Peterson McVicar Blog
Diversity Considerations and Disclosure Requirements for Canadian Public Companies
As regards board and management diversity, the legal requirements and various recommendations pertinent to public companies remain a patchwork and are subject to frequent change. This section will canvas the existing legal and exchange requirements for diversity disclosure, as well as the recently updated proxy-voting guidelines of Institutional Shareholder Services Inc. (“ISS”) and Glass, Lewis & Co. (“Glass Lewis”).
Legal Requirements of Canadian Issuers
All diversity disclosure requirements that have been imposed in Canada by corporate statutes, securities regulators and exchanges remain ‘comply or explain.’ This means that Canadian law imposes no obligation on corporations to specify and meet specific adoption requirements, quotas or increase the diversity of their board of directors and senior management (“Management”). However, if they have not done so, they are required to explain why that is the case.
Canadian diversity disclosure requirements vary along two axes: 1) a corporation’s governing statute, and 2) a corporation’s status as a venture issuer or non-venture issuer under instruments of the Canadian Securities Administrators.
1) Canadian Business Corporations Act versus Provincial Statutes
On January 1, 2020, amendments to the Canadian Business Corporations Act (the “CBCA”) took effect requiring all ‘distributing corporations,’ including venture issuers, governed under the CBCA to provide shareholders with annual information and statistics on the corporation’s diversity polices and practices with respect to their Management. Annual disclosure is to be provided within the annual shareholder meeting notice or proxy circular and filed with Corporations Canada.
All CBCA distributing corporations are required to annually disclose their Management term limits, diversity policies and diversity targets (along with any related statistics) for representation of “designated groups”. The term “designated groups” is defined within the federal Employment Equity Act, going beyond gender diversity to incorporate Aboriginal peoples, persons with disabilities and members of visible minorities into the definition.
The federal government hopes that these new requirements will propel Management-level diversity and it plans to review these regulations after five years to establish further steps to reach diversity objectives as may be determined.
Provincial corporate statutes do not currently impose any diversity disclosure requirements. For public companies governed by these, their diversity disclosure obligations will be wholly determined by their status as venture or non-venture issuers.
2) Requirements of Canadian Securities Regulators: venture versus non-venture issuers
National Instrument 58-101 – Disclosure of Corporate Governance Practices (“NI 58-101”) requires only non-venture issuers to provide annual disclosure in their proxy circular in regard to the representation of women among their Management. This disclosure need not be filed with any government agency.
Venture issuers are exempt from the NI 58-101 diversity disclosure requirement. As such, these issuers will be subject to no diversity disclosure requirements at all if they are not governed by the CBCA.
Proxy-voting Guidelines of ISS and Glass Lewis
ISS and Glass Lewis have recently published their updated Canadian proxy-voting guidelines. The updated Glass Lewis guidelines will apply to shareholder meetings held on or after January 1, 2023, and the updated ISS guidelines will apply to shareholders meetings held on or after February 1, 2023.
1) ISS Guidelines
For companies which make up the S&P/TSX Composite Index, the new ISS guidelines provide generally for a ‘withhold’ vote against the Chair of Nominating Committee (or Chair of the board of directors if no nominating committee or no chair thereof has been identified) where women comprise less than 30% of the board of directors. For TSX-listed companies that are not also S&P/TSX Composite Index constituents, the ISS guidelines provide for a ‘withhold’ vote of the same kind where there are no women on the board of directors.
Furthermore, for meetings which take place on or after February 1, 2024, the ISS guidelines will provide generally for a ‘withhold’ vote of the same kind as above where the board of directors has no apparent racially or ethnically diverse members.
The ISS guidelines provide no general rule for ‘withhold’ votes against directors of venture-listed companies on diversity grounds.
2) Glass Lewis Guidelines
The new Glass Lewis guidelines generally provide for a withhold vote against the Chair of the Nominating Committee of any TSX-listed company the board of which is not at least 30% gender diverse, as well as against the members of the Nominating Committee where the board has no gender diverse directors.
For venture-listed issuers, the Glass Lewis guidelines continue to provide for a minimum of one gender diverse director.
New Canadian and Foreign Cryptocurrency Exchanges Registration Requirements
Following amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019, effective June 1, 2020, Canada’s Finance Department requires that all Canadian and foreign cryptocurrency exchanges register with the Financial Transactions and Reports Analysis Centre of Canada (“FinTRAC”) and implement a full compliance program, as the definition of Money Service Bureaus will be expanded to include domestic and foreign businesses that are ‘dealing in virtual currency’ – virtual or cryptocurrency exchange services and value transfer services.
Exchanges will also be required to observe ‘Know Your Customer’ policies and report any suspicious transactions to FinTRAC: entities receiving $10,000 or more in cryptocurrency in deposit or any form of payment, would have to meet record keeping, identification, and reporting obligations.
According to the Finance Department, the goal of these amendments is to close the gaps which exist in Canada’s Anti-Money Laundering and Terrorist Financing Regime by addressing the inherent vulnerabilities in cryptocurrencies. These amendments have been targeted not at cryptocurrencies themselves but at the entities engaged in the business of dealing in cryptocurrencies, so as to not unduly hinder innovation while still coinciding with the existing legal framework.
