Public Submissions

September 17, 2021

British Columbia Securities Commission
Alberta Securities Commission
Financial and Consumer Affairs Authority of Saskatchewan
Manitoba Securities Commission
Ontario Securities Commission
Autorité des marchés financiers
Financial and Consumer Services Commission, New Brunswick
Superintendent of Securities, Department of Justice and Public Safety, Prince Edward Island
Nova Scotia Securities Commission
Office of the Superintendent of Securities, Service NL
Northwest Territories Office of the Superintendent of Securities
Office of the Yukon Superintendent of Securities
Superintendent of Securities, Nunavut

Me Philippe Lebel
Corporate Secretary and Executive Director, Legal Affairs

Autorité des marchés financiers
Place de la Cité, tour Cominar
2640, boulevard Laurier, bureau 400
Québec (Québec) G1V 5C1
Fax: 514-864-8381
[email protected]

The Secretary

Ontario Securities Commission
20 Queen Street West
22nd Floor, Box 55
Toronto, Ontario
M5H 3S8
Fax: 416-593-2318
[email protected]

Re: Proposed Amendments to National Instrument 51-102 Continuous Disclosure Obligations and Other Amendments and Changes Relating to Annual and Interim Filings of Non-Investment Fund Reporting Issuers and Seeking Feedback on a Proposed Framework for Semi-Annual Reporting - Venture Issuers on a Voluntary Basis (the “Proposed Amendments”)
    
We welcome the opportunity to provide this submission to the Canadian Securities Administrators (the “CSA”) concerning the Proposed Amendments. As both a reporting issuer and an investor, directly or indirectly, holding controlling and minority positions in other reporting issuer investees, we are particularly interested in any opportunity to participate in public dialogue regarding potential revisions to the continuous disclosure regime under securities laws in Canada.

Our Submission Documents

We are part of the working group referred to in the comment letter of Norton Rose Fulbright Canada LLP dated September 17, 2021 and confirm and reiterate the comments made therein, including, in particular, with respect to the proposed changes to the risk factor disclosure requirements in the Proposed Amendments.

The Proposed Amendments also present an opportunity for further consideration of the application of the continuous disclosure regime to reporting issuers (like Power Corporation of Canada (“Power”)) holding interests in reporting issuer investees, to ensure that the regime functions efficiently within such context, without imposing any unnecessary burden on reporting issuer investors that is significantly disproportionate to the potential benefit, if any, for their securityholders.

The Power Group

Power (TSX: POW) is an international management and holding company that focuses on financial services in North America, Europe and Asia. We are major long-term shareholders of companies, including Canadian reporting issuer subsidiaries Great-West Lifeco Inc. (TSX: GWO)¹  and IGM Financial Inc. (TSX: IGM)², in which we hold a controlling interest. Power also indirectly, through its alternative asset investment platforms, holds a significant non-controlling equity interest in The Lion Electric Company (TSX: LEV).

Incorporation by Reference

With respect to the ability of a reporting issuer to incorporate by reference disclosure located elsewhere outside of the Annual Disclosure Statement, the Proposed Amendments provide in the General Instructions of Form 51-102F1 as follows:

(16) Your company may incorporate information required to be included under Part 2 or Part 3 of this Form by referencing another document filed on its SEDAR profile, other than a prior MD&A or AIF (unless expressly permitted by this Form). If incorporating by reference, your company must clearly identify the document or any excerpt of it in the text that incorporates it. Unless your company has already filed under its SEDAR profile the referenced document or excerpt, including, for greater certainty, any documents incorporated by reference into the document or excerpt, your company must file it with the annual disclosure statement or standalone AIF, as applicable. Your company must also disclose that the referenced document is on SEDAR at www.sedar.com.

This is a welcome development, facilitating a reduction in duplicative disclosures, while recognizing the ability of readers to easily locate other clearly identified, publicly available documents on SEDAR to access the applicable information. As a holding company of investments in businesses, including Canadian reporting issuer subsidiaries, we submit that the ability of a reporting issuer investor to incorporate by reference disclosures should also extend to documents (and extracts thereof) filed under the SEDAR profiles of its reporting issuer investees.  

