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that background and as a chartered accountant, I had been involved with the former Canada Corporations Act which has been replaced by the new Canada Business Corporations Act.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.