Professional Documents
Culture Documents
Your responsibilities
TSX requires all listed companies to disclose their corporate
governance practices each year in their annual report or their
management information and proxy circular. To comply with
this TSX requirement, you must fully and completely
describe your system of corporate governance and compare
your practices against each of the 14 guidelines set out in
Section 474 of the TSX Company Manual. When comparing
your practice to a guideline, you need to explain:
• how your practice complies with the guideline, or
• how your practice differs from the guideline and why, or
• why the guideline doesn’t apply to you.
TSX only requires you to explain your practices, not to adopt
the practices in the guidelines.
Some of the guidelines may not apply to your company or
your practices may differ from those set out in the
guidelines. If you haven’t complied with a guideline, you can
still provide a thorough description of your actual practice.
In fact, disclosure may be more important in these
situations. For investors to be confident about your
practices, you need to explain what you are doing and why
you believe that your practices are appropriate.
Good disclosure effectively communicates detailed $15,000 in common shares, cash or a combination of
information about your system of governance. By addressing both common shares and cash, and
each of the 14 guidelines, you will describe: • stop granting options to directors under the
• the duties, expectations and objectives of your board Company’s Stock Option Plan.
of directors and committies
The Committee believes these changes will further align
• the composition of your board of directors the directors’ interests with the interests of shareholders.
• how you ensure that you take the interests of minority
shareholders into account Example 2 meets TSX expectations by discussing the
adequacy and form of compensation and what the
• the structures and processes in place to make sure the committee considered in making its recommendations.
board functions independently of management The information provided goes beyond the guideline
• how the board tries to enhance its performance; for requirements. It gives specific details about requirements
example, by assessing the performance of the board, its for director share ownership, the form of compensation
committees and individual directors and recent changes to director compensation. To ensure
• how you deal with shareholders’ concerns and feedback. investors have all available information about director
compensation without repeating it, the company refers
We encourage you to go beyond the guidelines and include
readers to another section in its circular.
other useful information about your corporate governance
practices. If your approach differs from the practice set out in a
guideline, you still need to describe it fully, and explain how
To demonstrate what TSX considers good and bad disclosure,
your system differs from the practice. If the practice set out
consider the following two examples. Both examples
in a guideline doesn’t apply to your company, you must
technically meet the TSX disclosure requirement for Guideline 8,
explain why.
however only one is an example of good disclosure.
In the example below, the practice set out in guideline 4
Guideline 8 states:
doesn’t apply to the company.
The board of directors should review the adequacy and
Guideline 4 states:
form of the compensation of directors and ensure the
compensation realistically reflects the responsibilities and The board of directors of every corporation should appoint
risk involved in being an effective director. a committee of directors composed exclusively of outside,
i.e., non-management, directors, a majority of whom are
Example 1 – Poor disclosure unrelated directors, with the responsibility for proposing to
The board of directors reviews the adequacy and form the full board new nominees to the board and for assessing
of the compensation of directors and ensures that the directors on an ongoing basis.
compensation realistically reflects the responsibilities
and risk involved in being an effective director. Example 3 – Good disclosure
Given the current size of the company and number of
While Example 1 addresses the guideline, the disclosure just
employees (12), the board of directors believes its current
repeats the guideline wording. Readers receive no insight
size and composition (four directors, three outside and
into how the board arrived at the decision about the level
unrelated) is appropriate. The company has not created
and suitability of the directors’ compensation.
a nominating committee. All members of the board can
Example 2 – Good disclosure suggest individuals for nomination to the board. Each
director interviews each nominee separately and a final
The Corporate Governance Committee reviews the
decision is made at the board meeting. Again, given the
amount and the form of director compensation.
small board size, no formal assessment of the board or
Recommendations to the board for changes take into
individual directors takes place.
consideration the time commitment, risks and
responsibilities of directors. The Committee also Example 3 complies with the disclosure requirements for
reviews the board compensation at peer companies. Guideline 4, even though the company hasn’t adopted the
As disclosed in the section Directors’ Compensation on practice set out in the guideline. The disclosure clearly
page 7 of this circular, the board decided, based on the explains to investors how the company’s nomination
Committee’s recommendation, to: process is carried out.