For example, the description of the business of Power and its reportable segments necessarily includes a description of the business of Great-West Lifeco Inc. and IGM Financial Inc., which would already be described in detail by such reporting issuers in their Annual Disclosure Statement, as filed under their respective SEDAR profiles. Further, Power inescapably bears the exact same risks associated with being a significant shareholder of these reporting issuer investees, which risks would already be identified by management of such companies and described in detail in their Annual Disclosure Statement, as filed under their respective SEDAR profiles. As a final example, but not to limit the scope of applicability of such concept, to the extent that disclosure by Power includes (for example, per MD&A requirements concerning trends etc.) material forward-looking information disclosed by its reporting issuer investees, the corresponding material assumptions and risks, as identified by management of such reporting issuer investees, would already be included in the safe harbour cautionary statements concerning forward-looking information contained in their Annual Disclosure Statements, as filed under their respective SEDAR profiles.

Requiring a reporting issuer investor like Power to repeat or (extract and) refile extensive public disclosure already made by its reporting issuer investees is an unnecessary regulatory burden. The ability to incorporate by reference disclosure into an issuer’s Annual Disclosure Statement from readily available disclosure filed on SEDAR is already an acceptable concept under the Proposed Amendments and should not be limited to disclosure filed under the reporting issuer investor’s profile. Clearly identified documents or extracts of documents are just as easily available to readers regardless of whose profile under which they have been filed on SEDAR. 

Further, the Proposed Amendments already go even further by (appropriately) eliminating requirements for an issuer to provide disclosure of information that is easily accessible on sources outside of SEDAR (e.g., the elimination of the current AIF requirement to disclose security price ranges and volumes traded on a Canadian marketplace given that this information can be easily obtained from the marketplaces).

Securities laws (e.g., s. 138.4 of the Securities Act (Ontario)) already provides for a reporting issuer investor to not be liable for a misrepresentation in disclosure it makes which is derivative information “contained in a document filed by or on behalf of another person or company, other than the responsible issuer, with the Commission or any other securities regulatory authority in Canada or an exchange” if the applicable conditions of such provision are met, including that “the document or public oral statement [of the holding company] contained a reference identifying the document that was the source of the misrepresentation”. Accordingly, requiring a reporting issuer investor to repeat or file such duplicative disclosure under its own SEDAR profile does not impact on the reporting issuer investor’s liability for a misrepresentation therein, meaning that investors do not gain anything by burdening the reporting issuer investor by denying it the ability to incorporate by reference such disclosure from the reporting issuer investee’s SEDAR profile.

The foregoing comments apply equally with respect to an Interim Disclosure Statement.

Conclusion

While we are certainly supportive of the burden reduction initiative underlying the Proposed Amendments, we are hopeful that the CSA will also take this opportunity to consider changes to the continuous disclosure regime that would impact particular burdens borne by reporting issuer investors that are significantly disproportionate to the potential benefit, if any, for their securityholders.

Representatives of Power would be pleased to discuss the foregoing with representatives of the CSA if that would be of assistance. 

Yours very truly,

Stéphane Lemay 

Vice-President, General Counsel and Secretary
Power Corporation of Canada

 

[1] Power and IGM Financial Inc. hold 66.7% and 4.0%, respectively, of Great-West Lifeco Inc.’s common shares, representing, in aggregate, approximately 65% of the voting rights attached to all outstanding Great-West Lifeco Inc. voting shares.

[2] Power and The Canada Life Assurance Company, a subsidiary of Great-West Lifeco Inc., hold 61.9% and 3.9%, respectively, of IGM Financial Inc.’s common shares, representing, in aggregate, an approximately 65.8% voting interest in IGM Financial Inc.

September 4, 2020

VIA EMAIL

To:     Capital Markets Modernization Taskforce

Re:     Consultation — Modernizing Ontario’s Capital Markets

This letter is submitted to provide feedback on the recommendations and proposals contained in the initial report (the “Report”) of the Ontario Capital Markets Modernization Taskforce the (“Taskforce”). It reflects the views of a group consisting of 12 Canadian publicly-listed family/founder-controlled reporting issuers having a combined market capitalization exceeding $175 billion¹. Members of this group represent a variety of industries, have head offices located in Ontario, Québec and Nova Scotia, and, in some cases are also significant shareholders or subsidiaries of other reporting issuers in Ontario. As public companies, our experience under Ontario securities laws is in many respects reflective of the broader experience of other large public companies. However, as controlled companies, particularly family/founder-controlled companies, we also share a unique perspective concerning the impact of such laws within such context including, in particular, with respect to corporate governance matters, which are the key priority within this submission.

Executive Summary

We have specific commentary on a number of the Taskforce’s proposals, which we have grouped under the following headings:

1)    Corporate governance and related matters
2)    Adapting to modern technology and communication
3)    Changing the continuous disclosure regime
4)    Recognizing alternative offering model and WKSI (as defined herein)
5)    Shareholder engagement and ensuring the proper functioning of the proxy system 

Context

There are significant burden reduction initiatives already underway at both the Canadian Securities Administrators (“CSA”) and the Ontario Securities Commission (“OSC”) levels. We are generally in support of proposals and initiatives that will reduce regulatory burden while ensuring that the goals of protecting investors from unfair, improper or fraudulent practices, fostering fair and efficient capital markets and contributing to the stability of the financial system and the reduction of systemic risk are served.

