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.