• require each director to own $50,000 of common
shares within 5 years of appointment to the board
• allow directors to take their annual board retainer of
GUIDELINE 1
Stewardship of the company
The board of directors of every corporation should explicitly assume E X A M P L E O F G O O D D I S C LO S U R E
responsibility for the stewardship of the corporation and, as part of the The mandate of the board is to supervise the
overall stewardship responsibility, should assume responsibility for the management of the company and to act in
the best interests of the company. The board
following matters:
acts in accordance with:
Required disclosure: For enhanced disclosure, you can: • the Canadian Business Corporations Act
• discuss whether the board assumes • explain what the board expects • the company’s articles of incorporation
responsibility for: of management and by-laws
– overseeing the operation • state whether you have adopted • the company’s code of business conduct
of the business and a code of business ethics or • the charters of the board and the
business conduct board committees
– supervising management. • include a copy of the code of
• other applicable laws and company policies.
business ethics or business
conduct or tell investors how The board approves all significant decisions
they can obtain a copy that affect the company and its subsidiaries
• discuss the board’s mandate or before they are implemented. The board
charter, or provide a copy of the supervises their implementation and reviews
mandate or charter. the results.
Copies of the company’s code of business
conduct and charters of the board and its
committees can be found on the company’s
web site at www.company.com.
GUIDELINE 1A
Strategic planning process
(a) adoption of a strategic planning process; E X A M P L E O F G O O D D I S C LO S U R E
The board is actively involved in the
Required disclosure: For enhanced disclosure, you can:
company’s strategic planning process.
• discuss whether the board is • state whether this responsibility has
responsible for adopting a process been assigned to a committee The board discusses and reviews all
that sets out the long-term goals of • describe how this process is materials relating to the strategic plan with
the company and the plans to carried out management. The board is responsible for
achieve those goals. • describe the scope of the plan reviewing and approving the strategic plan.
including how it takes into account At least one board meeting each year is
the specific opportunities and risks devoted to discussing and considering the
of the business strategic plan, which takes into account
• disclose if the board approves the the risks and opportunities of the business.
strategic plan
The board also reviews the strategic plan
• discuss whether the board or a
at least quarterly. Management must seek
committee reviews the plan on an
ongoing basis, and how they carry the board’s approval for any transaction
out this review. that would have a significant impact on
the strategic plan.
GUIDELINE 1B
Principal risks
(b) the identification of the principal risks of the corporation’s business and E X A M P L E O F G O O D D I S C LO S U R E
ensuring the implementation of appropriate systems to manage these risks; The board, through the Audit Committee,
is responsible for identifying the principal
Required disclosure: For enhanced disclosure, you can:
risks of the company and ensuring that risk
• discuss whether the board: • describe the principal risks that the
– assumes responsibility for board identified management systems are implemented.
identifying the main risks that • identify the committee, if one is The principal risks of the company are
affect the business responsible those related to the environment, the
– ensures that the right • describe the process that the board company’s industry, derivatives relating
systems are in place to or committee follows to evaluate risk
to raw materials, foreign currencies and
manage these risks. • discuss the structures and
interest rates. The Audit Committee meets
procedures in place to manage risk.
regularly to review reports and discuss
significant risk areas with the internal and
external auditors. The board, through the
Audit Committee, ensures that the
company adopts risk management
policies.
GUIDELINE 1C
Succession planning
(c) succession planning, including appointing, training and E X A M P L E O F G O O D D I S C LO S U R E
monitoring senior management; The board is responsible for choosing the
Required disclosure: For enhanced disclosure, you can: president and CEO, appointing senior
• discuss whether the board assumes • disclose if the board has assigned management and for monitoring their
the responsibilities for: the responsibility for succession performance. The board approves the
– appointing, training and planning to a committee president and CEO’s corporate objectives
monitoring senior management • discuss how frequently the and compensation. The board also ensures
– planning who can replace the succession plan is reviewed that processes are in place to recruit senior
current senior management • describe the succession planning managers with the highest standards of
team. process. integrity and competence, and to train,
develop and retain them. For example, the
board encourages senior management to
participate in professional and personal
development activities, courses and
programs. The board supports
management’s commitment to training
and developing all employees.
GUIDELINE 1E
Integrity of internal control
(e) the integrity of the corporation’s internal control and management E X A M P L E O F G O O D D I S C LO S U R E
information systems. The board, through its Audit Committee,
Required disclosure: For enhanced disclosure, you can: examines the effectiveness of the
• discuss whether the board assumes • disclose if the board has assigned company’s internal control processes and
responsibility for putting in place this responsibility to a committee management information systems. The
appropriate internal control and • describe how the board or committee board consults with the internal auditor
management information systems to reviews internal control and and management of the company to
ensure that it can carry out its management information systems
responsibilities. ensure the integrity of these systems. The
• discuss how frequently the board or
committee reviews these systems. internal auditor submits a report to the
Audit Committee each year on the quality
of the company’s internal control
processes and management information
systems.
