsibility. A lot has been written in the newspapers about director's liability. There have been many, many articles about the difficulty of trying to find qualified people who are prepared to take on directorships because of the onerous work and the serious liability.

If a director knew or ought to have known that there was a problem with a corporation which resulted in damages to a shareholder or another stakeholder group, the director could be held personally liable to the full extent of their own personal assets. It is not a situation to be taken lightly.

With that background and as a chartered accountant, I had been involved with the former Canada Corporations Act which has been replaced by the new Canada Business Corporations Act. We have a federal act and there are also provincial acts but the rules are much the same. It depends on the jurisdiction in which a corporation has been incorporated, but they must serve the same purpose. The corporations acts, be they federal or provincial, are there to provide the guidelines and rules under which corporations must deal with their affairs.

Directors have very specific and important responsibilities. They have a responsibility to actively take on these responsibilities. Of course, there is the ever present risk of conflict of interest, either deliberate or inadvertent. Surely one would understand that the question is, how many directorships could an individual hold at any one time and still satisfactorily discharge all the responsibilities at least to a reasonable extent?

Companies are of varying degrees and sizes. Some are very complicated for example, Bell Canada. Others are very small, incorporated companies which are for the sole purpose of an individual. It would be very difficult to establish a number.

Having heard the introduction of the guest speaker at the Mississauga Board of Trade president's dinner, it struck me that for someone who was a senator of Canada and who had work to do as a senator, and someone who was the chairman and CEO of a major Canadian corporation, for him also to be a director of some 26 other corporations led me to believe there may have been a situation developing that I did not understand. Maybe there was a problem. That is the rationale for Bill C-204.

Let me briefly outline some of the duties and responsibilities of a director. In both senses of the word, directors have an obligation or duty to see that everything is done in accordance with the law. They must accept blame or liability if things are not done in accordance with the law, especially if someone suffers a loss or damages as a result.

I could go through this in tremendous detail, but there are many points I want to raise. There are certainly things like the duty of honesty, the duty of loyalty and the duty of diligence.

With regard to diligence, diligence involves attending meetings. A director is not bound to attend all meetings of the board. He or she ought to attend as often as possible as they may be held liable for transactions over which they have no knowledge.

Directors also have a duty of diligence to rely on co-directors. Directors cannot shirk, I stress they cannot shirk their responsibilities by leaving everything to others. Directors rely on other directors at their own risk. Reliance on co-directors or officers should not be unquestioned. Reliance on other officers is another area. Directors who rely on officers do so at their own risk and should not abdicate their duties to manage the corporation.

There is the issue of relying on outside experts. Directors are not expected to be experts in all fields of endeavour and must frequently rely on the advice of specialists. They have a responsibility to go beyond their own expertise to make sure that they can discharge their responsibilities as directors in the conduct of their duties.

Dummy director is a term which is used. Being a dummy director, an honorary, accommodation or part time director does not lessen the responsibility or duty unless he is relieved by unanimous shareholder agreement.

If the member for Broadview-Greenwood were in the House today to speak on this bill, I know he would want to talk about the issue of concentration of corporate power. The circle of corporations which have linkages among their boards, a number of people who are members of the same board and who seem to perpetuate each other and support each other is an issue that has concerned a lot of people.

Dummy directors or what I refer to as marquis directors would receive signing bonuses and stock options simply to have their names associated with the business. They would have absolutely no interest or intent of participating in the affairs of the business. That is an issue which is their own responsibility. They do so at their own risk. But who speaks on behalf of the shareholder or the other stakeholders such as the banks or credit unions that lend funds, or the creditors who make advances to a corporation when directors are there not to participate and discharge those responsibilities but simply to have their names used for the symbolism, importance and the self-gratification of a board? I do not make these indictments lightly; they do occur.

Moving down the list to the issue of doing nothing, inaction is no excuse. Even if a director has not participated in an illegal act, that director is not necessarily excused under the law.

There is the issue of seeing no evil. A director who acquires knowledge of an illegal act on the part of their cohort directors must honour their duty to the company and do whatever is necessary under the circumstances to correct the wrong or bring it to the attention of the shareholders. If a director is a marquis director or a dummy director how could they possibly discharge that responsibility?