In our view, and as noted in the Report, the Taskforce’s work must be viewed and pursued in conjunction with the CSA and OSC initiatives already underway. Pending amendments to National Instrument 44-102 – Shelf Distributions intended to facilitate issuers’ ability to raise capital through “at-the-market” offerings and pending amendments to business acquisition reporting regime in Part 8 of National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”) are examples of the responsive work being done by the Canadian securities regulatory authorities to reduce regulatory burden for issuers.

Specific commentary

1.    Corporate governance and related matters

(a)    Director term limits 

The Taskforce proposes amending securities legislation to establish a 10-year maximum tenure limit for directors, with an allowance that 10% of the board can exceed the 10-year maximum for up to two years. The proposal gives rise to a number of concerns, some of which would be shared by public issuers generally and others of which are either unique to or particularly acute in the context of controlled companies.  

• The proposed tenure limit is arbitrary and does not reflect the fact that meaningful continuity of membership can be critical to the effective operation of a board of directors. The ideal length of a director’s service and the cadence of change are important matters within the governance framework of companies and will necessarily vary for different companies given the fundamental goal of best serving the interests of the company rather than simply adhering to a single one-size-fits-all mandate. Having regard to the range of diverse, highly complex businesses and technical environments in which the issuers submitting this letter operate and the manner in which each of them has therefore approached board composition highlights that issue. Companies should be allowed to thoughtfully weigh the desirability of directors’ institutional experience and expertise against their goals for renewal and new perspectives and to determine the means of best achieving that balance without being constrained by arbitrary director time limits.

• Tenure limits also fail to take into account the special characteristics of controlled companies. Board composition in a controlled company, particularly a family/founder-controlled company, can be a complicated matter. For example, in a family/founder-controlled company, it is absolutely appropriate for persons associated with the controlling shareholder (e.g., family members, employees of a controlling family/founder corporation, trusted advisers etc.) to have long-tenured service on the company’s board of directors, overseeing the controlling shareholder’s significant long-term investment and helping to ensure a very long-term view of value creation. In other circumstances, board nomination or appointment rights may be permanent features of a corporation’s capital structure and within the sole discretion of the shareholder holding such rights. Public shareholders invest in controlled companies not only with full knowledge of the overarching rights of the controlling shareholders but, in many cases, consider the value brought to bear by the ongoing involvement of the family/founder or other controlling shareholder directly, or indirectly through associated members on the board, to be core to the investment thesis. It would serve as an unacceptable disenfranchisement of the core rights of a controlling shareholder to oversee its investment through supporting the election of its preferred candidates to the board of directors.

• Further, limiting director tenure can limit the ability of the board to effectively oversee management succession and could serve as an anti-competitive jurisdictional burden for issuers contemplating accessing Ontario capital markets. 

(b)    Diversity targets

The Taskforce also proposes amending securities legislation to require TSX-listed companies to set diversity targets. We believe that diversity is important to ensure that the members of an issuer’s board of directors and management provide the necessary range of perspectives, experience and expertise required to achieve effective stewardship and effective management of the business, respectively. At the same time, we are committed to nominating highly-skilled individuals to fulfill those roles. We firmly believe that these are consistent, not competing, goals that we and other issuers will increasingly be able to accomplish over time. 

All of the issuers submitting this letter are mindful of their responsibility to contribute to increasing representation from historically under-represented groups. While some of us have adopted targets in respect of certain aspects of diversity, others have not, determining that such targets are not in their company’s best interests or, in any event, are not in their best interests at this time. The mandating of targets, as opposed to a comply-or-explain model, serves as a blunt instrument to address a myriad of nuanced issues that should instead be tackled within a flexible system overseen in respect of each issuer by its directors and officers, acting with a view to the best interests of the issuer within its particular context. For example, is it appropriate that certain distinct, targeted categories of diversity (gender and BIPOC in the Taskforce’s proposal) be selected for all issuers, while other categories are, as a consequence, relegated as not being significant? There is unlikely to be consensus in developing a finite list and so, if a list is mandated, it should be revisited periodically as views concerning the emphasis on different aspects of diversity may change over time. Meanwhile, piggybacking off legislation developed for different purposes (e.g., the CSA’s use of the Employment Equity Act (Canada)) is an imprecise exercise for such purposes and ignores such complexities as the non-binary nature of gender, the fact that so many individuals are multi-racial, and the reality that some individuals will choose not to identify themselves within particular categories. One-size-fits-all regulatory directives are problematic and companies should have the freedom to adopt an approach to diversity that is appropriate for their particular context, including whether to adopt targets, to what aspects of diversity the targets should apply, how to define and measure them, the level of any such targets and the timelines for their achievement.

