New CBCA Regulations & Diversity Disclosure

by Peter Landers | Dec 30, 2019 | Board Dynamics, Diversity, Regulations

A Summary of Changes and Impact to Shareholders

Earlier this year, the regulations relating to amendments to the Canada Business Corporations Act (“CBCA”) for diversity disclosure at publicly-listed corporations were released, which should have a large impact at TSX Venture Exchange (“TSXV”) and Canadian Securities Exchange (“CSE”) listed companies. These regulations will require all publicly-listed CBCA corporations to provide specific information on board and executive officer diversity policies and statistics beginning in 2020. While many Toronto Stock Exchange (“TSX”) listed companies have already adopted some form of board and executive diversity policy disclosure within their annual proxy circulars, the new regulations go one step further and now apply to TSXV and CSE companies as well.

The new regulations, which have taken over a year to be developed, will come into force on January 1, 2020 and will apply to all 2020 shareholder meetings of publicly-listed CBCA corporations. The information should be provided within the annual shareholder meeting notice or proxy circular and will need to go beyond reporting just on gender diversity. The specifics of the new regulations include:

Reporting on Diversity at the Board and Senior Management Level
Reporting Not Just on Gender Diversity
Application to TSXV and CSE Listed Companies
Comply or Explain Still in Effect
A Review of the Provisions in 5 Years

Reporting on Diversity at the Board and Senior Management Level

CBCA corporations will be required to annually disclose their term limits, diversity policies and diversity targets (along with any related statistics) for the representation by “designated groups” at the Executive and Board level. Reporting will apply in respect of the Board as a whole, the Chair as well as any Vice Chair of the Board. At the Executive level, disclosure will be required for the President, Chief Executive Officer, Chief Financial Officer, each Vice President of a principal business unit, division or other function (including Sales, Finance and Production) and any other individual who acts in a policy-making capacity.

Reporting Not Just on Gender Diversity

The new disclosure requirements do not pertain only to women, but have been expanded to include other members of “designated groups”. The term “designated groups” is meant to align with the federal Employment Equity Act, which defines “designated groups” as: women, Aboriginal peoples, persons with disabilities and members of visible minorities. Current regulations require disclosure only on gender diversity.

Application to TSXV and CSE Listed Companies

While current disclosure regulations are applicable to TSX-listed issuers only that is not the case under the new regulations. Under the new disclosure requirements, TSXV and CSE listed companies will have to disclose the same types of disclosure information as TSX listed companies, which is a significant change for these companies.

Comply or Explain Still in Effect

The good news for CBCA corporations is that the new regulations do not impose any quotas or specific diversity requirements on companies. Similar to current Canadian securities law, a “comply or explain” regime will be put in place. This means that CBCA corporations will be under no obligation to increase the level of diversity at the Executive or Boardroom level. However, they must disclose the number and percentage of directors and executives who are members of designated groups. In addition, while they are not obligated to adopt a specific policy or quota for diversity, they will be required to disclose whether they have adopted a formal policy or not and if they have not done so explain why that is the case.

A Review of the Provisions in 5 Years

The federal government will review the new diversity disclosure regulations five years after they are enacted, in 2025. At that point in time, if the new regulations do not result in increased diversity at the Executive and Boardroom level, the government will consider whether further amendments to diversity disclosure requirements are required.

The expected impact at TSX-listed companies is lower due to the fact that many TSX-listed companies have already been disclosing the existence of a formal executive and board gender diversity policy at their companies the past couple of years and in the absence of a formal policy, the reason why such a policy has not been adopted. However, the expanded definition of diversity to include all “designated groups” as defined in the federal Employment Equity Act will mean additional reporting on the number and percentage of Aboriginals, persons with disabilities and visible minorities, which will require additional time and effort of staff to ensure adequate disclosure in these areas. That said, this change is more incremental in nature.

At TSXV and CSE-listed companies the impact should be much larger due to the fact that formal diversity disclosure regulations are currently not in effect for companies listed on these exchanges. This will require Boards at these companies to spend some time discussing the issue of diversity and whether the need for a formal policy is warranted at their company. If a formal diversity policy is not put in place, boards will then have to discuss the reasons why a formal policy is not required for their company and be able to explain this to shareholders through the annual proxy circular. Staff time (already stretched as it is at many TSXV and CSE-listed companies) devoted to this issue will also be increased to ensure that adequate diversity disclosure is provided to align with the new regulations. This will increase the soft compliance costs associated with annual disclosure.