The duty of skill. A director need not exhibit in the performance of their duties a greater skill than may be reasonably expected from a person of their knowledge or experience. If the director is not there but was selected for skill or expertise but is not applying that skill or expertise, how can they discharge this responsibility or duty of skill?

Finally there is the duty of prudence. The duty of prudence requires that directors use common sense.

Having looked at those, I wanted to talk to the Minister of Industry and industry officials who have responsibility for the Canada Business Corporations Act.

I was involved with the industry committee when it dealt with Bill C-12, an act to amend the Canada Business Corporations Act. The proposed amendment under Bill C-12 was the elimination of clause 16. The Canadian Institute of Chartered Accountants, of which I am a member, has consulted with committees of this House on many occasions. It had a big problem with the elimination of clause 16.

Clause 16 basically exempts corporations, specifically large federally incorporated private companies, from their obligation to file financial statements pursuant to their incorporating documents under the Canada Business Corporations Act, more often known as the CBCA. This was of concern to the institute because it gave an unfair advantage to private corporations over public corporations but somehow the officials of the day decided that this was okay to do. We looked at some of the corporations that might take advantage of this and why this may happen.

Under provincial jurisdiction some jurisdictions do not require filing of financial statements nor the appointment of auditors. This was of concern to the Canadian Institute of Chartered Accountants simply because its members are in the business of auditing and they wanted to protect the integrity of their industry as well and I do not blame them for doing that. More important, by not filing financial statements there was an unfair advantage extended to private companies over public companies.

What does that mean in real life? It means that a corporation such as Wal-Mart comes to Canada, takes over a major chain and makes a big play in Canada for their organization. Where does it incorporate? It incorporates in New Brunswick. Why? Because the New Brunswick corporations act does not require the filing of corporate statements for private companies.

Clearly this was a situation where the federal jurisdiction, the CBCA, was not getting its share of incorporations. A company that incorporates in New Brunswick can operate right across Canada. There is no restriction on that. It does not have to incorporate in each and every province. There are some differences in the jurisdictional reporting requirements but Wal-Mart operates right across Canada but is incorporated in New Brunswick.

I raise this as an example of the kind of thinking that is going on with some of the department officials in industry. I want to raise it because I think that the same kind of thinking is occurring with regard to presently considered amendments to the Canada Business Corporations Act.

I did receive a letter on behalf of the Ministry of Industry. I had raised some questions and some answers came back, but for me more questions were raised.

My Bill C-204 would be the first in Canadian history with this requirement to have a limit on the number of directorships that someone could hold concurrently. It does not exist anywhere in any of the other provincial jurisdictions. It would be a first. That does not cause me any problem. If it is the right thing to do, it should be done.

The second point raised was that the Canada Business Corporations Act presupposes that corporations and their investors, many of whom are now large institutions, are capable of determining the appropriate qualifications which their directors should have. That is absolutely true. They do. They have the ability to determine whether or not a director is appropriate for their board but it depends on what the objectives are.

If the objective of a corporation is to attract a marquis director to enhance or ingratiate its board of directors in the eyes of the public, it can do it, but who is it representing? I say it is representing the board members and the officers of the corporation for its self-interest. Where is it in the interests of the ordinary shareholder? Where is it in the interests of the stakeholders who extend credit and financing? Where is it in the interests of those who compete where there may be conflicts of interest unforeseen or undetected at the time?

The issue of self-regulation and let us not have rules any more concerns me. There is a major review going on now within the Department of Industry, and the Senate finance and banking committee is starting to look at some of the rules and regulations because director liability is a serious issue. As I outlined some of the reasons why a director should have certain diligence, due care, honesty, et cetera, they are there for a reason. This is the standard that has been established.

I see the move now within the corporate community, the corporate governance community and within the Senate banking and finance committee to somehow soften or fuzzy up those responsibilities to make it much easier for more people to become dummy directors. I do not know that, but if the standards are not imposed, if we do not have good, firm rules on the responsibilities of corporate directors, what assurances can stakeholders, shareholders, investors, et cetera have that their interests are being protected every time something happens within that corporation?

