Climate change disclosure gets its day in the sun

The Canadian Securities Administrators will review TSX-listed issuers’ disclosure of the material risks and financial impacts associated with climate change and related governance processes as part of a disclosure review project announced on March 21, 2017. The CSA will also consult with reporting issuers through focus groups and an anonymous online survey and will review the related international disclosure requirements and voluntary frameworks. The review project is intended to be conducted in spring and summer of 2017 with a progress report being published shortly thereafter.

The CSA’s disclosure review project follows the December 2016 publication of a set of disclosure recommendations by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures and investor requests for improved disclosure in respect of climate change risks and impacts. Currently, Canadian reporting issuers are required to disclose material risks in their continuous disclosure, which may include risks associated with climate change and other environment-related matters, as applicable. Guidance in respect of these disclosure obligations as they specifically relate to environmental reporting was previously published in CSA Staff Notice 51-333 Environmental Reporting Guidance (October 27, 2010).

For more information please see “Canadian securities regulators announce climate change disclosure review project” (March 21, 2017) and the CSA’s Backgrounder: CSA climate change disclosure review project

TSX publishes guidance on advance notice policies

The Toronto Stock Exchange (TSX) has reviewed 25 randomly selected advance notice policies adopted by TSX-listed issuers and has identified a number of its concerns in a Staff Notice published on March 9, 2017. The Staff Notice acknowledges the underlying reasons for the adoption of an advance notice policy but suggests that certain provisions in advance notice policies are not consistent with the stated objectives of the TSX rules related to director elections, including specifically where policies require the nominating security holder to:

  • Attend the meeting at which his or her nominees is standing for election.
  • Provide unduly burdensome or unnecessary disclosure.
  • Complete a TSX personal information form, unless otherwise generally required to be completed by management and board nominees.
  • Complete a questionnaire, make representations, submit an agreement or provide written consent, unless otherwise generally required from management and board nominees. 
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TSX issuers asked to review majority voting policies after spot-check finds flaws

Majority voting policies of Toronto Stock Exchange (TSX) listed issuers are under the spotlight following a TSX review of 200 randomly selected policies. In a Staff Notice published on March 9, 2017, the TSX pinpointed a number of issues that TSX considers are deficiencies in the reviewed policies, including:

  • The identification of factors as “exceptional circumstances” in a manner inconsistent with TSX’s stated policy objectives of majority voting;
  • A failure to require immediate director resignation and/or to establish a time frame within which resignation must be accepted; and
  • The inclusion of additional language that serves to circumvent the policy objectives of majority voting.

In response to these deficiencies, the Staff Notice outlines the TSX’s expectations as to how listed issuers are to comply with the majority voting requirement:

  • Issuers are expected to ensure that majority voting policies have the effect of requiring a director to tender his or her resignation immediately if he or she is not elected by a majority of votes cast.
  • Majority voting policies must state that the issuer’s board will accept the resignation within 90 days, absent exceptional circumstances (and only reference to “exceptional circumstances” is acceptable by the TSX).
  • “Exceptional circumstances” are not reoccurring events and do not include a director’s length of service, qualifications, attendance at meetings, experience or contributions to the issuer.
  • Where the TSX Company Manual requires that a director who has tendered his or her resignation abstain from participation in any meeting of the board where that resignation is considered, the director should not be in attendance at such meeting (except where necessary to satisfy quorum requirements).
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Board Diversity in the spotlight

In light of March 8 being International Women’s Day, we thought it would be fitting to recap highlights from Stikeman Elliott’s inaugural event held earlier this year to launch its Board Diversity initiative. Stikeman Elliott was delighted to host corporate directors Patrice Merrin, Thecla Sweeney and Jennifer Reynolds at the “Spotlight on Board Diversity” event. After outlining the existing “comply or explain” regime and steps companies are taking to increase diversity on their boards, Stikeman Elliott counsel Raman Grewal joined our panelists for an insightful and candid discussion moderated by Stikeman Elliott partner Samantha Horn. A few highlights from their conversation:

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Quebec AMF revisits proposal for "hedger" certification and proposes counterparty "hedger" identification requirement

On February 1, 2017, the Autorité des marchés financiers (AMF), Quebec’s financial markets regulator, published proposed amendments to the Derivatives Regulation  the Proposed Amendments made under the Derivatives Act (Quebec) (QDA).  The proposals are open  for comments for a period of 30 days to March 4, 2017. 