Diversity has been an ever-growing issue at public companies in recent years. While some progress has been made, it is clear that the federal government feels this progress is not enough and is hoping that new diversity disclosure regulations will lead to further change. It will be interesting to see which companies embrace this new regulation to spark change in the make-up of their boards and executive ranks and ultimately which companies choose to do the bare minimum.

To review copies of the new regulations please click on the following links:

Regulations Amending the Canada Business Corporations Regulations, 2001

Canada Business Corporations Act

Four Tips to Create a Board of Directors

by GGA | Oct 28, 2019 | Board Dynamics, Leadership, Organizational Development

A Proactive Approach to Establishing a Board

Idea. Check. Funding. Check. Business Plan. Check. Board of Directors? The beginning of any journey, especially in business, starts with an idea. Once that idea has been cultivated and a plan is in place, then comes funding, the board of directors, employees, office space, etc. It’s a misconception to leave the creation of the board of directors as one of the last to-do items. Whether you’re a big or small organization it helps to be proactive when it comes to forming the group of individuals who help to manage the activities of your business (i.e. your board). This board can be elected or appointed, and they are tasked with maximizing overall organizational value, while simultaneously protecting the interests of any key stakeholders.

When it comes to creating your board, you must keep in mind that not all boards (and their individual board members’ roles) are created equal. Such a sentiment is illustrated in the varying roles for the differing types of organizations. For-profit organizations have different goals than nonprofit organizations. For-profit organizations are typically more concerned about preserving the interests of any stakeholder, whereas nonprofits historically focus on raising awareness, while simultaneously raising funds.

Organizations might leave the board creation to the last minute because they believe that they are too small to need a board, or it’s not as important as other to-do items. While that might be deemed a pretty logical outlook, it’s not necessarily the legal outlook. If you are a corporation, you’re required to establish your board of directors right away. That said, your board doesn’t need to comprise of 10 to 15 executives or the most qualified leaders in your space, it can be a board of 1 to 3, depending on your state regulations. Being regulated at the state level also means that there is no standard set of rules that must be followed when creating your board of directors.

Even though there is no standard set of rules for creating your board, there are four basic tips that you should follow when architecting your board of directors.

Documentation
Bylaw Creation
Identify Key Stakeholders (Shareholders) and Schedule Meetings
Follow Board Meeting Best Practices

Documentation

Your blueprint for success starts with a solid foundation. For your organization, the foundation is documentation and the filing of any articles of incorporation in your state. In order to become a corporation, you must file these articles and use them as the charter for your organization. This documentation identifies your corporation’s name, your incorporators, whether you’re for-profit or nonprofit and what your corporation’s purpose is. It’s important to mention that hiring a lawyer, during this stage, that specializes in setting up boards of directors can only help ensure that your foundation will be successful.

Bylaw Creation

Every good blueprint needs walls to offer up support through the thick of it. A governing body is no different. For a board, the walls are your bylaws. Each rule, role, and responsibility of the board of directors needs to be agreed upon, formerly written down and upheld. The foundation might be the starting point, but your blueprint for success is nothing if the walls around you crumble. Some examples of bylaws are:

Frequency of meetings
How to elect and replace board-chair
How to elect and replace board members
How to determine director compensation (if you choose to pay your directors)

Identify Key Stakeholders (Shareholders) and Schedule Meetings

Once the foundation is set and the walls are built it is time to lay the roof shingles. For an organization, the roof shingles are all key stakeholders (and the board they create) who hold interests and/or assets in your organization. Once identified, these stakeholders should meet and it’s common that the first meeting topic is around your board, specifically the time and place where your board of directors are elected. When properly placed, the shingles create the roof that is tasked with keeping the rain and anything else that is unwelcome out, like the stakeholders who elect the board of directors who protect the company and those invested in it.

Follow Board Meeting Best Practices

After your board is established, the foundation is solidified, the walls and the roof are in place – the real work begins. Maintaining the board is just as difficult as maintaining your home. There needs to be set procedures in place in order to succeed at maintaining your board. Best practices include establishing a schedule for your board meetings and then implementing the best techniques in order to prepare for and facilitate the meetings is one example of following board meeting best practices in order to guarantee your success.

As aforementioned, board roles differ and so do boards of directors. It’s extremely important to implement a blueprint for success that aligns directly with your organization’s purpose and goals.