(c)    Independent Directors

The Taskforce proposes to amend securities law to provide additional requirements and guidance on the role of independent directors in conflict of interest transactions. We are not opposed to such guidance and would welcome the ability to work with the Taskforce in developing it, but caution that given the myriad of company structures and potential conflict of interest transactions, any guidance should be carefully-worded broad concepts rather than prescriptive expectations. Such guidance should also reflect consideration of the highly effective Related Party and Conduct Review Committees or Conflict of Interest Committees (or Corporate Governance Committees with similar mandates) that some controlled public companies have established as independent standing committees of the Board to scrutinize and provide oversight for transactions with their controlling shareholder.

We also encourage the Taskforce to recommend that the provisions concerning deemed non-independence in Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions be revisited to account for the context of family/founder-controlled companies and public companies controlled by other public companies, which currently produce anomalous results (e.g., service on the board of a subsidiary company by a director of a controlled public company engaging in a transaction with its parent, will prevent that person from being considered independent for purposes of such transaction). 

Further, several of the submitting issuers encourage the Taskforce to recommend that the CSA renew its review of the “independence” definition in National Instrument 52-110 – Audit Committees as it relates to majority shareholders and to proceed with appropriate revisions without delay. The currently applicable regime provides that directors of a controlled corporation are automatically deemed to not be independent if they have certain relationships with the controlling shareholder, even if such directors have no other relationship with either the controlled corporation or management of the controlled corporation, other than as a director. These provisions, among other things, prevent any such directors from sitting on the audit committee of the controlled corporation and give the inappropriate and misleading impression to the marketplace that the independent judgment of such directors is somehow compromised. In our view, the determination of director independence should be based upon whether or not the director is independent of the issuer’s management, and whether or not the director has any other relationships with the issuer which could reasonably be expected to interfere with the exercise of the director’s independent judgment. 

(d)    Enhanced disclosure of material environmental, social and governance (ESG) information

The Report proposes to mandate disclosure of material ESG information which is compliant with either the TCFD or SASB recommendations for issuers through regulatory filing requirements of the OSC. While we are in support of increased focus by companies on ESG-related initiatives and agree with the Taskforce’s assertion that globally, and in Ontario, there is increased investor interest in issuers reporting on ESG-related information, we note that reporting of material ESG-related information is already required under existing securities laws in Ontario. Accordingly, we do not think it is necessary to incrementally mandate such material disclosures. However, if rules concerning the disclosure of material ESG information are to be adopted, we would stress the need for any such framework to be principles-based, flexible and adaptable to the particular context of each issuer, rather than a rigid one-size-fits-all approach. We would expect to provide further comments if any such specific amendments are proposed. 

2.    Adapting to modern technology and communication

Canadian securities laws and regulatory commentary have not adequately kept pace with technological developments, particularly in the area of electronic communications. The Taskforce has provided some key recommendations in this respect that would both be more cost effective for issuers, while also simplifying access and increasing the convenience and availability of information for all investors. 

As a cornerstone of any such developments, the Taskforce should encourage the CSA to update National Policy 51-201 – Disclosure Standards, which still contains statements like “Investors' access to the Internet is not yet sufficiently widespread such that a Web site posting alone would be a means of dissemination "calculated to effectively reach the marketplace"”, to reflect a more modern approach as Internet access is near universal amongst Canadian market participants, frequently taking place in the palm of an investor’s hand. 

(a)    Access equals delivery and digitization of capital markets 

The Report proposes to move to an “access-equals-delivery” model, which would permit issuers to fulfil their obligations under securities laws to deliver certain documents to securityholders by providing such documents in electronic format or by posting them on a website. We are supportive of moving to such a model, which would benefit both issuers and investors by enabling issuers to reach more investors in a faster, more cost-effective and environmentally friendly manner. SEDAR (if modernized per our submission further below) and an issuer's website provide ease and convenience of use for investors, allowing them to access and search for information more efficiently than they would otherwise be able to with paper copies of documents.