The Proposed Amendments include a new requirement that  an “accredited counterparty” which engages in an OTC derivatives transaction with a hedger who does not otherwise qualify as an “accredited counterparty” provide prescribed identification information on the hedger to the AMF within 30 days after the end of the quarter in which the transaction was completed.  

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ASC plans to explore the creation and implementation of a whistleblower program

Julien Robitaille-Rodriguez - 

A whistleblower program may be part of a comprehensive compliance and enforcement regime that the Alberta Securities Commission (ASC) recently proposed as part of its three-year Strategic Plan (the Plan).

The intention of the Plan, which sets out the ASC’s priorities to 2020, is to better position the regulator “to react to Alberta’s changing economic environment, while upholding a regulatory framework where capital markets can thrive and where there is strong investor protection against market misconduct”. As part of this effort, the ASC will “explore the creation and implementation of a whistleblower program, designed to motivate individuals to report information about serious violations of Alberta securities law”. 

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Expectations for cyber security risk disclosure published by CSA

Vanessa Coiteux and Jérémie Ste-Marie - 

The results of the Canadian Securities Administrators’ (CSA) review of the cyber security risk disclosure of S&P/TSX Composite issuers were recently reported by the the Autorité des marchés financiers, the Ontario Securities Commission and the British Columbia Securities Commission in CSA Multilateral Staff Notice 51-347 (the Notice). Focused particularly on risk factor disclosure and disclosure of cyber security incidents, the CSA’s review follows last year’s publication of CSA Staff Notice 11-332 Cyber Security, which reiterated that cybersecurity would continue to be one of the CSA’s priorities through 2019.

Risk Factor Disclosure

With respect to risk factor disclosure, the CSA focused on three topics:

  • the disclosure of the risk itself,
  • the disclosure of potential impacts of a cyber security incident, and
  • the disclosure of governance practices and cyber security risk mitigation.
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All bets are off: Quebec AMF moves to ban short-term binary options

On February 1, 2017, the Autorité des marchés financiers (AMF), Quebec’s financial markets regulator, published proposed amendments to the Derivatives Regulation (the Proposed Amendments) made under the Derivatives Act (Quebec) (QDA). The proposals are open for comments for a period of 30 days to March 4, 2017.

The Proposed Amendments include a prohibition that would effectively ban the sale of short-term binary options in the Quebec market. The proposal, if adopted, would prohibit the sale to a Quebec-resident individual of a binary option or derivative where:

  • the holder is entitled, at maturity, to either a predetermined fixed yield if the underlying interest meets a predetermined condition, or a zero yield if the underlying interest does not meet a predetermined condition;
  • the holder cannot buy or sell the underlying interest; and
  • maturity is less than 30 days.
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Regulations for CBCA's New Diversity, Majority Voting and Notice-for-Access Provisions Released

Laura Levine and Alethea Au - 

The Government of Canada has released proposed regulations to accompany the proposed amendments to the Canada Business Corporations Act under Bill C-25 (discussed here). These proposed regulations add detail to Bill C-25’s three major themes:

  • Diversity disclosure;
  • Majority voting in uncontested director elections; and
  • Internet-based provision of meeting materials to shareholders (notice-and-access).

The proposed regulations were published on December 13, 2016 and will not come into effect until Bill C-25 itself takes force (it has passed second reading). As noted in our previous post, Bill C-25 is primarily an effort to bring the CBCA into alignment with recent developments in Canada’s securities laws and stock exchange rules.

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Board Diversity Series: Voices of proxy advisers and other influencers

Amanda Linett and Cheryl De Los Santos - 

Proxy advisers such as Institutional Shareholders Services (ISS) and Glass Lewis have started to respond to the changes in corporate governance relating to gender diversity, and to encourage further development. While neither ISS nor Glass Lewis have taken any specific positions on gender diversity, their approaches do signal growing support for board diversity and renewal. In its 2017 Proxy Season Guidelines (2017 Guidelines), Glass Lewis notes that “nominating and governance committees should consider diversity when making director nominations within the context of each specific company and its industry” and that “shareholders are best served when boards make an effort to ensure a constituency that is not only reasonably diverse on the basis of age, race, gender and ethnicity, but also on the basis of geographic knowledge, industry experience, board tenure and culture.”However, with respect to the term and age limits, Glass Lewis has maintained in its 2017 Guidelines that rather than relying solely on age or tenure limits, boards should evaluate whether changes in board composition are necessary based on an analysis of the company’s desired skills and experience, as well as the results of director evaluations. Glass Lewis reiterates that director experience is a valuable asset to shareholders but supports the routine evaluation of directors and periodic board refreshment. Glass Lewis continues to believe that, once adopted, a term limit should not be waived. Consequently, it will consider recommending that shareholders vote against members of nominating and/or governance committees where such a waiver has been granted without a reasonable explanation.