Let me raise an example. Confederation Life is a major financial institution with major problems. It will take years to sort that out. Every member in this Chamber has received communications from employees of Bell Canada with regard to their retirement plans. We received the story and allegations that there was board representation on Confederation Life by officers of Bell Canada and that the retirement plans were amended to move or shift a portion of the investment of funds from one institution into Confederation Life, apparently at the time when there was a Bell officer on the board.

Now that Confederation Life has lost a great deal of money and a great deal of loss is now being extended or shared among all of those stakeholders who are now the employees, they are coming to members of Parliament saying: "Please help us. We went on good faith that the board of directors, and particularly an officer of our company who was a member of the board of Confederation Life at the time, would have taken care of our interests, but he did not. So we want Bell Canada to keep us whole".

I have no direct knowledge of the details and the facts here and I do not for a moment suggest there were any improprieties on behalf of anybody. However, I raise it as a concrete example of the kinds of things we have to be vigilant on. It means we have to depend on boards of directors to do the right thing at the right time and to be there when we really need them.

We do not have to look to the experience in Canada and say that we have never had a problem and therefore we do not need rules. That is not the issue. We need rules to make sure there are no problems and that is the point.

Is this an important issue? Of course it is. There is an organization called the Canadian Comprehensive Auditing Foundation which now has an active task force looking into governance issues of public and private bodies. The Auditor General of Canada is a member of that task force for one reason and one reason only: The whole issue of the governance and the control of our corporations and public and private bodies is of serious concern. There are risks that have been identified which must be addressed.

I do not accept for a moment the premise of the industry officials that corporations should be self-regulating, that we should let them do their own thing and they do so at their own peril. I do not believe those corporations in each and every instance are always thinking about their shareholders. They are not always thinking about their creditors. They are not always thinking about the employees whose jobs would be lost if they went belly up. From time to time issues arise, such as: Who is the director this time and can we get this guy to make us look good? These are the kinds of things I think Canadians want to ask.

Is there another indication that this is of interest and importance to Canadian business and those who are involved? The Canadian Institute of Chartered Accountants in December 1995 prepared a document called Guidance for Directors-Governance Processes for Control .

Basically the forward and the purpose of this document, in addition to looking at corporate management, was to assess the board's effectiveness on deals and on how well the board assessed and discharged its role and responsibilities as part of the organization's overall control.

I have looked through the document and I have studied it to some extent. It refers to issues such as the formulating of policies for selected candidates for directorship, reviewing the qualifications of candidates and assessing the performance of the board and eventually the individual directors often assigned to a committee, such as a nominating committee or governance committee.

Even in this document the Canadian Institute of Chartered Accountants has raised some interesting issues. They have also mentioned the values and the ethical values of the corporation and whether it was unclear or perhaps inappropriate that somebody should be on a board. They wanted to deal with issues for the individual director, whether that director had the information, the ability or the forthright manner that they needed. They dealt with the qualifications of a board.

In conclusion, how can these be relevant to a dummy director, to a marquis director? Conflict of interest is really the issue here. This bill basically proposes the number of directorships one can concurrently hold, which I suggest would be approximately 10, given the number of times the average board meets and given the number of other responsibilities and preparatory time necessary.

This bill however does not extend to corporations where someone holds a vested interest in excess of 5 per cent. If it is their own corporation or they have a major stake in it, I am not interested. It is those where people are directors of corporations in which they have no vested equity interest to speak of, where they are in fact simply dummy directors.

On that note I would simply like to say that although this is not a votable bill, I hope I have raised some questions with members in this House with regard to the issue of corporate directorships and whether or not those responsibilities are being discharged and protected under the Canada Business Corporations Act.

Canada Business Corporations ActPrivate Members' Business

5:50 p.m.


Roger Pomerleau Bloc Anjou—Rivière-Des-Prairies, QC

Madam Speaker, since it is the first time that I rise in this House while you are in the Chair, let me congratulate you on your appointment.

I am pleased to speak today to Bill C-204, which was introduced by my colleague opposite, the hon. member for Mississauga-South. My colleague began his speech by telling us that he decided to propose this amendment to the bill because he had met a senator who was apparently sitting on 26 boards of directors. My colleague inferred that the senator probably wanted to enhance his reputation, but perhaps there are other premises that are just as valid. Given the nature of a senator's work, he had ample time to sit on 26 boards of directors.