Closing Thoughts

So, there you have it folks. Your four keys tips on how to create a board of directors. Feel free to browse through the rest of our blog (how about checking out How to Chair a Board Meeting ) for more.

Board Member Harassment – Indemnification and Insurance Will Not Protect You

by Brad Kelly | Sep 2, 2019 | Board Dynamics, Leadership, Organizational Development

I have a daughter, and as the father of a young girl, I naturally worry about her future. How I might protect her; help her develop skills; and prepare her for a successful and fulfilling career? When I think about these things, I worry about what she might endure along her journey and how can I protect her from negative experiences like bullying and harassment? The reality is that, unless the two of us are employed in the same company or she is sitting on the same Boards that I sit on, I will rarely be able to protect her once she is an adult in the professional world.

As a governance advisory professional, all Board actions must be aligned to the fiduciary duties of loyalty, prudence and impartiality and it should always be clear – harassment should never be present or overlooked in the workplace and the boardroom is no exception. Generally, to fulfill these duties, Board members need to adhere to their strategic oversight roles of:

Establishing and maintaining a mission and vision;
Establishing and maintaining effective policies and procedures; and
Monitoring, identifying and mitigating risk.

With a heightened focus on anti-bullying campaigns and the global emergence of the Me-Too Movement, many leaders are challenged to ensure that everyone’s physical and emotional rights are both respected and protected. But what happens when this abuse happens in the boardroom or comes from a Board member? When you consider that most Board members have unfettered access to facilities and staff and are often expected to attend organizational and Board functions outside of their official meeting attendance, the risk of this happening becomes quite substantial.

Harassment is normally defined locally, varies by region, and is generically described by Wikipedia as:

“…a wide range of behaviors of an offensive nature. It is commonly understood as behavior that demeans, humiliates or embarrasses a person, and it is characteristically identified by its unlikelihood in terms of social and moral reasonableness. In the legal sense, these are behaviors that appear to be disturbing, upsetting or threatening.”

Board members should always know they are never protected if they break the law and the current multijurisdictional nature of organizations should make Board members overly sensitive about their actual and/or perceived conduct.

Current harassment laws in North America are rooted in the 1964 US Civil Rights Act and the 1984 Canadian Human Rights Act and depending on the location, the definition of harassment can be either narrowly or broadly defined and if a local definition is not set, then the default is to defer to a federal standard. Therefore, being familiar with only one local definition will not protect Board members whenever they are attending events or meetings in other regions or locations. Many Boards are comprised of members from a wide array of locations and sometimes follow a practice of rotating the location of their in-person meetings.

As well, it is generally understood that workplace harassment does not have to occur within an actual “place of work” and board members need to understand that they are also accountable for their actions when they are not officially in their organization or boardroom. This also applies to when they are:

On travel status,
At a conference where the attendance is sponsored by their organization,
At sponsored training activities/sessions, and
At formally sponsored and/or informal social events.

If a harassment charge is brought against a member, the location of the alleged activity will determine what legal definition is used, where the proceedings will take place, and if convicted, where that person may be incarcerated. In both Canada and the United States, the maximum penalty for an indictable harassment conviction is 10 years imprisonment and therefore should be taken very seriously by organisations and their Board members.

Complicating things even further, the broad scope of offensive behaviors and situations outlined in guidance tools produced by legal advisory groups provide lists that often includes:

Specific criteria that is normally associated with the act of harassment;
Actions that may be conceived as harassment; as well as

Actions that generally are viewed as harassment

In total, these lists typically encompass a large array of possibilities which increases the possibility of a Board member’s actions falling under these described actions or scenarios and if a Board member is formally charged for harassment, indemnify policies and Insurance will not protect them. Identification and Directors & Officers insurance are only in place to protect innocent Board members and therefore, once a charge is laid, the board member(s) is fully responsible for covering their legal fees and will be subjected to the full extent of the law and related convictions.

Most Board members don’t know what they don’t know.

Therefore, it is recommended that all Board members be educated on the laws and legal definitions that pertain to the regions that they will be in and that your Board establish a comprehensive code of conduct that is reviewed and signed by all your members.

Given the extensive list of possibilities, Board members need to be overly sensitive to all potential interpretations of their words and actions and in order to fulfill their fiduciary obligations and mitigate risk, Board members must always maintain their conduct at the highest standard possible. As a Board member you need to also understand that the potential repercussions to you and the organization that you are entrusted to oversee are serious.