The Taskforce specifically identifies the obligations to deliver a prospectus to purchasers of securities issued under a prospectus and to deliver interim and annual financial statements and related management’s discussion and analysis as obligations that could be discharged by providing electronic access to such documents. While the notice-and-access regime under Canadian securities laws is helpful in this respect for certain documents, and Canadian corporate statutes are catching up to enable a more complete solution, such developments do not go far enough in that they still require mailing of certain materials to investors and the printing of continuous disclosure documents on request. 

Provided that Canadian investors are given sufficient notice of an issuer’s access-equals-delivery practices and clearly directed to free websites with unrestricted access, where appropriate, a short transition period should be sufficient. Investors are already finding and consuming information this way even when being sent printed materials and, particularly during the ongoing COVID-19 pandemic, are becoming accustomed to alternate, streamlined methods of communicating with issuers (e.g., virtual shareholder meetings, online offering roadshows, etc.). Moving to such a system would have also helped alleviate timing and cost issues experienced by companies during the COVID-19 pandemic when services such as printing and mailing were adversely impacted (and at risk of having been more deeply impacted), putting additional strain on issuers to meet deadlines. Should such services continue to be impaired or be adversely impacted by other problems in the future, it will become even more vital for issuers to have access to quick and efficient alternatives to disseminate information.

We encourage the Taskforce (in conjunction with the CSA, in light of CSA Consultation Paper 51-405 – Consideration of an Access Equals Delivery Model for Non-Investment Fund Reporting Issuers released earlier this year) to ensure that a consistent and progressive approach is taken to facilitating the use of electronic communications. 

(b)    Acceleration of the SEDAR+ project

The Taskforce has proposed expediting the SEDAR+ project, the first phase of which has a target date in 2021. We are also in favour of initiatives that modernize information and reporting systems, with anticipated improvements for issuers, insiders and registrants, but also the potential for even more significant benefits for investors and the public. The current systems are showing their age, being both cumbersome to use and limited in advanced interactivity and functionality (such as searching or methods for accumulating and comparing information), requiring users to commit resources to fee-based services. 

3.    Changing the continuous disclosure regime

(a)    Consolidating reporting and regulatory requirements

The Taskforce supports initiatives to reduce regulatory burden and reduce compliance costs, while maintaining investor protection and appropriate levels of disclosure. It suggests, similar to concepts in the CSA and OSC burden reduction projects, that such measures could include combining the form requirements for an issuer’s annual information form, management’s discussion and analysis and financial statements.

While we certainly support the goal of reducing unnecessary and duplicative regulatory requirements, we urge the Taskforce to consider the effect of such changes on issuers if other changes, such as moving to an access-equals-delivery model, are not implemented in tandem. In such a case, combining the form requirements into a single document could increase the costs borne by issuers in connection with the printing and sending of documents to securityholders (e.g., the annual information form content could end up being printed and delivered while it is only currently required to be posted on SEDAR). We encourage the Taskforce to pursue this proposal as an adjunct to access-equals-delivery.

(b)    Streamlining the timing of disclosure (e.g., semi-annual reporting)

The Taskforce is considering changes to the requirements for quarterly financial statements. As family/founder-controlled companies with a very long-term view on value creation, we are particularly opposed to the dangers of short-termism and quarterly capitalism. Accordingly, we support giving issuers the option of adopting semi-annual reporting, but recognizing that such a shift may not be desired by issuers of all sizes, stage of development or industries (particularly if their peers in Canada or foreign jurisdictions are providing quarterly reporting) or even all investors, such a shift should not be mandated. Any developments in this respect would be best pursued in conjunction with, but not conditional upon, potentially similar developments being considered in the U.S., given the number of cross-listed issuers in the Canadian marketplace. As with many of the Taskforce’s proposals, any change in this respect would have knock-on impacts on other recommendations, such as providing the marketplace with effective communication channels (e.g., SEDAR+ and electronic disclosures) for disclosure of material information and appropriate disclosure in offering documents of material facts since the last semi-annual report. 

4.    Alternative offering models and WKSI

(a)    Introduce an alternative offering model for reporting issuers

While we believe that the current prospectus-based offering model works well in general and is a long-standing regime that is well-understood by market participants, we are supportive of the consideration and development of alternative offering models. Accordingly, we encourage the Taskforce to seek out creative alternatives, such as the one outlined in the Taskforce report, that can serve to provide more efficient access to capital markets for established public issuers, while balancing the need to ensure that investors are provided with sufficient and accurate information on which to base their investment decisions. We would expect to provide further comments if and when an alternative regime has been documented in greater detail. 

