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Disclosure requirements regarding the representation of women on boards and in senior management adopted in Alberta

The Adoption

On December 15, 2016 the Alberta Securities Commission (ASC) adopted amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101) and Form 58-101F1 Corporate Governance Disclosure (together with NI 58-101, Amendments

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Canada has proven to provide fertile ground for shareholders activism, in part due to a regulatory landscape that could be viewed as more shareholder friendly than some other jurisdictions. As a result, it is perhaps not surprising that activists have achieved significant success in Canada in recent years. It is apparent that shareholder activism is

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Where does one draw the line between personal and business? It’s a timeless question, and was also the subject at issue in Koh v Ellipsiz Communications Ltd., 2016 ONSC 7345 (Koh), decided by the Ontario Superior Court of Justice on November 28, 2016.

The facts of the case are these: Ellipsiz Communications

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As noted in the Globe and Mail’s recent article, “In Canada’s boardrooms, activist investors are striking out” (subscription to the Globe and Mail required), Canadian listed public companies have continued to have success against activist investors. In fact, since January 1, 2015, Canadian listed issuers have a perfect record against “professional” activists in formal proxy contests, having won all six such contests to make changes to the board which were initiated by hedge funds or institutional investors. This success may be driven, at least in part, by issuers’ increased emphasis on advance preparation, including shareholder engagement. If issuers are more attuned to the views of their shareholders, it stands to reason that they will be in a better position to assess the likelihood of successfully defending against an activist in a formal proxy contest and pre-emptively settle those situations that they do not believe they can win. This explanation, while compelling, may be incomplete. With that in mind, I offer the following five observations based on a review of the public record of unsuccessful contests recently initiated by “professional” activists.


Continue Reading Canadian Issuers Continue To Have Success Against Activist Investors

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Bill C-25: Major changes proposed to director elections and other governance matters for CBCA reporting issuers

On September 28, 2016, the federal Minister of Innovation, Science and Economic Development introduced Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act, and the Competition Act. Bill C-25, if enacted, would result in sweeping changes to the corporate governance regime for reporting issuers incorporated under the Canada Business Corporations Act (CBCA).

The CBCA is the incorporating statute for nearly 270,000 corporations. Although most of these are small- or medium-sized and privately held, a large number of Canada’s largest reporting issuers are also governed by the CBCA. The amendments proposed in Bill C-25 stem from a House of Commons committee-led statutory review in 2010, which, in turn, led to a further consultation undertaken in 2014 by Industry Canada.


Continue Reading Bill C-25: sweeping changes to corporate governance

On August 22, 2016, a group of shareholders commenced a proxy contest to change the entire board of Hemostemix Inc. (Hemostemix), a widely-held, micro cap, clinical-stage biotechnology company (TSXV:HEM, OTCQX:HMTXF).

Hemostemix’s business activities focus on the development and planned future commercialization of ACP-01, a proprietary, blood-derived cell product designed to treat critical limb ischemia, a painful obstruction of the arteries that reduces blood flow to the extremities. Hemostemix had reached an agreement in 2014 with a contract research organization (CRO) to manage most aspects of the phase 2 clinical trial of ACP-01, but Hemostemix announced on June 28, 2016, that the CRO had terminated the agreement, and that phase 2 clinical trials would be placed on hold.


Continue Reading Hemostemix Proxy Contest: Will Dissidents Succeed in Making a Clean Sweep of the Boardroom?

The Ontario Securities Commission (OSC) has proposed OSC Policy 15-601 Whistleblower Program (Policy), which is designed to encourage individuals (whistleblowers) to report to the OSC information regarding serious misconduct related to securities or derivatives, with the prospect of receiving monetary awards in certain circumstances (whistleblower awards).

Under the Policy, any whistleblower may submit information regarding serious breaches of Ontario securities law that is not already known to the OSC and that was obtained either from (i) the whistleblower’s independent knowledge derived from his/her experiences, communications and observations or (ii) the whistleblower’s critical analysis of publicly available information (original information). Original information excludes information that is:

  • subject to solicitor-client privilege,
  • obtained in connection with the provision of legal advice to a client or employer on whose behalf the whistleblower or his/her firm acts or provides services,
  • obtained from an allegation made in a judicial, administrative hearing or enforcement matter of a securities-related self-regulatory organization, a government report, hearing, audit or investigation, or news media (unless the whistleblower is the source), or
  • in violation of applicable criminal law.

In connection with the submission of original information, the whistleblower is required to sign a declaration acknowledging that it is an offence under certain securities laws to a make a statement to the OSC that is misleading or untrue or does not state a fact that is required to make any statement not misleading, and that the whistleblower may be prosecuted for providing false or untrue information to the OSC. While this provision is intended to discourage improper or spurious submissions by a whistleblower, the requirement for this declaration could have a cooling off effect in terms of the submission of legitimate claims by adding to the angst that a whistleblower might otherwise be experiencing.

A whistleblower may submit information to the OSC anonymously only if the whistleblower is represented by a lawyer who makes the submission on his/her behalf. However, before any whistleblower award will be paid to the whistleblower, the OSC will generally require disclosure of the identity of the whistleblower. The Policy expressly provides that, while the OSC will use reasonable efforts to keep the identity of a whistleblower confidential, the OSC cannot guarantee that a whistleblower’s identity will remain confidential if requested under the Freedom of Information and Personal Protection and Privacy Act (Ontario). While the Policy also provides that the OSC expects that employers who are the subject of a whistleblower report will not retaliate against a whistleblower, there is currently no statutory power for the OSC to enforce this provision of the Policy. Accordingly, the fact that a whistleblower must expend his/her own financial resources to employ a lawyer in order to maintain confidentiality, and the limits on the OSC’s ability to protect whistleblower confidentiality and prevent employer retaliation, could also deter the submission of original information by whistleblowers.