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Keep Calm and Carry On - InterOil and Smoothwater

Sean Vanderpol -

There are, generally speaking, relatively few judicial decisions touching on the practical aspects of M&A law in Canada, particularly when compared to the output of the Delaware courts.  In November, however, we saw decisions out of the Yukon Court of Appeal (through the British Columbia Court of Appeal acting as the appellate court for the Supreme Court of Yukon) in InterOil, and the Alberta Court of Appeal in Smoothwater, that touched on important considerations relating to change of control transactions, particularly transactions progressed by way of a judicially-sanctioned “plan of arrangement”.  While unlikely to substantially alter the “best practices” for boards of directors of target companies in the discharge of their fiduciary duties, they do serve as a reminder of the importance of careful and thoughtful attention to the discharge of those duties and the potential hurdles that buyers and sellers can face in trying to bring their transactions to completion.  

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Board Diversity Series: Developments in gender diversity on Canadian boards

 Alethea Au and Cara Cornacchia - 

Catalyst’s recommendations for accelerating progress

The Government of Ontario engaged Catalyst, a non-profit organization aimed at expanding opportunities for women in business, to measure the movement in the representation of women on boards and in executive officer positions in Canada, to identify the best practices from around the world, and to recommend strategies for accelerating progress. As a supplement to the review under the CSA Multilateral Staff Notice 58-307 (the 2015 Staff Notice), the Catalyst Report has released some bold recommendations with a view to further stimulating the dialogue on the issue. 

Catalyst contrasted global shifts in technology, the growth of emerging markets, aging populations, and the rapid pace of change with Canada’s slow progress in the areas of productivity and innovation to highlight the need for accelerated progress. To ensure Canada maintains a high-performing economy, Catalyst notes the following:

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Board Diversity Series: Results of Canadian initiatives for gender diversity on boards

Laura Levine and Anne Weintrop - 

In September 2016, certain members of the CSA released CSA Multilateral Staff Notice 58-308[i], a comprehensive survey of 677 issuers listed on the TSX that reviewed the impact of the mandatory disclosure requirements two years after their implementation.[ii] Some of the more notable results from the review include the following:

  • 55% of issuers had at least one woman on their board, a 6% increase over 2015;
  • 10% of issuers had added one or more women to their board in the past year, as compared to 15% reported in 2015;
  • 12% of the total board seats in the sample were occupied by women;
  • 59% of issuers that disclosed executive officer information had at least one woman in an executive officer position;
  • The utilities and retail industries had the fewest boards with no women on them at 18% and 21%, respectively, and the mining, oil and gas and technology industries had the most issuers with no women on their boards at 62%, 60% and 48%, respectively;
  • 21% of the issuers had adopted a policy on the identification and nomination of women directors as compared to 15% in 2015,
    • this rate was 22% for issuers with market capitalizations of $2-$10 billion and 25% for issuers with market capitalization of over $10 billion; and
  • 20% had adopted director term limits (of which 48% included age limits, 23% had tenure limits and 29% had both).
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ISS and Glass Lewis publish updates to voting policies for 2017 proxy season

 Katy Pitch and Martin Langlois - 

Institutional Shareholder Services (ISS) and Glass Lewis have updated their respective proxy voting guidelines for the upcoming 2017 shareholder meeting season. While Glass Lewis has published its fully updated 2017 Proxy Paper Guidelines, ISS has published a summary of its key updates and intends to release a complete set of updated policies in December 2016.

The following are significant highlights of the changes to ISS’ and Glass Lewis’ policies relevant to Canadian companies:

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CSA announces cyber security roundtable

The Canadian Securities Administrators (CSA) will hold a roundtable on February 27, 2017 to discuss issues related to cyber security and opportunities for greater collaboration, communication and coordination in the event of a cyber security incident. The announcement of the roundtable follows the CSA’s recent publication of CSA Staff Notice 11-332 Cyber Security which, as previously discussed, highlights the importance of cyber risks, promotes cyber security awareness, preparedness and resilience in Canadian capital markets, and communicates general expectations for market participants.

For further information, please see the CSA’s November 17, 2016 News Release.