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.