CANADA Law and Practice Contributed by: Sarah Gingrich, Sean Stevens, Tracy Hooey and Marie-Josée Neveu, Fasken
Other common committees include a compensation committee, a corporate governance committee, an environmental or ESG committee, a nominating com - mittee, a disclosure committee, a pension committee, a risk committee, a safety committee and/or a finance committee. The number and nature of committees formed by the board is generally a function of the size of the company and the nature of its business. Best practice is for a committee to be comprised of board members who have expertise in the particular area of the committee’s mandate. Special board committees are typically formed in cer - tain circumstances, such as in connection with a pos - sible change of control transaction (eg, an unsolicited takeover bid), in relation to an internal investigation (eg, regulatory non-compliance), or in response to an emergency or crisis situation (eg, a data breach). 2.3 Decision-Making Processes Canadian corporate law limits the board’s ability to delegate its authority in that certain decisions are within the sole authority of the directors. For example, under the CBCA, only the board may: • submit to shareholders matters requiring their approval; • declare dividends; • approve financial statements for distribution to shareholders; • approve a management proxy circular, takeover bid circular or other circular; or • amend or repeal the company’s by-laws. However, committees can (and often do) advise on these matters before the full board makes a final deci - sion. Even where it is legally permissible to delegate deci - sion-making to a board committee or management, best practice in Canada is for the board to carefully consider whether to do so. Typically, matters of stra - tegic importance or material policy, while sometimes at first instance the responsibility of a committee, are reserved for final determination by the board (eg, after the committee has made its recommendations). For example, while risk committees have become common at large Canadian public companies, ulti -
mate authority over the “risk-reward” balance to be assumed at the enterprise level is often reserved for the full board.
3. Directors and Officers 3.1 Board Structure
Canada’s business corporations statutes prescribe basic requirements regarding board structure. Private companies are generally required to only have a sin - gle director. Public companies are generally required to have a minimum of three directors, at least two of whom are not officers or employees of the company or its affiliates. Typically, a public company’s articles will allow for a range in the number of directors so that the board can be expanded or reduced as circumstances warrant and without having to amend the company’s articles. In order to fulfil its duties, a board should have sufficient directors for its own direct needs and to serve on the board’s committees. 3.2 Board Members The allocation of roles and responsibilities among board members is generally approached on a case- by-case (ie, company-specific) basis in Canada. Best practice is to develop and implement a formal man - date for the board, which includes a considered del - egation of authority to management. Best practice in Canada is also for the board to continually evaluate which specific skill sets are most relevant to its needs and which of those might be absent and thus should be added. 3.3 Board Composition Several of Canada’s business corporations statutes impose residency requirements. For example, under the CBCA, a minimum of 25% of the company’s direc - tors must be resident Canadians. For requirements relating to board size, see 3.1 Board Structure . For requirements relating to director independence, see 3.5 Independence of Directors . In addition, public companies are required to have audit committees composed of directors who are independent direc - tors (see 3.5 Independence of Directors ) and who are financially literate.
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