GUIDELINE 2
Board independence
The board of directors of every corporation should be constituted with a E X A M P L E O F G O O D D I S C LO S U R E
majority of individuals who qualify as unrelated directors. An unrelated director Of the 15 board members, only John Smith,
is a director who is independent of management and is free from any interest the president and CEO of the company is
and any business or other relationship which could, or could reasonably be an inside director. Two of the fourteen
perceived to, materially interfere with the director’s ability to act with a view to outside directors are related directors. The
the best interests of the corporation, other than interests and relationships board considers that Janet Drake is a
arising from shareholding. A related director is a director who is not an related director because she is a senior
unrelated director. If the corporation has a significant shareholder, in addition executive of a major customer of the
to a majority of unrelated directors, the board should include a number of company. The board considers that Frances
directors who do not have interests in or relationships with either the Jones is a related director because she is a
corporation or the significant shareholder and which fairly reflects the senior executive of a substantial provider
investment in the corporation by shareholders other than the significant of financial services to the company. The
shareholder. A significant shareholder is a shareholder with the ability to company does not have a significant
exercise a majority of the votes for the election of the board of directors. shareholder.
Required disclosure: For enhanced disclosure, you can:
• disclose whether a majority of • describe every relationship between
directors are unrelated directors and the company
• if the company has a significant • describe any relationship between
shareholder, disclose whether directors and the significant
the board includes enough shareholder
directors who: • disclose the status of each director
– don’t have a relationship with (related or unrelated and inside or
the company or the majority outside)
shareholder • discuss the procedures in place to
– can fairly represent the interests take into account the views of
of minority shareholders. minority shareholders.
GUIDELINE 4
Nominating committee
The board of directors of every corporation should appoint a committee of E X A M P L E O F G O O D D I S C LO S U R E
directors composed exclusively of outside, i.e., non-management, directors, a The company does not have a nominating
majority of whom are unrelated directors, with the responsibility for proposing committee. The Human Resources and
to the full board new nominees to the board and for assessing directors on an Corporate Governance Committee is
ongoing basis. responsible for proposing new nominees to
Required disclosure: For enhanced disclosure, you can: the board. All its members are outside and
• whether the board has a nominating • describe the board’s expectations of unrelated directors. This committee is also
committee, or an equivalent new nominees, with respect to time responsible for the ongoing assessment of
committee commitment, attendance and
number of other directorships directors. New nominees must have a track
• whether the nominating committee
includes members of management • discuss the competencies, skills and record in general business management,
• whether the nominating committee other attributes that new nominees special expertise in an area of strategic
has a majority of unrelated directors should have
interest to the company, the ability to
• whether the committee proposes • describe the procedure for
nominating new directors devote the time required, shown support
new nominees to the board
• whether the committee carries out for the company’s mission and strategic
• state whether the board maintains a
an ongoing assessment of directors. list of director candidates. objectives, and a willingness to serve.
GUIDELINE 14
Outside advisers
The board of directors should implement a system which enables an individual E X A M P L E O F G O O D D I S C LO S U R E
director to engage an outside adviser at the expense of the corporation in Directors may hire outside advisers
appropriate circumstances. The engagement of the outside advisor should be at the company’s expense, subject
subject to the approval of an appropriate committee of the board. to the approval of the Corporate
Required disclosure: For enhanced disclosure, you can: Governance Committee. Two
• whether directors can hire • state which committee is responsible individual directors each hired an
outside advisers for giving this approval outside adviser during 2002. One outside
• the system directors use to hire • disclose how frequently directors
advisor was retained to assess the
outside advisers hired outside advisers
• whether the board or a • include examples of when directors effectiveness of the company’s system of
committee approves the hiring of hired outside advisers. internal controls, and the second advisor
outside advisers. was a compensation specialist, hired to
help assess the competitiveness of the
senior management’s compensation.
Inside director
An inside director is a director who is a member of
management.
Management director
A management director is a member of management and
is considered to be a related director.
Outside director
An outside director is a director who is not a member of
management.
Related director
A related director:
• is a member of management or
• has an interest or relationship with the company that
interferes or could be seen to interfere with the director’s
ability to act in the best interests of the company, other
than interests or relationships that result from holding
shares in the company.
Unrelated director
An unrelated director:
• is not a member of management
• doesn’t have an interest or relationship with the company
that could be seen to interfere with the director’s ability
to act in the best interests of the company, other than
interests or relationships that result from holding shares
in the company.
Significant shareholder
A significant shareholder is able to exercise a majority of the
votes for the election of the board of directors.
Corporate governance – A guide to good disclosure An explanation of some terms used in the guidelines 19
How to communicate effectively
Effective disclosure will communicate your approach to corporate governance in a way that readers can easily understand.
Successful business communication has five characteristics: simplicity, brevity, clarity, relevance and a human touch.
Eleanor Fritz at
(416) 947-4541 (eleanor.fritz@tsx.com)
or
Martine Valcin at
(514) 788-2402 (martine.valcin@tsx.com)