Once a whistleblower submits original information, the Policy allows the OSC to request additional information and assistance from the whistleblower, including:

  • explanations to evaluate and use the information provided,
  • a description and precise location for documents of which the whistleblower has knowledge but not possession,
  • additional information in the whistleblower’s possession,
  • testimony at any OSC proceeding, and
  • information relating to whether the whistleblower is eligible for a whistleblower award.

The whistleblower is also expected to maintain the confidentiality of the information submitted and the fact that he/she has made a report to the OSC, as well as of any information provided to the whistleblower by the OSC. Any failure to do any of the above may result in a whistleblower being ineligible for a whistleblower award or impact the quantum of any amount that is awarded (as discussed below).

The Policy provides that voluntarily submitted original information that will be eligible for a whistleblower award will relate to a serious violation of Ontario securities laws and will be of high quality (i.e., contain sufficient timely, specific and credible facts of the alleged violation of Ontario securities law) and be of meaningful assistance to the OSC in investigating the matter and outcome. The Policy provides that all of the above criteria generally are expected to be satisfied in order for a whistleblower to be eligible for a whistleblower award.

The Policy also states that whistleblowers generally
Continue Reading Ontario Securities Commission Proposes Whistleblower Program

Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) have both released updates to their Canadian proxy voting recommendation guidelines for the 2016 proxy season.

The following summary outlines the significant changes made by ISS (ISS Updates) and Glass Lewis (Glass Lewis Updates) to their respective Canadian proxy advisory guidelines.

ISS

Definition of “Overboarded”. While existing overboarding thresholds will remain in place for 2016, the ISS Updates provide that beginning as of February 1, 2017, ISS will generally recommend a withhold vote for a director of a Toronto Stock Exchange (TSX) listed issuer (i) who serves as a CEO of any public company while serving on a total of more than one (down from the current two) public company boards (other than the board of the company he or she is CEO of) and any other director who serves on a total of more than four (down from the current six) public company boards; and (ii) has attended less than 75% of the board and committee meetings within the past year without a valid reason.

Externally-Managed Issuers. ISS’ current guidelines do not have a recommendation regarding externally-managed issuers. The ISS Updates set out a framework on how ISS will vote on say-on-pay resolutions or on individual directors, committee members or boards when an issuer is externally-managed and has provided inadequate disclosure about the relevant management services agreements and how senior management is compensated. The factors ISS may consider including the following:

  • the size and scope of the management services agreement;
  • comparison of executive compensation with peers;
  • overall performance;
  • related party transactions;
  • independence of board and committee;
  • existence and the process for managing of conflicts of interest;
  • disclosure and independence in the selection of the management services provider;
  • risk mitigating factors in the management services agreement such as fee recoupment mechanisms;
  • historical compensation concerns; and
  • executives’ responsibilities.

Equity Compensation Plans. The ISS Updates set out a new model for evaluating equity compensation plans of TSX listed issuers. Previously, ISS would recommend an against vote for an equity based compensation plan which had certain features which were against ISS guidelines. The new model used by ISS is a “scorecard” model that will consider a variety of positive and negative factors of the compensation plan leading to a score which will determine ISS’ recommendation. The factors considered are in three categories: Plan Cost, Plan Features and Grant Practices.

  • The Plan Cost aspect will assess the total estimated cost of the benefit plan relative to the issuer’s peers.
  • The Plan Features aspect will assess whether:
    • the plan contains change of control provisions which do not meet ISS standards;
    • the plan allows for financial assistance for the exercise of equity grants;
    • public disclosure of the full text of the benefit plan is available to shareholders; and
    • there is reasonable share dilution compared to market best practices.
  • The Grant Practices aspect considers how grants have been made in the past by the issuer including:
    • reasonable three year burn rate compared to market best practices;
    • meaningful time vesting requirements for the CEO’s most recent grant;
    • issuance of performance-based grants to the CEO;
    • a clawback provision for equity awards; and
    • post exercise or settlement shareholding requirements.

If the combination of these factors, as determined by an overall score, indicates that the plan is not in shareholders’ interests, ISS will generally recommend that shareholders vote against the plan.

ISS will continue to recommend generally that shareholders’ vote against a plan with:

  • discretionary or insufficiently limited non-employee director participation;
  • plan amendment provisions which are not in line with ISS requirements; and
  • a history of repricing options without shareholder approval.

We understand that ISS will be providing additional guidance to clarify how benefit plans will be evaluated under the new scorecard approach described in the ISS Updates.

GLASS LEWIS

Director Overboarding Policy – TSX Issuers. 
Continue Reading 2016 ISS and Glass Lewis Updates

The Canadian Coalition for Good Governance (CCGG) has released a policy paper entitled “Shareholder Involvement in the Director Nomination Process:  Enhanced Engagement and Proxy Access”.

In the policy paper, CCGG refers to “proxy access” as the ability of shareholders to have meaningful input into the director nomination process, whether by being able to

As we have noted in our previous post, a special committee appointed to lead a company’s response to an activist can expect to receive a greater degree of public scrutiny, but may take comfort from the fact that the legal standard against which its members will be judged will not change.  While that should