(b)    Develop a Well-Known Seasoned Issuer (“WKSI”) model

The Taskforce has proposed that legislation be amended to allow the OSC to develop a WKSI model in Canada to issue shelf prospectus receipts automatically for issuers that are above a certain public float and have established an appropriate disclosure record. Similar to our submission in respect of alternative offering models, we are supportive of bringing the WKSI regime to Canada and are emboldened by its track record in the U.S. We would welcome the opportunity to provide further comments if and when such a regime has been documented in greater detail.

5.    Shareholder engagement and ensuring the proper functioning of the proxy system

(a)    Regulate proxy advisors

The Taskforce has proposed that there be introduced a regulatory framework for proxy advisory firms (“PAF”) to, among other things, provide issuers with a right to “rebut” PAF reports. 

We believe that PAFs currently do not have adequate securities regulatory oversight in Canada. Given the fundamental importance under Canadian securities laws of accurate disclosure regarding reporting issuers, we are concerned about the current risk of inaccuracy in PAFs’ reports and voting recommendations and the absence of meaningful consequences for PAFs with respect thereof. In particular, we are concerned by the risk that, due to the same resource constraints that result in an investor’s engagement of a PAF, the investor may review the incomplete, potentially insufficient, and possibly inaccurate information summarized in a PAF report and not verify and consider, prior to voting, the detailed disclosure provided by the issuer in its management proxy circular or in other public documents. It is a common experience for issuers to be the subject of erroneous reports by PAFs. 

It is our belief that, during proxy season, it is appropriate for a PAF to engage with issuers in all circumstances, not just on “contentious situations”. Given the important role of PAFs in assisting investors in making voting decisions regarding matters at shareholder meetings and the consequential nature of the outcome of such votes (even on what may be viewed as routine matters), it is essential that PAF reports contain accurate information and that voting recommendations are based on an accurate interpretation and comprehensive review of publicly available information. The outcome for matters voted on by shareholders, even if not patently strategic, can have an impact on both the current and future financial performance and reputation of an issuer. Issuer engagement may also serve to better clarify an issuer’s understanding of the PAF’s policies and reasons for its voting recommendations.

Given that there is sufficient time between the release of meeting materials and investors' voting deadlines in Canada, a robust and credible issuer engagement process should be mandatory if a PAF is to issue a report on an issuer. It is unacceptable for a PAF to cite resource constraints as a reason for not engaging with an issuer – in such situations, the PAF should refrain from issuing an advisory report. Issuers should receive draft reports, including the data relied upon, and given a fair opportunity (i.e., more than just 48 hours) to respond and have those responses included in the voting recommendation report. Issuers should also have a right to receive a copy of the final report without cost to the issuer. We appreciate that any such engagement should be limited to publicly available information (to the extent material) and, to maintain the independence of the PAF’s process and advice, should not be viewed by issuers as a legislated right to lobby for a voting recommendation. Further, as noted in the Report, PAFs should be required to include any issuer corrections that were not accepted or rebuttals to conclusions with which issuers did not agree, in the report the PAF provides to its clients, such that viewers of the voting recommendation report can see the issuer’s point of view and decide for themselves. 

(b)    Prohibit and prosecute misleading or untrue statements

The Taskforce has recommended that there be created a prohibition to effectively deter and prosecute misleading or untrue statements about public companies and attempts to make such statements, particularly in the context of “short and distort” campaigns or “pump and dump” schemes. We support this recommendation but also believe it should extend to PAFs as well. The decoupling of economic interest and vote decision-making that is inherent in the business model of PAFs necessarily results in PAFs operating without proportionate economic exposure to the consequences of faulty disclosure, advice and, ultimately, voting decisions. 

Canadian securities laws have high expectations regarding the level of detail and accuracy of information required to be disclosed by issuers in the context of matters to be considered at shareholder meetings. In particular, if action is to be taken on any such matter, other than the approval of annual financial statements, issuers are required to briefly describe the substance of the matter in sufficient detail to enable reasonable securityholders to form a reasoned judgment concerning the matter. Rules concerning information circulars in respect of business combinations, related party transactions, take-over bids and issuer bids also mandate disclosure of all matters that would reasonably be expected to affect the decision of securityholders. Further, information circulars concerning take-over bids and issuer bids must contain executed certificates attesting that such documents contain no untrue statement of a material fact and do not omit to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made.

