Corporate Governance
"Good governance plays an important role in protecting shareholder rights, helping to maximize shareholder value over time, and assisting the creation of vibrant, dynamic and successful corporations."
- "Beyond Compliance: Building a Governance Culture" Interim Report of the Joint Committee on Corporate Governance; March 2001
Good governance standards have been in evolution for several years. Various Canadian and international groups, including stock exchanges, regulators, standard setters, and more, have issued guidance on approaches to good corporate governance.
One such group is the TSX. Current requirements in Canada for public companies are set out in Section 474 of the TSX Company Manual and in Policy 3.1 of the TSX venture. The TSX also has published a brochure entitled "Corporate governance - A guide to good disclosure" which is available on the TSX web site.
The CSA (Canadian Securities Administrators) is another such group. In response to the rulemaking activities that resulted from the United States' Sarbanes-Oxley Act, the CSA recently finalized its rule on Audit Committees. We address this in the Investor Confidence section of our website.
In addition, the CSA has issued a proposed policy on corporate governance, Proposed Multilateral Policy 58-201 - Effective Corporate Governance". The CSA states the purpose of the policy as follows: (The full text is available in the Ontario Securities Commission (OSC) website)
...to confirm as best practice certain governance standards and guidelines that have evolved through the confluence of legislative and regulatory reforms and the initiatives of other capital market participants. In developing the policy, we recognize that our Canadian approach to corporate governance must:
- achieve a balance between providing protection to investors and fostering fair and efficient capital markets and confidence in capital markets;
- be sensitive to the realities of the greater numbers of small companies and controlled companies in the Canadian corporate landscape;
- take into account the impact of developments in the U.S. and around the world; and
- recognize that corporate governance is in a constant state of evolution.
The major recommendations of the proposed policy are:
- Independence of the majority of the board members
- A written mandate for the board
- Development of clear position descriptions for directors
- Orientation and continuing education for all directors
- A written code of business conduct and ethics
- A nominating committee should be appointed
- A compensation committee should be appointed
- Regular assessment of the board's independence by the board itself
Effective audit committees are, however, not merely creatures of government and industry-sponsored initiatives. There are other persuasive reasons for boards of directors to perform effectively their oversight role in ensuring reliable financial reporting and maintaining investor confidence (for example, avoiding class action lawsuits and criminal prosecution, and preventing the delisting of the company's stock that may result from financial fraud). In order to form and run an effective audit committee, you should know about:
If you would like more detailed information on Corporate Governance, please provide us your mailing address at publiccompanies@bdo.ca and we will send you a copy of BDO's "Corporate Governance - Guide to Forming and Running an Effective Audit Committee" publication.