The purpose of the bill introduced by my colleague, an act to amend the Canada Business Corporations Act, is to prohibit any person from holding a directorship in more than 10 companies in which the person holds less than 5 per cent of the voting shares. My colleague seems to base his bill on the premise that a person who is a director in more than 10 companies cannot properly carry out his mandate.

True, as my colleague pointed out, company directors have a number of responsibilities that are very important and very serious. They are required by law to assume many of these responsibilities and to perform very specific duties.

My colleague who introduced this bill is asking the following question: At what point can a director or administrator no longer properly fulfil his responsibilities?

He seems to think that one can no longer properly fulfil one's responsibilities if one holds a directorship in more than 10 companies. I do not know on what basis the hon. member can make that claim. Why would a director of 9 companies be able to perform his duties, but not a director of 12 companies? That question remains unanswered.

When someone is mandated by shareholders to sit on the board of directors of a business corporation, he is required by law to meet certain obligations. He has a duty to do so. He must look after the interests of the company, as he would after those of his own family. By law, he is accountable to shareholders for his actions.

A director may be held personally responsible if, for example, he misuses or embezzles company funds or if he makes the company insolvent.

The director must be honest, loyal, careful and diligent. Of course, his personal interests must not conflict with those of the company he administers. It goes without saying that he must attend meetings of the board of directors. I will not start listing everything a director must do or not do. I think everybody here has a pretty good general idea.

Frankly, I really do not see the use of my hon. colleague's bill. Why propose to amend the Canada Business Corporations Act by amending only one section, namely section 105, by adding a detail that, as far as I am concerned, is basically useless? Why prevent someone from being a director of more than ten corporations? The same person can sit on the board of directors of 13 corporations and do a very fine job, the same way that another individual could be a director of a single corporation and fail in his duties and responsibilities. It all depends. Some people can handle it, others not.

The directors of a corporation are responsible and accountable to the shareholders. If the shareholders are dissatisfied, all they have to do is to remove them from office by a vote of non-confidence.

The Canada Business Corporations Act is also quite clear on that. A director who commits an illegal act or who works against the interests of the company is liable to very harsh penalties and fines. It is definitely not in his best interests to break the law or to commit acts for which he would be held accountable.

Any reasonable person who is sound of mind-maybe some are not-knows what he is able to do and accomplish. A director knows the duties and responsibilities related to his directorship. It would not be in his best interests to fail in his duties, because he knows what the consequences would be. So, I say: Why would he take a chance and sit on several boards if he knows that he not able to do the job?

Let me show you that the arguments used by the hon. member in his memo to support his bill are far from justifying the inclusion of his proposed amendment in the Canada Business Corporations Act.

First, the member says:

"A director is not bound to attend all meetings of the board. He ought to attend as often as possible as he may be held liable for transactions of which he has no knowledge".

An occasion will undoubtedly arise when a director is unable to attend a meeting of the board of directors. However, in any reasonably well organized company, an agenda and minutes are distributed to directors. Normally, when someone takes a decision involving a company, those responsible are informed. I dare say

that anyone unable to attend such a meeting would have the sense to ask his colleagues what was said or done. Directors of companies are aware of that.

The second argument put forward by my colleague is the following:

"A director cannot shirk his responsibilities by leaving everything to others. He relies on other directors at his own risk. The reliance on his co-directors and officers should not be unquestioning".

When you sit on a board of directors, you are part of a team. A director must trust his colleagues. Otherwise, the entire team suffers.

Imagine what it would be like if the directors did not trust each other? Imagine the acrimonious atmosphere. If board members do not agree, the company or corporation will suffer, and this will lead to shareholder dissatisfaction. The shareholders can then dissolve the board of directors. It is therefore not in the best interests of a director to start off by doubting his fellow directors.

Another argument used by my colleague is the following:

Directors rely on officers at their own risk and should not abdicate their duties to manage the corporation.

Usually, the board of directors makes the decisions on the company, and the executive directors or the operational managers effect them on site. The executive director, who looks after the day to day running of the company, sits on the board of directors and must report on company activities to the directors.

Usually someone whom everyone trusts is chosen to head the company. If there are risks involved in relying on the executive director, they are normal risks. People can be dishonest; but that can happen any time and any place. It is impossible to know whether a person is honest at the start. My colleague's argument does not hold.