Reflecting the importance of disclosure in an information circular, applicable Canadian securities legislation regards such a document as a “core document” for purposes of civil liability for secondary market disclosures. To the extent that the disclosures contained in reports (or included, summarized or quoted in other documents) released by or with the consent of PAFs alter the mix of available information through the inclusion of an untrue statement of a material fact (e.g., an erroneous voting recommendation based on an untrue factual support for such a recommendation) or omits to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made (e.g., the absence of a sufficient explanation regarding the voting recommendations included in the report), we believe that there should be an appropriate liability regime for PAFs. As the sole purpose of a PAF’s voting report is to provide a voting recommendation, any error in such a report would likely be considered important to a reasonable shareholder in deciding how to vote on a matter. Considering the significant economic and reputational consequences that inaccurate or incomplete information concerning matters to be voted upon at a shareholder meeting can have on issuers and other stakeholders, PAFs should be held accountable for the content of their reports.

(c)    Eliminate OBOs and NOBOs 

The Taskforce has recommended that the non-objecting beneficial owner (NOBO) and objecting beneficial owner (OBO) statuses be eliminated. We are supportive of this initiative to provide issuers with access the list of all beneficial owners of their securities. Eliminating these distinctions would enable us to know more about the true to beneficial owners of our securities, and allow us to better communicate with such securityholders directly. As family/founder-controlled public companies, we are aware of the views of our controlling shareholders, but the current system puts up unnecessary barriers that hinder our ability to communicate with all of our minority shareholders.

(d)    Introduce rules to prevent over-voting 

As noted in CSA Consultation Paper 54-401 – Review of the Proxy Voting Infrastructure, shareholder voting is one of the most important methods by which shareholders can affect governance, communicate preferences and signal confidence or lack of confidence in an issuer’s management and oversight. Issuers also rely on shareholder voting to confirm the approval of important corporate transactions or votes on governance matters such as shareholder rights plans or stock option plans. Accurate proxy voting is integral to the legitimacy of shareholder voting and is therefore fundamental to, and enhances the quality and integrity of, our public capital markets. 

We appreciate the opportunity to provide the foregoing comments on certain of the matters outlined in the Report and look forward to reviewing and providing our views on any proposed changes to securities laws in Ontario resulting from this process.

 

ALIMENTATION COUCHE-TARD INC.

<signed> “Valery Zamuner”
Valery Zamuner
Vice-President, General Counsel and Corporate Secretary
 

BOMBARDIER INC.

<signed> “Steeve Robitaille”
Steeve Robitaille
Senior Vice President, General Counsel and Corporate Secretary
 

CGI INC.

<signed> “Benoit Dubé”
Benoit Dubé
Executive Vice-President, Legal and Economic Affairs, and Corporate Secretary
 

CORUS ENTERTAINMENT INC.

<signed> “Dale Hancocks”
Dale Hancocks
Executive Vice President and General Counsel
 

FAIRFAX FINANCIAL HOLDINGS LIMITED

<signed> “Derek Bulas”
Derek Bulas
General Counsel
 

GEORGE WESTON LIMITED

<signed> “Gordon Currie”
Gordon Currie
Executive Vice President and Chief Legal Officer
 

LEON'S FURNITURE LIMITED

<signed> “John A. Cooney”
John A. Cooney
Vice President - Legal & Corporate Secretary
 

LINAMAR CORPORATION

<signed> “Roger Fulton”
Roger Fulton   
Executive Vice President Human Resources, General Counsel & Corporate Secretary
 

ONEX CORPORATION

<signed> “Andrea Daly”
Andrea Daly
Managing Director – General Counsel
 

POWER CORPORATION OF CANADA

<signed> “Stéphane Lemay”
Stéphane Lemay 
Vice-President, General Counsel and Secretary
 

SOBEYS INC.

<signed> “Doug Nathanson”
Doug Nathanson
Senior Vice President, General Counsel and Secretary
 

TRANSCONTINENTAL INC.

<signed> “Christine Desaulniers”
Christine Desaulniers 
Chief Legal Officer and Corporate Secretary
 

[1] As measured using each issuer’s market capitalization as reported in their most recently filed form under OSC Rule 13-502 – Fees.

January 19, 2018

British Columbia Securities Commission
Alberta Securities Commission
Financial and Consumer Affairs Authority of Saskatchewan
The Manitoba Securities Commission
Ontario Securities Commission
Autorité des marchés financiers
Financial and Consumer Services Commission of New Brunswick
Superintendent of Securities, Prince Edward Island
Nova Scotia Securities Commission
Superintendent of Securities, Newfoundland and Labrador
Superintendent of Securities, Yukon Territory
Superintendent of Securities, Northwest Territories
Superintendent of Securities, Nunavut

Me Anne-Marie Beaudoin, Corporate Secretary

Autorité des marchés financiers
800, square Victoria, 22^e étage
C.P. 246, tour de la Bourse
Montréal, Québec H4Z 1G3
Fax: 514-864-6381 
E-mail: [email protected]

