The More Modern & Transparent Canada Business Corporations Act (CBCA)
Published:
June 12, 2018
Author(s):
This publication has been updated as at July 8, 2022.
Changes to the Canada Business Corporations Act (CBCA) over the past several years have modernized the legal corporate governance framework and increased the corporate transparency of federally incorporated public CBCA corporations. The changes are in keeping with the growing adoption of ESG (Environment, Social, and Governance) principles by governments and businesses in Canada and across the globe. Here are six key areas in which the changes to the CBCA have and will modernize the CBCA and the public corporations regulated by it.
1. Director Elections
On August 31, 2022, Bill C-25’s changes to the CBCA strengthening shareholder democracy, promoting directors’ accountability to shareholders and introducing checks on the power of corporate boards will take effect. However, these changes shouldn’t affect voting at the annual meetings of those reporting issuers with December 31 year-ends until 2023 because, generally, they will have held their annual general meetings in the first six months of 2022.
Majority Voting. A majority voting requirement in uncontested director elections will bring the voting threshold for public CBCA corporations in line with that currently required for Toronto Stock Exchange (TSX)-listed issuers. Majority voting helps ensure shareholders, as a group, have a greater say in board composition, and prevents the election of directors lacking majority support of shareholders. Currently, the CBCA provides for a “plurality” voting regime: shareholders can cast a vote for or withhold their vote from director nominees. Since “withheld” votes don’t count as a vote “against”, a nominee in an uncontested election can be elected by receiving a single vote “for” – regardless of how many “withheld” votes are received. As of August 31, 2022, shareholders will instead be required to vote either “for” or “against” each nominee in director elections. Director nominees who receive less than the requisite majority of votes cast in an uncontested election won’t be elected. However, incumbent directors are permitted to continue in office even if not re-elected until the earlier of the 90th day after the date of the election date, and the day on which their successor is appointed and elected. This will be an important change for most TSX Venture Exchange and CSE listed issuers who, unless they had adopted such a policy on their own, did not have to follow a majority voting standard.
Prohibition of Slate Elections. Nominee directors must be elected individually, putting an end to the “slate voting” (electing directors as a group) the CBCA currently allows, and making the CBCA consistent with the rules applicable to TSX-listed issuers. Individual voting empowers shareholders to express their disapproval of a particular nominee by withholding support for that director; slate voting often shields individual directors from such scrutiny. This is a change for TSX Venture and CSE listed issuers that have up until now permitted slate voting.
Simplified Interim Appointments by Directors. Boards of directors will have the right to appoint additional directors between shareholder meetings without shareholder approval unless the corporation’s articles provide otherwise. Currently, this is permitted only if the articles of the corporation allow for it. The number of directors appointed by the board will continue to be limited to a maximum of one third of the number of directors elected at the previous annual shareholders meeting. Directors can reappoint incumbent director nominees who don’t receive the requisite majority of votes in an election, but only if it’s required to satisfy the CBCA’s Canadian residency requirement, or the CBCA’s requirement that at least two directors not also be officers or employees of the corporation.
Annual Terms. Directors will be limited to an annual term, ending at the corporation’s next annual meeting, rather than the current maximum three year term.
2. Notice-and-Access
The changes to notice-and-access set out in Bill C-25 will allow CBCA corporations to use electronic communication as the primary means of providing proxy materials and financial statements to shareholders. This change isn’t yet in effect, and will likely only come into force when the relevant regulations are published. When it is, however, it will effectively align the CBCA regulations respecting distribution with those of the provincial securities regulators, which currently permit public companies to deliver meeting materials to shareholders electronically by way of notice-and-access (that is, posting the documents online and providing notice of the posting).
3. Shareholders’ “Say on Pay”
A change to the CBCA tucked into the federal omnibus budget bill, Bill C-97, but not yet in effect, will give shareholders of public CBCA corporations a non-binding “say on pay” vote on the corporation’s approach to director and senior management remuneration. In line with the “say on pay” advisory vote some public companies already conduct annually as a best practice, certain CBCA corporations will be obligated to develop an approach to director and senior management remuneration, place it before the shareholders for a vote at each annual meeting, and disclose the results of the vote. The vote isn’t binding on the corporation, but it does offer it the opportunity to gauge and react to shareholders’ views on the board’s approach to executive compensation, and possibly foresee shareholder activism.
The corporations and senior management members to which this obligation applies also haven’t yet been defined, and likely only will be after the federal government introduces and effects regulations following a public consultation period. However, it’s likely they will apply to distributing corporations consistent with the CBCA’s diversity disclosure requirements, and define senior management members as executive officers per Canadian Securities Administrators’ National Instrument 51-102, Continuous Disclosure Obligations.
4. More Sharing With Shareholders
Bill C-97 will also require, effective on an as-yet undetermined future date, certain corporations (as with say-on-pay, not yet defined but likely to be distributing corporations consistent with the CBCA’s diversity disclosure requirements) to place before their shareholders at each annual meeting reports concerning:
- The well-being of employees, retirees and pensioners.
- The recovery of incentive or other benefits included in directors’ and senior management members’ remuneration.
5. Diversity Disclosure Obligations
On January 1, 2020, the mandatory and expansive director and senior management diversity reporting in Bill C-25, originally introduced in 2016, finally kicked in for all distributing corporations. The growing diversity of Canada’s population is reflected in many facets of the corporate world – but not yet the facet of corporate governance. The CBCA amendments seek to remedy that by imposing obligations on directors of “prescribed corporations” to disclose to regulators and shareholders specific information about diversity among its directors and members of senior management. These diversity disclosure requirements go beyond the gender disclosure obligations that Canadian securities laws impose on non-venture reporting issuers by extending disclosure to “designated groups”, including women as well as Aboriginal Peoples, persons with disabilities, and members of visible minorities, and making diversity disclosure mandatory for venture reporting issuers.
6. More Stakeholders’ Interests
As of June 21, 2019, Bill C-97 gave more stakeholders of public CBCA corporations a better shot at having CBCA corporate directors and officers consider their interests. The CBCA now codifies the ability of CBCA corporate directors and officers to consider the interests of a broader range of stakeholders when fulfilling their duty to act in the best interests of the corporation. Traditionally, directors and officers considered the best interests of the corporation, and those of its shareholders, to be synonymous. However, the Supreme Court of Canada’s 2008 decision in BCE Inc. v. 1976 Debentureholders effectively broadened this to include the consideration of interests of other stakeholders. Bill C-97 amended the CBCA as of June 21, 2019 to reduce to writing this ability of directors and officers to consider other stakeholder interests, including those of:
- Employees, retirees and pensioners.
- Creditors, consumers and governments.
- The environment.
Please contact your McInnes Cooper lawyer or any member of our Corporate Governance & Compliance Team @ McInnes Cooper to discuss how to comply with the modernized CBCA.
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