I could go on at length like this, but it would serve no purpose. None of my colleague's arguments has convinced me of the absolute need to amend the law as he proposes.

I will read you the recommendation that led him to propose this bill, which begins as follows:

In an effort to protect and/or emphasize the importance of director's duties and responsibilities, to minimize the potential for conflict of interest, to protect investors, companies and employees, that no person may be director of more than 10 corporations in which the person holds less than 5 per cent of the voting shares.

The duties and responsibilities of directors are clearly defined in the Canada Business Corporations Act. People who hold directorships know very well what their duties and responsibilities are. They know what are the consequences of their actions or lack of action because this is also provided in the legislation.

I completely fail to see how Bill C-204 will reduce conflicts of interest within a company. Unfortunately, there will always be conflicts of interest. My colleague from Mississauga-South made a worthwhile effort and analyzed the situation carefully before putting this bill forward. I am convinced he spent a lot of time on this, but I must say I do not see the use of amending the Canada Business Corporations Act in a way that would basically have no positive impact.

Canada Business Corporations ActPrivate Members' Business

6 p.m.


Werner Schmidt Reform Okanagan Centre, BC

Mr. Speaker, I rise to address Bill C-204 presented by the member for Mississauga South. I find myself in considerable agreement with my colleague from the Bloc and in dubious understanding of what Bill C-204 is actually intended to achieve.

On one hand it seems the member is more preoccupied with whether directors exercise the responsibilities they have been elected to carry out and whether they are responsible and acting in a manner that is consistent with what is entrusted to them rather than on whether they are competent.

There is a fundamental difference between doing what one is supposed to be doing and what is expected of that person, rather than if the person does not do those things, it is a function of the person's having too many directorships. That does not follow.

This bill adds a tiny detail to section 105 that says if somebody is a director of 10 companies in which they own less than 5 per cent of the shares, that person cannot be appointed to an additional directorship.

It seems the current act is clear. It lists the things that disqualify a director. One is anyone under age 18. That is reasonable. If they are to manage millions of dollars in some cases, they should be at least of voting age.

Second, anyone who is of unsound mind and who has been so found by a court in Canada or elsewhere. Obviously we would want a director to have a sound mind. Third, a person who is not an individual cannot sit. I am not sure what that means but nevertheless that is what it says here.

It says that anyone shall not be disqualified if he has no shares in a particular company. In other words, a director can be appointed, according to the act, who has no shares in a particular corporation. He is appointed to a particular corporation or to a board of directors because he is judged by someone to have the competence or the ability to do the job.

We need to look at some of the duties a director is supposed to carry out. I think these are rather significant duties. They are not many but they are onerous in terms of carrying them out.

"Every director and officer of a corporation in exercising his power and discharging his duties shall act honestly, in good faith and with a view to the best interests of the corporation; and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Every director and officer of a corporation shall comply with this act, the regulations, articles, bylaws and any unanimous shareholder agreement".

It is very clear what a director shall do. A director shall act honestly, prudently and shall exercise the appropriate skill a prudent person would exercise in a similar situation.

Can one person do those kinds of things for more than one corporation or one company? Of course he can, especially if the series of companies is small. Someone can be a director of a variety of companies because the role and function of a board of directors is not necessarily to manage a company. Its role and primary function is that of determining direction, the overall policy that shall give to that particular corporation its meaning, its raison d'être, and its mission in the kinds of things it wants to perform in that society or in that particular community.

What is the situation if a corporation is large? Let us take a company that we all know, a corporation that is rather mammoth in Canada, Canadian Pacific. This is a major corporation. I remember so clearly that this corporation was supposed to have an evaluation placed on it. A lot of people said what is the word of Canadian Pacific?

About 10 years ago a group of chartered accountants was designated to ask this question and determine the value. It took five years to actually go through all of the books, the assets and liabilities to determine the net value of Canadian Pacific Railway.

The things it discovered in the first five years had no value after five years because they were dated. They were either of greater value or lessor value depending on what happened in spending and what happened in the economy. It came to the conclusion that it was really a judgment call as to the real value.

How can one director, even if he is only a director of Canadian Pacific, determine in detail what is happening in that corporation? He cannot, obviously.