Harmonized Pre-File Review of Prospectuses
The Canadian Securities Administrators (the “CSA”) published on March 5, 2020 Staff Notice 43-310 –Confidential Pre-File Review of Prospectuses (for non-investment fund issuers) setting out a harmonized process for issuers to submit prospectuses for confidential review by securities regulators prior to public filing – providing issuers with greater flexibility and certainty in planning offerings. The new program has superseded existing pre-file review policies in the jurisdictions that offer them
The program will benefit non-investment fund issuers conducting prospectus offerings, particularly initial public offerings and marketing for an offering, as the earlier identification of material issues can lead to a significant portion of the regulatory review being completed on a confidential basis and fewer delays receipting the prospectus and closing the offering.
Overview of the Process
The pre-filed prospectus process is available to any non-investment fund issuer intending to file a long form prospectus, short term prospectus and base shelf prospectus, with reviews generally being conducted by the issuer’s principal regulator.
The pre-filed prospectus should be of the same form and quality expected in a publicly filed prospectus and the underwriters should have substantially completed their review of the prospectus before pre-filing.
The pre-filed prospectus should contain the disclosure required under securities law (including financial statements), include the terms and conditions of the offering and any related transactions, an estimate of price of the securities and other information derived from that price.
Filers can expect that first comments will be received on a pre-filed prospectus within 10 working days of receiving it, subject to the filing’s complexity and the quality of the issuer’s disclosure.
The pre-filed prospectus process is not available for non-offering prospectuses or prospectuses filed solely to qualify the issuance of securities on the conversion of convertible securities (such as special warrants).
Majority Voting Requirements for CBCA Companies
On August 31, 2022, amendments to the CBCA came into effect which impose majority voting requirements on distributing corporations governed thereby (the “Amendments”). Corporations listed on the TSX have been subject to the similar majority voting requirements of that exchange since 2014. As such, these amendments will have the greatest effect on federally incorporated issuers which are listed on the TSX Venture Exchange, the NEO Exchange, or the Canadian Securities Exchange.
Prior to the Amendments, directors under the CBCA could be elected as part of a slate and for a term of up to three years. In uncontested elections, shareholders could vote ‘for’ directors or choose to withhold their vote. The result was that a single vote in favour of an unopposed candidate would suffice to elect them.
As of August 31, 2022, the following rules apply to distributing corporations under the CBCA:
- Each elected director shall hold office for a term ending not later than the close of the next annual meeting (s 106(3.1))
- Each candidate must be voted upon and elected individually (s 106(3.3))
- Where a director candidate is running unopposed, the number of votes cast in their favour must represent a majority of the votes cast for or against them, else they will not be elected (s 106(3.4))
Items to Be Filed on TSX-listed Issuers’ Websites
The Toronto Stock Exchange Company Manual (the “Manual”) requires all issuers listed on the Toronto Stock Exchange, except for those falling within a few narrow exceptions, to make available on their website their current, effective constating documents and, if adopted, certain corporate policies and corporate governance documents.
All affected issuers must make the following documents easily identifiable and accessible from either the home page or an investor relations page of their website:
- Article of incorporation, amalgamation, continuation or any other constating or establishing documents of the issuer
- The by-laws of the issuer
The following policies must be made readily available in the same fashion as above, if the issuer has adopted such:
- Any majority voting policy
- Any advance notice policy
- Position descriptions for the chairman of the board and the lead director
- Any Board mandate
- Any Board committee charter
Finally, National Instrument 58-101 – Disclosure of Corporate Governance Practices requires any adopted code of business conduct and ethics to be filed on SEDAR. It is prudent for issuers to make any such code available on their website as well, though there is no legal requirement that they do so.
New Ontario Transparency Register Requirement for Private Companies
The Toronto Stock Exchange Company Manual (the “Manual”) requires all issuers listed on the Toronto Stock Exchange, except for those falling within a few narrow exceptions, to make available on their website their current, effective constating documents and, if adopted, certain corporate policies and corporate governance documents.
All affected issuers must make the following documents easily identifiable and accessible from either the home page or an investor relations page of their website:
- Article of incorporation, amalgamation, continuation or any other constating or establishing documents of the issuer
- The by-laws of the issuer
The following policies must be made readily available in the same fashion as above, if the issuer has adopted such:
- Any majority voting policy
- Any advance notice policy
- Position descriptions for the chairman of the board and the lead director
- Any Board mandate
- Any Board committee charter
Finally, National Instrument 58-101 – Disclosure of Corporate Governance Practices requires any adopted code of business conduct and ethics to be filed on SEDAR. It is prudent for issuers to make any such code available on their website as well, though there is no legal requirement that they do so.
The New Critical Mineral Exploration Tax Credit
The 2022 federal budget introduced a new Critical Mineral Exploration Tax Credit of 30% (“CMETC”) for eligible exploration expenses on the following specified minerals used in the production of batteries and permanent magnets: copper, nickel, lithium, cobalt, graphite, rare earth elements, scandium titanium gallium, vanadium, tellurium, magnesium, zinc, platinum group metals and uranium. The CMETC applies to expenditures renounced under eligible flow-through share agreements entered into after April 7, 2022 and on or before March 31, 2027.
For exploration expenses to be eligible for the CMETC, a “qualified person” under National Instrument 43-101 – Standards of Disclosure for Mineral Projects musts certify that the expenditures that are intended to be renounced to flow-through share investors will be incurred as part of an exploration project that targets primarily the specified minerals. The Canada Revenue Agency has prescribed a form for this certification, which is available online.
If the qualified person cannot demonstrate that there is a reasonable expectation that the minerals targeted by the exploration are primarily specified minerals, then the related exploration expenditures would not be eligible for the CMETC. Any credit provided for ineligible expenditures can be recovered from the flow-through share investor that received the credit.