CSA Provides Guidance on Corporate Governance Disclosure

The Canadian Securities Administrators (CSA) recently released the results of its review of compliance with corporate governance disclosure requirements by certain issuers and provided guidance on compliance with these requirements, with a focus on the areas of concern identified in that review.

In CSA Staff Notice 58-306 2010 Corporate Governance Disclosure Compliance Review (Staff Notice), published on December 2, 2010, the CSA provided the results of its review of certain issuers’ compliance with the requirements of National Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101) in the issuers’ most recently filed management information circulars. This review was conducted to build on the results of the CSA’s 2007 compliance review of corporate governance disclosure, outlined in CSA Staff Notice 58-303 Corporate Governance Disclosure Compliance Review.

Over half of the 72 issuers reviewed were required to make enhancements to their future corporate governance disclosure. The CSA noted that although issuers have made improvements in their efforts to comply with corporate governance disclosure requirements since its 2007 review, further improvements are needed. In particular, the CSA identified deficiencies with respect to: independence of directors; position descriptions for chairs and CEOs; orientation and continuing education programs offered to directors; compliance with codes of ethics; nomination procedures for new directors; and assessments.

The general view expressed by the CSA in the Staff Notice is that it expects detailed and specific answers which have been tailored to respond to the particular question, rather than "boilerplate" language.

Issuers should review their own corporate governance disclosure and take note of the suggestions offered in the Staff Notice when preparing their disclosure this year.

Drafting Tips for TSX-Listed Issuers

A review of the Staff Notice suggests that issuers should keep the following tips in mind when drafting this year’s corporate governance disclosure.

Tips for TSX-Listed Issuers

TSX-listed issuers must comply with the disclosure requirements in Form 58-101F1 Corporate Governance Disclosure.

Board of directors

  • When disclosing the identities of non-independent directors, disclose the basis for the determination that they are not independent. Even if it seems obvious that the director is not independent because of his or her position with the issuer, the relationship should be explicitly noted.
  • If the independent directors regularly hold meetings at which non-independent directors and managers are not in attendance, describe the frequency of such meetings and the number of such meetings held in the last year.
  • If the independent directors do not hold private meetings, describe how the board facilitates open and candid discussion among the independent directors. For example, disclose if there are:
    • opportunities for independent directors to attend ad hoc board or committee meetings in which non-independent board members and managers are not present, whether the independent board members take advantage of this opportunity and, if so, how often this occurred in the last year; and
    • circumstances during meetings in which non-independent directors, managers and guests are asked to leave for a portion of the meeting while the independent directors go in-camera to discuss a particular issue and, if so, how often this occurred in the last year.
  • If the chair of the board is not an independent director, disclose this fact and either (i) disclose that a lead independent director was appointed and how the board empowers the lead independent director to provide leadership for the independent directors (e.g., by setting board agendas, chairing meetings of the independent directors or reviewing requests made by other independent directors); or (ii) if a lead independent director was not appointed, disclose how the board facilitates leadership for its independent directors.

Position descriptions

  • If position descriptions exist for the chair of the board, the chair of each committee of the board and the CEO: (i) state that a written description exists that sets out the position’s duties and responsibilities; (ii) provide a link to or copy of the position description; and (iii) describe how the description was created, who reviews it and how often it is reviewed.
  • If such written descriptions do not exist, explain why they do not exist and provide a brief summary of the roles and responsiblities of each position. The CSA noted in the Staff Notice that it is not sufficient to state that the issuer relies on a mutual understanding of these roles and responsibilities.

Orientation and continuing education

  • State whether or not the issuer has formal orientation and continuing education programs for the directors.
  • Provide details regarding the orientation program’s content and how it is delivered. Outline the types of continuing education programs provided to directors, including a description of the subject matter, duration and frequency of such programs.
  • If formal programs are not offered, describe what measures the board takes to ensure that directors maintain the required skill and knowledge.

Ethical business conduct

  • When disclosing that the issuer has adopted a code of business conduct and ethics, describe how a person may access a copy of the code and describe the procedures the issuer has implemented to monitor compliance with the code or how it satisfies itself regarding compliance with the code.

Nomination of directors

  • In addition to disclosing that the issuer has a process in place to identify new candidates, describe that process (regardless of whether or not it is a formalized process). The following are some questions to consider when preparing this disclosure:
    • Who leads the candidate search process and what is their mandate?
    • Are gaps in the board’s composition or expertise considered before seeking out candidates? Does the board consider diversity of experience, background and views when considering a candidate?
    • Is there a formalized nomination process? Are nominations sought from a wide array of stakeholders? Are self-nominated candidates considered? What role, if any, does the CEO play in the nomination process?
    • Are criteria established in respect of the competencies, skills and characteristics, and expertise that each candidate would bring to the board? What are these criteria?


  • Disclose whether assessments of the board, its committees and its individual directors are conducted. If so, describe the process used to conduct assessments and discuss how often the assessments are conducted. If not, describe how the board satisfies itself that the board, its committees and its individual directors are performing effectively.

Drafting Tips for TSX Venture Issuers

  • TSX Venture Issuers must comply with the disclosure requirements in Form 58-101F2 Corporate Governance Disclosure (Venture Issuers).
  • When discussing how the board of directors facilitates its exercise of independent supervision over management, in addition to disclosing the identities of independent and non-independent directors, also consider disclosing:
    • whether the board operates in an independent manner, generally, from management;
    • whether the board meets regularly without the presence of management;
    • and director; lead independent an is there whether independent, not chair the and separated are CEO of positions>
    • whether the board has free access to the issuer’s external auditor, legal counsel and officers.
    • If the board has standing committees other than the audit, compensation and nominating committees, in addition to identifying such other committees, provide details regarding their functions.

Drafting Tips for Risk Management Disclosure

The CSA made specific comment in the Staff Notice regarding risk management disclosure. The Staff Notice notes that there have been intensified concerns about risk management, auditing and fraud detection and corporate governance, and that boards and other market participants are receiving increased scrutiny regarding their risk management practices. The following drafting tips can be derived from a review of the guidance in the Staff Notice regarding risk management disclosure.

  • Disclosure regarding oversight and management of risks should indicate the board’s responsibility for such oversight and management, and should identify any board and management-level committee to which responsibility for such oversight and management has been delegated.
  • Discuss how the issuer integrates risk oversight and management into its strategic plan. Identify significant elements of risk management, including policies and procedures to manage risk; and how the board assesses the effectiveness of risk management policies and procedures.

We would be pleased to assist you in the preparation of your corporate governance disclosure for this year, or to provide further advice regarding the Staff Notice or other guidance previously issued regarding corporate governance disclosure requirements.