Where were the directors? (Canadian Insert).(corporate governance)

The debate on corporate governance has been flourishing in Canada since the early 1990s when the Dey Report first asked the telling question: "Where Were the Directors?" Nine years later, the question is still relevant and being asked vigorously once again in the context of a number of flaming corporate melt-downs in the United States, such as WorldCom, Enron, Global Crossing and Tyco. Not that Canada has been unaffected with stellar examples of its own, for example Bre-X and YBM. All of these examples raise different, yet troubling questions about boards of directors' performance in light of alleged management incompetence, fraud or just poor governance that has or may cost shareholders billions of dollars.

Regulators in Canada have been setting guidelines for the past 10 years to address governance concerns. For example, the Toronto Stock Exchange ("TSX") introduced 14 corporate governance guidelines in June 1995. Companies listed on the TSX are asked to follow these guidelines and to disclose and explain any differences between their corporate practices and the guidelines. A recent report by the Joint Committee on Corporate Governance commissioned by the TSX and the Canadian Institute of Chartered Accountants entitled "Beyond Compliance: Building a Governance Culture" ("JCCG Report") recommended a series of governance guidelines. In addition to making governance recommendations, the JCCG Report noted the trend of increasing noncompliance with the TSX guidelines. A telling comment in the JCCG Report observed that almost 51 percent of public companies did not report to the TSX on their compliance with its guidelines, notwithstanding the requirement to do so.

On March 26, 2002, the TSX responded to the JCCG Report by publishing amended guidelines which are due to be in place, subject to the Ontario Securities Commission's approval, for corporations with a year end after December 31, 2002. The major changes addressed include the role of the board of directors in adopting a strategic planning process, introduction of financial literacy and accounting expertise as qualifications for audit committee members and board independence. In addition, the guidelines will now apply to non-corporate issuers such as trusts and partnerships. What is particularly helpful in these new guidelines are the Practice Notes, which the TSX has included after each of the new or amended guidelines.

Another very clear blueprint for corporate governance practice has recently been enacted by the Canada Deposit Insurance Corporation ("CDIC"). CDIC passed a bylaw under the CDIC Act that compels its member institutions (i.e. all of the financial institutions in Canada accepting deposits) to comply with 26 standards dealing with business conduct, ethical behavior and a variety of risk assessments and to ensure that a process is in place to allow directors to assess whether the ...