Boards of Directors & The Digital World

by GGA | Apr 8, 2019 | Board Dynamics, Governance, Leadership, Productivity, Technology

Embracing Digital Transformation

Everything will change. If you come away with anything from this blog, it is an understanding that it is critical that Boards of Directors and Executives understand that to succeed in today’s business environment, they must take a giant leap and embrace the digital transformation. Boards and executives are facing a myriad of challenges and can only successfully address them by leveraging artificial intelligence, data analytics, and digital communications. Everything will change – how board members interact with each other; how they make decisions; how they address issues from governance to corporate social responsibility; how they recruit and retain high performance executive teams; and how they will communicate with both shareholders and stakeholders.

The Digital World Has Already Passed the “Board Portal” (We do not use VHS tapes anymore)

Seven years ago, a major financial institution faced a dilemma. A board member left a binder of sensitive information in a taxi in New York City. Following this security breach, the board quickly adopted a ‘board portal.’ That solution, seven years later, presents an even greater problem. A portal application resides on a laptop, which if lost – in this hacker dominated society – is the equivalent of leaving sensitive information in thousands of taxis.

I spoke recently for more than 80 companies. Half of them use no technology at all. Board members expose the companies they serve/lead to unnecessary risks and are out of compliance. They incur unnecessary costs. They are often inefficient and ineffective. They do not leverage artificial intelligence, data analytics, or data communications that can be at their fingertips when analyzing the market, strategy, and/or recruiting and retaining high performance executive teams. Their shareholders are seizing upon social media. Boards of Directors must contend in a digital world and most of these boards remain clueless.

Our Board Member Will Not Use New Technology

“A ‘lame excuse’ is an excuse of poor quality or lack of thought or an inappropriate excuse.” If this statement is true about your current board of directors, your board members must become introspective and embrace digital technology or your company needs to find new board members. One does not go into battle with spears and swords against tanks.

The Solution– Adopt a Workplace Productivity Platform Designed for Board Members and Executives

There is only one solution: A workplace productivity platform.

Implementing a workplace productivity platform means:

All of your documents are housed within the platform. Board member access, annotate, and store board documents in this single repository. At no time does that platform reside on anyone’s PC or Laptop – all of which can be hacked, stolen, lost, or break.
The platform can be accessed from any device, anytime, anywhere.
Board members communicate/message within the platform.
Your board meeting is run through the platform.
All of your committees use the same platform. One single sign-on.
You launch video conferencing through the platform. Any meeting can be attended from anywhere. Your meeting can be recorded. The platform utilizes artificial intelligence, translating voice to text. Voila – your transcripts/notes are ready – and available to your board members or committee members.
Your platform also provides both a prepopulated board evaluation tool and prepopulated D&O questionnaire.
The platform provides data around executive compensation. It is both a repository of almost 10,000 companies and their executive pay by job title and peer group composer. The platform is a data analytics engine that allows your board to identify the right compensation and incentive program for its top executives; score card those plans, and provides payout reporting at any time during the fiscal year.
The workplace productivity platform is also a shareholder/stakeholder communications engine (including survey/proxy tabulator). You build targeted groups of shareholders and stakeholders and utilize the platform’s digital communication capabilities. The geographic reporting features allow your board and executive teams to schedule road shows and meetings with stakeholders more efficiently. The digital educational and communication tools put the board of directors on an equal playing field to address social media and its impact on shareholder activism. The labor and mailing costs more than pay for the platform.
The workplace productivity platform for boards and executives is easy to use and intuitive. If someone can use a smart phone, that person can use this platform

The digital world has changed everything. Has your board and executive team changed with it?

Effective Board Member Orientation Pays Off

by Brad Kelly | Jan 7, 2019 | Board Dynamics, Governance, Leadership, Productivity

Effectively Preparing New Board Members

Boards spend an unbelievable amount of time, energy and financial resources trying to find the right nominees/candidates that can add value and enhance governance oversight, but for many boards, the momentum ends once the vacancy is filled or when the infamous “orientation binder” is sent to a newly elected board member. In practical terms, this is like an Olympic marathon runner training for years and then deciding to walk their race on the day of their Olympic event – ultimately, they are not utilizing or benefiting from the hard work they put in upfront.

By not following up with a strong orientation program, boards are not preparing their new members to become true board contributors from day one, which means that they will take roughly their first year to catch up and self-learn as much as they can. Alternatively, boards can be proactive and do their best to prepare new board members upfront and help ensure they hit the ground running and are contributing on day one.