This act makes it very clear that these kinds of things have to be delegated. The hon. member knows this full well. He said we wanted as professional accountants to conduct audits so that we can give true direction and meaning to a particular corporation.

That was made very clear in the provisions of the existing act. A board of directors is not liable. A director is not liable under sections 118, 119 or 122 if he relies in good faith on financial statements of the corporation represented to him by an officer of the corporation or in a written report of the auditor or the corporation fairly to reflect the financial condition of the corporation, or a report of a lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by him.

It is pretty clear that a board of directors that listens to the advice of its professional people is probably acting more prudently, more responsibly, more honestly, more in the interests of the corporation than a director who assumes all that responsibility and says: "I know because I have the duty to exercise prudence and to exercise honesty". It would not be honest for a director to take the position of knowing everything that goes on in a corporation. If he is really to do the job he is to rely on the professionals who know what is happening and whose job it is to come to him with information he can evaluate.

They have to be competent in order to do that. The act tells us very clearly that is precisely what is expected of a board of directors. The implication that somehow the director should do this is simply misleading.

The suggestion made is that somehow an individual who owns 5 per cent or more of the stock of a particular company could have an unlimited number of directorships. The only determining factor seems to be owning less than 5 per cent. There seems to be a connection between the ability to direct and the amount of shares or ownership a person has in a particular company.

That is ludicrous. It does not make any sense. I do not think the amount of shares a person owns in a company will make them any more or any less competent. There is a pecuniary interest. There may be a vested interest. However, that does not make a person competent to make good decisions. It is a completely different issue. We need to recognize those kinds of differences.

There was also a point made about liability, that a director can be held liable. He should be. If a director is not exercising the responsibilities accorded to him, if he is not delivering on the duties extended to him by the corporation or by the act, he should

be held liable. However, he cannot be held liable if he is getting the best advice, as he knows it and understands it, and then makes decisions.

Does that mean he will always get the right advice? No. Does it mean he will always make the right decisions? No. Does it mean he can make a mistake in the sense that acting on the best advice available to him he still made a mistake? Yes.

The responsibility is whether he acted in the best interests of the corporation, as he saw it, on the best advice available. If that is the case, it does not matter how many directorships he has.

Canada Business Corporations ActPrivate Members' Business

6:10 p.m.

Saskatoon—Dundurn Saskatchewan


Morris Bodnar LiberalParliamentary Secretary to Minister of Industry

Mr. Speaker, I am pleased to respond to Bill C-204 today, an act to amend the Canada Business Corporations Act.

The hon. member for Mississauga South has presented this private member's bill to prohibit any person from being a director of more than 10 federally incorporated business corporations in which such person holds less than 5 per cent of the voting stock.

I appreciate the ideals that motivated the hon. member. Investors in federally incorporated companies want to be assured that directors are doing their duty.

No matter how effective and dedicated a person might be, there is a limit to how much energy or attention an individual can give to an enterprise when there are too many responsibilities conflicting for a director's time. The hon. member for Mississauga South believes that a director is unlikely to satisfy adequately the duties and obligations of more than 10 directorships.

The hon. member wants to address these concerns through legislation. This law would prohibit a director from holding more than 10 directorships for which he holds less than 5 per cent of the stock. Moreover, it would impose heavy fines, up to $25,000 for the first breach of the law and up to $50,000 for the second offence.

I have two major concerns about this legislation. First, is legislation the route to go in trying to create a corporate governance system that discourages directors from assuming more responsibilities than they could reasonably be expected to handle? Second, is the hon. member's bill the appropriate vehicle and is this the appropriate time to raise this issue?

Let me deal with both of these concerns. First, should we legislate how many directorships an individual can hold? This would be a first in Canadian corporate law. No other Canadian jurisdiction directly limits the number of directorships that an individual may hold so this is a question that should not be taken lightly. None of the provinces has seen fit to limit the number of directorships. Provinces may also be concerned about the ability of directors to attend to their responsibilities if they are overloaded with work because they have taken on too much.

Instead, they have allowed the same approach that the Canada Business Corporations Act has taken. The CBCA favours a self-enforcement approach to corporate governance. The philosophy behind the act is that corporations and their investors are in a better position than legislators to determine the appropriate qualifications which their directors should have.

