CANADA Law and Practice Contributed by: Sarah Gingrich, Sean Stevens, Tracy Hooey and Marie-Josée Neveu, Fasken
3.4 Appointment and Removal of Directors/ Officers In Canada, shareholders elect the company’s direc - tors at the company’s AGM or at a special meeting called, in whole or in part, for the election of direc - tors. Directors are generally removed either by being replaced at a subsequent AGM or by resolution at a special meeting held between AGMs. Majority vot - ing applies to uncontested elections at companies governed by the CBCA or listed on the TSX or other non-venture exchanges. The board appoints the com - pany’s officers and these officers serve at the pleasure of the board. 3.5 Independence of Directors There are different definitions of “independence” as it relates to corporate governance in Canada. The CBCA provides that a director is independent if they are not employed by the company or any of its affili - ates. Canadian securities laws define independence as the lack of a “material relationship” with the com - pany. A material relationship is defined as one which could be reasonably expected to interfere with the exercise of independent judgement. Certain relationships are automatically deemed to be material, including being a current or recent executive officer (or other employ - ee) of the company or being a current or recent part - ner (or employee) of the company’s auditor. Canadian securities laws also require that public com - panies disclose which directors are independent and which are not. Where a majority of the board does not qualify as independent, the company must dis - close what the board does to ensure the independent exercise of judgement in fulfilling its duties. Canadian securities laws also require that all members of an audit committee are independent and provide guid - ance (which is adhered to by almost all public compa - nies) that all members of a compensation committee should be independent. Directors must disclose the nature and extent of any conflict of interest they have in a material contract or material transaction, whether made or proposed, with the company where the director:
• is a party to the contract or transaction; • is a director of a party to the contract or transac - tion; or • has a material interest in a party to the contract or transaction. Subject to limited exceptions (see 3.10 Payments to Directors/Officers ), the director cannot vote on any board resolution relating to the contract or transac - tion. For a discussion of key legal issues related to nominee directors, see 4.1 Companies and Shareholders . 3.6 Legal Duties of Directors/Officers The principal legal duties of officers and directors under Canadian corporate law are twofold: the duty of care and the duty of loyalty. Satisfying their duty of care in managing the company requires that officers and directors exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. This includes the officers and directors sufficiently inform - ing themselves and considering all related material information before taking action. Satisfying their duty of loyalty in managing the com - pany requires that officers and directors act honestly and in good faith with a view to the corporation’s best interests. They must act impartially and free of self- interest or self-dealing and always put the company’s best interests first, regardless of any competing or conflicting interests, including their own or those of any of the company’s shareholders. Importantly, and unlike in certain other jurisdictions, neither the duty of care nor the duty of loyalty can be waived, whether in the company’s articles, by contract or otherwise. That said, as further discussed in 4.1 Companies and Shareholders , such duties can be partially or wholly transferred from the officers and directors to the company’s shareholders by the func - tioning or express terms of a unanimous shareholders’ agreement governing the company.
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