CANADA Law and Practice Contributed by: Sarah Gingrich, Sean Stevens, Tracy Hooey and Marie-Josée Neveu, Fasken
3.7 Responsibility/Accountability of Directors Canadian law is clear that directors owe their duties to the company and not to any of its stakeholders, including shareholders. However, the CBCA and a substantively similar ruling by the Supreme Court of Canada (Canada’s highest court) provide that, in pursuing the company’s best interests, directors may take into account, without limitation: • the interests of shareholders, employees, retirees and pensioners, creditors, consumers and govern - ments; • the environment; and • the corporation’s long-term interests. Directors and officers in Canada also benefit from the “business judgement rule”. This provides that, as long as the company’s directors and officers act honestly, in good faith, and with a reasonable degree of care and diligence, Canadian courts will not second-guess their business decisions, even where those decisions ultimately result in negative consequences for the company. Stated differently, the business judgement rule recognises that directors and officers often face complex and uncertain business situations, and thus should be afforded a degree of discretion in making decisions without fear of personal liability, provided they act in pursuit of the corporation’s best interests As the duties of care and loyalty are owed by direc - tors and officers to the company, a claim for breach of these duties lies with the company. However, and as further discussed in 4.4 Shareholder Claims , Canadi- an corporate law allows for derivative actions whereby a shareholder can pursue a claim against the directors or officers on behalf of the company for a breach of duty owed by them to the company. 3.9 Other Claims/Enforcement Against Directors/Officers As further discussed in 4.4 Shareholder Claims , the actions of directors and officers may give rise to an oppression claim under Canadian corporate law, which is a broad and potentially powerful statutory remedy. That said, Canadian courts have held the fundamental purpose of the oppression remedy is to and within the scope of their authority. 3.8 Breach of Directors’ Duties
provide recourse regarding actions taken by the com - pany. As such, the actions of the directors or offic - ers will generally only be oppressive when they are acting in their capacity as directors and officers, and the claim is against the company as opposed to the directors. 3.10 Payments to Directors/Officers The CBCA expressly permits directors to vote on their own remuneration as directors, notwithstanding the conflict of interest. That said, management typically provides significant input into the compensation pro - cess, including by considering recent “comparables” and/or by engaging compensation advisers. Canadian securities guidelines recommend that the company’s compensation committee is ultimately responsible for making recommendations on direc - tor compensation, and this best practice is generally followed. “Say-on-pay” shareholder proposals have been common for Canadian public companies for sev - eral years. “Say-on-pay” votes by shareholders (ie, non-binding advisory votes) are not yet mandated by securities law or the CBCA but have been voluntarily adopted by many large public Canadian companies. Canadian securities law requires the disclosure of the process followed in deciding director and officer remuneration. This should include explanation of the board’s process, the rationale for the board’s decision, and why the remuneration is otherwise appropriate or justified. Best practice includes also disclosing the frequency and form of compensation. This disclosure of officer remuneration is required to be included in the Compensation Discussion and Analysis portion of a public company’s proxy circular.
4. Shareholders 4.1 Companies and Shareholders
The relationship between a Canadian company and its shareholders is governed primarily by the company’s business corporations statute (federal, provincial or territorial; see 1.1 Corporate Forms and Governance Requirements ).
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