I think this is sound. Corporate governance laws provide a foundation through which management directors, investors and creditors can have confidence that the system works fairly and openly.

I am not alone in believing that it would be inappropriate to legislate limits to the number of directorships an individual can hold. In December 1994 the Toronto Stock Exchange committee on corporate governance in Canada issued its report entitled Where Were the Directors. The report emphasizes that not only must corporate governance be enhanced but it must be perceived by the public to be enhanced and it offered a number of recommendations for assessing existing directors and identifying, recruiting, nominating, appointing and orienting new directors.

According to this report, how should directors be chosen? It recommends that the board of every corporation appoint a committee of directors composed exclusively of outside directors, the majority of whom are unrelated directors. This committee would then be given the responsibility for proposing new nominees to the board and for assessing directors on an ongoing basis. The actual decision on who should be nominated would then be the responsibility of the full board after considering the recommendations of the nominating committee.

This view appears to be widely held. The committee included not only representatives from the business community but also from institutional investors, the academic community and other groups interested in corporate governance. In other words, the private sector should put in place a careful process for choosing board members.

The Toronto Stock Exchange has implemented the report's guidelines for disclosure of corporate governance practices as a listing requirement.

In compiling this report of the TSE, the authors received suggestions that a guideline be adopted limiting the number of board appointments an individual can hold. This is what the authors had to say on the issue: "While we agree there must be a limit to the number of appointments, we have concluded that a specific guideline is unnecessary. The nominating committee in assessing the suitability of an individual to be elected to a board will take into

account the individual's other commitments, resources and time available for input to the board".

If the TSE reports shies away from issuing guidelines on this topic, I think it would be very inappropriate for this House to take the much more draconian step of enacting legislation. Let the corporation decide what is most appropriate. A legislated rule limiting the number of directorships would be arbitrary. Why do we set the limit at 10 directorships? Why not 5 or 15? How are we in this House to decide what is the appropriate number? It is a matter best left to those who choose the members of their individual boards.

Let me now turn to my second concern regarding this legislation. Is Bill C-204 the appropriate vehicle and is this the appropriate time to raise this issue? As the House is aware, the government is now in the process of undertaking a wide ranging review of the Canada Business Corporations Act. We saw technical changes implemented in the last session of Parliament through Bill C-12. The Minister of Industry told us at that time those changes were but the first phase of a process that would reform the CBCA for the first time in 20 years.

In preparing for phase 2 of the reform the government has consulted extensively with all elements of the business community, shareholders, managers, board members and corporate counsels to determine what needs to be changed and how it should be changed.

These consultations have taken several forms. First, Industry Canada began in 1994 to meet business people, investors and corporate counsel across Canada. These were preliminary consultations. From the input Industry Canada received, it could begin to focus on those areas thought by the business community to be in most need of reform.

As a result of these preliminary consultations, nine discussion papers were prepared, examining in considerable detail the issues of the CBCA that were considered to be priorities. These included directors' liability, insider trading, shareholder communication, takeover bids, financial assistance to directors and officers, directors' residency requirements, unanimous shareholder agreements, going private, transactions and technical amendments.

I would have to advise the House, however, that the issue of excessive numbers of directorships was not raised as a concern.

Industry Canada has received a number of responses to the suggested reforms contained in these discussion papers. The department plans to consult with clients once again to discuss the papers in detail. The responses will help the government prepare the amendments to the CBCA.

I would remind the House that Bill C-12 requires the Minister of Industry to submit recommendations on further, more substantive changes to the law to Parliament by June 1997.

Meanwhile, there has been another process of consultation to help focus on the areas where we must reform corporate governance in this country. Members of the Senate committee on banking, trade and commerce recently conducted hearings across the country on ways to reform corporate governance laws and are currently preparing a report. Senator Michael Kirby's committee has met with chief executive officers or chairpersons, board members and investors. These senior representatives of the business community have been asked to discuss corporate governance issues in general and to respond to key strategic questions on the issues under consideration by Industry Canada.

The other place is performing a valuable service in using the skills and knowledge of the senators to help explore the options available to the government in its reform of corporate governance. This is an excellent example of how this House and the other place can work together for a more efficient legislative process.

