Modernizing the CBCA--aligning diversity and director election requirements

October 17, 2016

Board and management diversity, director election processes and notice-and-access procedures are the key issues dealt with by proposed amendments to Canada’s corporate law that were recently introduced in the House of Commons by the federal government. Known as Bill C-25, the proposed amendments, if adopted, would make significant changes to the Canada Business Corporations Act (CBCA), the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act, as described below.


The proposed amendments support increased diversity for CBCA “distributing corporations” (generally, public companies) through the imposition of what is expected to be a “comply or explain” model. Under that approach, public companies would be required to disclose the gender composition of their boards and senior management and to describe their diversity policies (or, alternatively, explain why no such policies have been adopted). The regulations to the CBCA are also proposed to be amended to prescribe the actual disclosure that is required and will set out what will be considered to be “senior management” roles but will not define the concept of “diversity”. The amended regulations have yet to be made public. 

These proposals follow on the heels of 2014 amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices (58-101) and Form 58-101F1 Corporate Governance Disclosure (Form 58-101F1). Those amendments to the securities rule (the Diversity Disclosure Rules) require reporting issuers, many of which are CBCA corporations, to disclose certain information regarding women on boards and in executive positions on a “comply or explain” basis. Distributing corporations that are already subject to the Diversity Disclosure Rules will certainly be hoping that the disclosure requirements under the CBCA will, when unveiled, largely mirror those of the Diversity Disclosure Rules.

In a related development, the Canadian Securities Administrators (CSA) recently released their review of the diversity disclosure of 677 TSX-listed issuers. This attempt to measure the efficacy of the Diversity Disclosure Rules reveals that, compared with 2015, there are now more women on the boards of all sizes of issuers, with 12% of the total board seats in the studied sample being occupied by women. An increased number of issuers also adopted a policy relating to the identification and nomination of women directors (21%), set targets for the representation of women on their boards (9%), disclosed that they consider the representation of women on their boards as part of the director identification and nomination process (66%) and adopted director term limits (20%). While the Diversity Disclosure Rules have had an impact on the nomination and appointment of women to director positions, the number of issuers having at least one female executive officer was reported to have remained relatively stable in the first half of 2016. The proposed amendments to the CBCA, which draw attention to diversity in both director and senior manager positions, are aimed at accelerating the improvement that the Diversity Disclosure Rules have already begun to facilitate.

Director Elections

Bill C-25 includes proposed amendments to the CBCA that would require public companies to hold annual elections, with each director being elected to hold office for a term ending no later than the day of the company’s next annual meeting. The proposed amendments also mandate a majority voting standard for uncontested director elections. At meetings of shareholders where there is an election of directors, if the number of candidates nominated equals the number of available board positions, each director will only be elected if the number of votes cast in his/her favour represents a majority of the votes cast for and against him/her by the shareholders. In addition, slate elections will be prohibited, with the consequence that all directors of public companies must be elected individually. While these requirements may be new to some CBCA corporations, to a certain extent, they mirror the requirements already imposed by the Toronto Stock Exchange (TSX) on TSX-listed issuers, with the most significant difference being that with a majority vote standard being a legal requirement, directors would no longer have the ability, as a matter of internal policy, to reject the resignation of a a nominee who fails to obtain a majority of “for” votes as is permitted under the TSX requirements where there are exceptional circumstances. As such, distributing corporations governed by the CBCA and also subject to TSX rules will generally already be subject to the same requirements.


As currently drafted, and as previously discussed, the CBCA requires express written consent of shareholders for the electronic delivery of proxy-related materials. The CBCA also requires that copies of the financial statements and related auditors’ report for the most recently completed financial year must be sent to shareholders, other than those who have informed the corporation in writing that they do not wish to receive them. By permitting the “Director” under the CBCA to exempt any corporation from the requirement to send to shareholders and other prescribed persons any of the “prescribed documents” or any intermediary from its duty to send a copy of such documents to beneficial shareholders, and by replacing the enumerated list of document to be sent by an intermediary to a beneficial shareholder with “prescribed documents”, the proposed amendments would presumably permit the use of a notice-and-access system that would allow corporations to communicate with shareholders by electronic means to provide notice of meetings and to provide shareholders with online access to relevant documents, similar to what is permitted under provincial securities and other corporate laws.  The deadlines for shareholders to submit proposals in advance of shareholder meetings will also be simplified.

Bearer Certificates

Pursuant to the proposed amendments, bearer certificates (i.e. certificates without a registered owner’s name) will be prohibited for shares, warrants and other convertible securities of a corporation. Shareholders who currently hold any bearer certificates will be granted a right to convert such certificate into registered form at their request. While it is unclear how many CBCA corporations actually have bearer certificates outstanding, the CBCA is addressing this issue in the proposed amendments because bearer certificates have been identified as raising money-laundering and terrorist financing concerns.

Other Amendments

In addition to amending the CBCA, the affiliation rules under the Competition Act will be updated to integrate all business models and to ensure that activities between affiliated entities do not unwittingly trigger investigations or merger reviews by the Competition Bureau.  

For further information please see 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(September 28, 2016) and CSA Multilateral Staff Notice 58-308 Staff Review of Women on Boards and In Executive Officer Positions- Compliance with NI 58-101 Disclosure of Corporate Governance Practices(September 28, 2016). 

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