Canuck governance changes

What huge country with a small multi-cultural, mainly English speaking (sort of) population, a commodity based economy, an oligopoly of banks that survived the GFC with hardly a scratch, a high standard of living, a foreign Queen, and is generally considered well-governed and is not regulating to require more of company boards?

That’s right, Australia.

At the other end of the world, however, corporate governance in Canada is headed for a makeover, even if not of the extreme kind. This has relevance for Australia, given that several Canadian incorporated entities are listed on the ASX. So it may be only a matter of time before the chairmen of Australian incorporated gold mining or energy companies have to stop looking over their shoulders and wondering how their colder cousins get away with it.

Canada’s new governance regulations propose to mandate some changes already practiced by many of its “better” companies, including majority shareholder voting and annual director elections.

Canucks have tended to not see a need for governance changes, perhaps because they have not existed in their big next-door neighbour. But, it looks like they figure better governance is a comparative advantage?

After all, Canada wants to retain its record of beating the US when it counts (that is, ice hockey and war – remember 1812)

The Canadians are also are going for better disclosure on diversity among directors and senior management.

A majority vote standard means shareholders can have the option to vote “for” or “against” rather than “for” or “withhold,” as is the case in the current plurality standard.

Some readers may be surprised that North American companies do not require majority director voting. The (typically) executive chairman has his or her mates on the board to nominate more mates as directors. At present, they can get elected with less than 50% of shareholders approving. One vote will do it.

Hence, the average tenure of a North American listed company director greatly exceeds that of Australian and UK directors. And, their boards are, generally, larger. Who would voluntarily give up such a sinecure if they are not going to be challenged?

To be fair, though, the TSX imposes some of these requirements via its listing rules.

The Canadian bill has had a first reading in Parliament. The bill proposes to amend the federal law that regulates corporations, the Canada Business Corporations Act. It will be a few months before the legislation is finalised.

Legislators are likely to refine the bill as it travels through Parliament, and it is still unclear whether an existing “comply or explain” model, in which companies have to justify a lack of disclosure, will prevail or if there will be stricter rules.

Missing from the proposed rules are say-on-pay provisions, something largely absent from Canadian corporate governance and the shareholders’ right to nominate a director.

© Guerdon Associates 2024
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