The result will be legislation that the Minister of Industry will table some time next year. At that time a committee of this House will be able to study the legislation carefully and make its recommendations for amendments. In other words, we have a very thorough process already in place to provide a detailed assessment of the issue that the hon. member from Mississauga South raises in this legislation.

The question of whether there should be limits placed on the number of directorates an individual can hold is a suitable topic for discussion, for Industry Canada's consultations, the inquiries by the other place and eventually by the Standing Committee on industry.

I am confident that the issue will receive the attention it deserves. However, I do not think this is the appropriate time to pass a law that would run counter to the corporate governance practices in other jurisdictions.

Let the hon. member for Mississauga South bring his concerns to the other forums I have mentioned but I do not believe that this House should support this bill.

Canada Business Corporations ActPrivate Members' Business

6:20 p.m.

The Deputy Speaker

Since no further member wishes to speak, the hon. member for Mississauga South may sum up and close the debate. Normally there would be two or three minutes.

Canada Business Corporations ActPrivate Members' Business

6:20 p.m.


Paul Szabo Liberal Mississauga South, ON

Mr. Speaker, I want to thank all hon. members who participated in the debate. It is very important that issues and questions are raised in this place even if there is not a clear understanding of some of the specific points.

However, I would like to address a couple of points that were raised by members. First, a question was raised about the magic of

5 per cent. If somebody held more than 5 per cent equity interest, this would be exempt from the number of companies.

Members will know that the issue of a threshold, whether it is 5, 10, 15 or 20 per cent is not substantive to the bill. The issue is that there must be a point at which one would have sufficient equity interest and that would be subject to amendment. Therefore, it is inconsequential. There is no meaning to 5 per cent. Although on the recommendation of the private members' office, this is consistent with the kind of threshold which has been set for similar bills where there is some involvement. It came as a recommendations from the House of Commons private members' staff.

The second issue was why limit the number of directors to 10 companies? Again 10 is just a number. It could be 15, it could be 20, it could be 100. One thing we can be sure of is that the number cannot be 1,000. Nobody in this place would agree anybody could discharge the responsibilities of a member of the board of directors of 1,000 different corporations in which he did not a hold a 5 per cent or greater interest. If that is the case, the premise of my bill is absolutely correct.

There must be a limit at which one cannot discharge even one's most fundamental responsibilities. If hon. members, the members of the industry committee and the parliamentary secretary from Saskatoon-Dundurn who spoke so very well, have a problem with the number, let us propose a number. We now know it is somewhere between 5 and 1,000. It is subject to amendment.

A good portion of the argument raised by the parliamentary secretary was why is a member raising this issue now because we are in the midst of all this other work. The member is absolutely right. I am here at the wrong time.

I do not have control over when my private member's bill gets elected in the lottery and goes on the Order Paper. It has been there for almost two years. It finally came to the top. I have to take the time when I get it. I understand the point raised by the member but it is beyond my control. I certainly do intend to raise it.

I remind hon. members there is a major major case before the Canadian people, before the department of financial institutions, which has to do with Confederation Life. I have been advised that there is now a lawsuit against a director in the amount of $1 billion. This is a very serious issue. It will no doubt be the subject matter of study, analysis and assessment for many years to come.

I will repeat what I said concerning why this bill came up. I was in attendance at a dinner of the Mississauga Board of Trade. The guest speaker was from the other place. That senator was introduced as a very busy senator of Canada, as the chairman and CEO of one of Canada's largest and most prestigious firms and also the director of 26 different corporations, all at the same time.

When I heard that introduction, although I was impressed, my first reaction was how could one individual who had a senate job, a chairman and CEO job, also discharge all of those responsibilities

that everybody is studying because they are so serious? It is a rhetorical question. I do not know whether there is an answer, but it strikes me as odd when even the parliamentary secretary admits that after nine discussion papers, after consultations with business people, investors, corporate councils and everybody else, this issue has not yet been raised.

It gives me great pleasure to have raised this issue for the first time in Bill C-204.

Canada Business Corporations ActPrivate Members' Business

6:25 p.m.

The Deputy Speaker

My colleagues, the hour provided for the consideration of private members' business has now expired. This item is dropped from the Order Paper.