Orientation Packages

As a bare minimum, your board should have an updated orientation package ready for new members the day they are elected. Ideally, this should be kept in an electronic format, updated regularly, and perpetually available to all members. Overall, this should include:

A short historical overview of the organization including its mission, vision and values;
A year-to-date list of organizational accomplishments;
Staff organizational chart;
Charter/articles of incorporation;
Bylaws and committee mandates;
Most recent financial statements (quarterly and audited annual);
Most recent strategic plan and approved budget;
Approved minutes from the last 3 to 6 meetings;
Current board member bios and photos;
A list of links to all overarching legislation;
All applicable governance policies including the board’s code of conduct;
A copy of the director’s & officers liability insurance policy;
Yearly calendar of all upcoming board meetings, committee meetings and important events.

Orientation Session

As well, a general orientation session should be offered as soon as possible to help review the high-level elements of the aforementioned documents and to review the board and management’s roles and responsibilities. Understandably, it is the chair and committee chairs that attend and present at this session, but it is also a best practice to make these sessions open to all board members that can attend because it will not only provide a great opportunity for the new members to get to know the board, but also provide a discrete refresher for any board members who may feel that they could benefit but are afraid to ask. Also, in attendance should be key executive staff members who can walk participants through their roles and specific area of responsibility. As an alternative, if a general session is impossible to establish, the second-best option is to set up a day or two of individual meetings with the board chair, each of the committee chairs, and key executives.

Timely Onboarding is Key

Ideally, all of this needs to happen well in advance of the new members’ first board meeting because, by doing so, there will be a higher probability of them participating and/or contributing at an impactful level right from the very beginning. They know that there was a lot of thought put into their election onto your board and that comes with an expectation that they are bringing value to your board. If you don’t help them build momentum from the very beginning, you diminish their potential and full capacity that your board has in effectively overseeing your organization.

Effective Performance Planning

by Brad Kelly | Dec 3, 2018 | Board Dynamics, Executive Compensation, Governance, Leadership

All About Motivating the Right Behaviour

There’s been a lot of talk in the market place today about the value of performance plans. The naysayers claim that they are not driving performance in the way they were originally intended, and the supporters argue that all compensation should not be a guarantee. A point of intersection is the fact that everyone agrees that employees should be recognized for the contributions they make and the performance they deliver.

Open the Conversation

Organizations are notoriously bad at having “hard conversations” which are discussions on performance, behavior, or anything that can be interpreted as judgmental in any way. This is a problem because all organizations need to deal with negative activities when they arise and, more importantly, inspire the lion share of their employees to perform at their highest level. By doing so, they can maximize outcomes (sales, profits, etc.) and keep stakeholders happy. When it comes to compensation and governance, stakeholders are relatively quiet when organizations are successful and driving higher returns, but when things go south, board pressures increase because stakeholders tend to place more scrutiny on things such as compensation plans and demand changes to corporate governance.

Establish a Schedule

To properly drive performance, organizations need to first establish a schedule and stick to it! You’d be surprised how many boards get around to first discussing annual performance objectives half way through or at the end of the first quarter. This would be like betting on a horse race after the horses are out of the gates and sprinting toward the finish line. Two things happen here, staff feel that first quarter performance is not considered important and agreed targets are easier to hit. If you want employees to perform for the entire fiscal year, logically you need to agree on the performance objectives and targets before the fiscal year begins.

Implement SMARTER Objectives

A reasonable set of SMARTER objectives; Clarity and focus are other elements that help to set an organization up for success. Laundry lists of objectives do little to keep employees focus on essential outcomes and instead, have them struggle with prioritizing their time between multiple objectives that will have minimal impact on their overall incentive reward. Therefore, to help to keep employees focused and driven concise one-page scorecards are ideal and should clearly outline:

Clear performance target expectations; and
All rewards associated with each objective.

Once the performance cycle properly begins, hard discussions should be replaced with proactive coaching conversations focused around the scorecards where employees go into every meeting with absolute clarity on their performance and can engage in win-win conversations in overcoming barriers and/or achieving higher performance levels. Moving away from judgmental conversations and focusing discussions on performance improvement, helps engage employees on a higher level and affirms that everyone wants the same thing – higher performance.

Performance management plan naysayers most likely develop their opinion on experiences and aspects associated with poorly executed and unclear plans that do little to motivate employees. Implementing simple things such as a schedule, scorecards, and win-win coaching conversations go a long way and help ensure that performance remains a priority and that stakeholder expectations are being met.

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