Canadian Lawyer

July 2021

The most widely read magazine for Canadian lawyers

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12 www.canadianlawyermag.com COLUMN: BANKING ON CORPORATE UPFRONT Another report, same Dey New guidelines on corporate governance, from the Rotman School of Management, address the breadth of issues facing corporate boards of directors in 2021 IT IS INCREASINGLY easy to be numbed by scale. The pace of COVID-19 infection and death in some parts of the world is star- tling, the size of government expenditures to support world economies is unprecedented, and the rate of space launches and scope of plans for space travel are extraordinary. I could have continued, but the length of that sentence was starting to belong on the list. One item that must be included, however, is the breadth of issues facing corporate boards of directors in 2021. Way back in 1994, the Toronto Stock Exchange accepted guidelines for board gov- ernance outlined in a report titled "Where Were the Directors?" developed by a commit- tee chaired by Peter Dey. That report, which spawned broad strengthening of governance standards across the Canadian corporate landscape, tackled significant problems at that time, namely the link between some high-profile corporate failures and structural and/or engagement failures by those compa- nies' boards; growing internationalization of business; and changes to business and soci- ety triggered by technological change. The effects of the initial guidelines are very famil- iar to corporate practitioners, in particular the principles concerning board indepen- dence and oversight. Two and a half decades later, Dey has writ- ten (with co-author Sarah Kaplan, both of the University of Toronto's Rotman School of Management) another ambitious and vision- ary report, titled "360º Governance: Where are the Directors in a World in Crisis?". The breadth of the new guidelines is wide, but there is at its core one single point: since the last report, thinking about the role of the corporation in society has significantly evolved. Corporations are, and are more and more seen to be, unable to distance them- selves from current social problems, includ- ing climate change, income inequity and sys- temic racism. This development is a result of a great confluence between incentive and require- ment. It is obvious, even by my standards, to note that corporations are engaged in intense competition for customers, employ- ees, suppliers and investors who are increas- ingly making choices based on social con- siderations. That competition motivates attention to ESG (environmental, social and governance) factors. Corporations will also have noted that social ills, such as climate change and global pandemics, present haz- ards and opportunities that are likely better addressed proactively. Finally, one needn't look hard to find stud- ies showing markedly superior performance by corporations that place higher priority on ESG issues. This is not to say that respon- sibility for public welfare should rest with corporations rather than with governments, rather that corporations are going to play a critical role. Canada is fertile ground for this type of evolution, given our corporate statutes and jurisprudence. Corporate statutes in Canada generally requires directors to, among other things, "act honestly and in good faith with a view to the best interests of the corporation." The Supreme Court of Canada's decisions in Peoples Department Stores Inc. (Trustee of ) v. Wise and BCE Inc. v. 1976 Debentureholders made clear that a board's duties are owed to the corporation, regardless of context, and not to its shareholders or any other particu- lar stakeholder. The new guidelines proposed can, in my view, be generally divided into three categories. The first category relates to purpose and identification. In the wake of the BCE deci- sion, directors and their advisors have strug- gled with the question of how to weigh the interests of different groups of corporate stakeholders. The guidelines include (i) the identification, disclosure and regular review of the corporation's purpose, (ii) alignment of all board decisions with that purpose, and (iii) identification of the corporation's stakehold- ers. These guidelines are clearly intended to provide direction to corporate boards. The second category of guidelines con- cerns engagement, addressing matters such as (i) interaction with stakeholders (includ- ing through a stakeholder committee), (ii) specific frameworks for engaging with indigenous communities, (iii) disclosure of corporate policies for climate-related risks and opportunities, and (iv) assessment and reporting on stakeholder impact. The third and final category relates to con- temporary governance matters such as pol- icies for board diversity, board renewal and alignment of the company's compensation policies with the purpose and long-term sus- tainability goals of the corporation. The mind overflows with how the Dey name might summarize next steps for these guidelines. One could hope that compa- nies go ahead and make their Dey, that the guidelines carry the Dey, that they are imple- mented at the end of the Dey — and, ideally, that the corporate community will one way or another seize the Dey. Neill May is a partner at Goodmans LLP in Toronto focusing on securities law. He can be reached at nmay@goodmans.ca. The opinions expressed in this article are his alone.

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