The Secretary

Ontario Securities Commission
20 Queen Street West
22^nd Floor
Toronto, Ontario M5H 3S8
Fax: 416-593-2318
E-mail: [email protected]

Re: CSA Consultation Paper 52-404 – Approach to Director and Audit Committee Member Independence (the “Consultation Paper”)
    
We welcome the opportunity to provide this submission concerning the appropriateness of the current approach of the Canadian Securities Administrators (the “CSA”) to determining director and audit committee member independence. Our Board takes matters of corporate governance very seriously and Power Corporation of Canada (“Power”) and its subsidiaries are active participants in the public dialogue regarding corporate governance in Canada.

Executive Summary

We believe the current regulatory approach to determining director independence is overly restrictive and inflexible, and, as such, not appropriate for all issuers in the Canadian market. The provisions deeming directors that are related to a parent (i.e., the controlling shareholder) of an issuer to be non-independent are not an appropriate response to any potential governance concerns they are intended to address. Being overly-broad, the provisions concerning independence determinations encompass directors who have no direct or indirect relationship with the issuer which could, in the view of the issuer’s board of directors, be reasonably expected to interfere with the exercise of the director’s independent judgment. While such a regime may have the advantage of being predictable in its application, its benefits are far outweighed by its negative effect, in particular with respect to family controlled companies. As discussed further herein, we recommend replacing the current director independence regime with a more flexible one, in which the independence determinations are made by the board on a case-by-case basis without reference to any deeming provisions. 

The Power Group

Power (TSX: POW) is a diversified international management and holding company with interests in companies in the financial services, renewable energy, communications and other business sectors in Canada, the United States, Europe and Asia. We are major long-term shareholders of companies, including Canadian public company subsidiaries, such as Power Financial Corporation (TSX: PWF)¹, Great-West Lifeco Inc. (TSX: GWO)² and IGM Financial Inc. (TSX: IGM)³. Power has had controlling shareholders since its beginnings in 1925 and its present controlling shareholder, the Desmarais Family Residuary Trust, holds, in aggregate, directly or indirectly, an approximately 59.2% voting interest and a 20.9% equity interest in Power.

It has been our practice for decades to take an active role in the oversight of our subsidiaries. Our interests are in seeing that our own shareholders, and indeed all our stakeholders, prosper over the long-term, in alignment with members of the public that have co-invested with us in our publicly-traded subsidiaries. We work with management of our subsidiaries toward this objective, with directors and officers of Power and Power Financial Corporation serving on the boards and board committees of these subsidiaries. These directors have no relationship with the subsidiaries other than as directors and shareholders, and the full-time job of a number of our officers is to focus on and become knowledgeable about the affairs of the subsidiaries.

We think this approach works well as executives of Power and Power Financial Corporation are well placed to represent the interests of all shareholders in interacting with management at the board level. In our view, it is because of this approach that many shareholders invest in Power and in our publicly-traded subsidiaries. 

Determination of Independence

National Instrument 52-110 – Audit Committees (“NI 52-110”) provides that a director is “independent” of an issuer if he or she has no direct or indirect relationship with the issuer which could, in the view of the issuer’s board of directors, be reasonably expected to interfere with the exercise of the director’s independent judgment. We agree with this approach to assessing director independence.

However, NI 52-110 further provides that a director is deemed to have such a direct or indirect relationship with an issuer (and thus not to be independent) if, among other things, the director is, or has been within the last three years, an executive officer or an employee of the issuer’s controlling shareholder. We disagree with this approach.

As noted in the Consultation Paper, the definition of independence is a central component of the Canadian corporate governance regime. First, NI 52-110 requires the Audit Committee of non-venture issuers to be composed solely of independent directors. Furthermore, the definition of independence is also relevant to National Policy 58-201, which provides guidance that nominating and compensation committees should be comprised entirely of independent directors, and to the “comply or explain” regime established under Form 1 of National Instrument 58-101 – Disclosure of Corporate Governance Practices (“Form 58-101F1”).

We believe the determination of director independence should be factual, protecting the interests of all shareholders based on actual relationships with management, while also being contextual, providing enough flexibility for diverse companies to tailor governance to their specific circumstances. As explained below, the current regime for determining director independence suffers from being overly-restrictive and inflexible. 

Impact of the Current Definition of Independence

The automatic deeming provisions result in a one-size-fits-all regime which is inconsistent with the history of the CSA’s principles-based approach to corporate governance and which does not provide the necessary flexibility required to meet the needs of a diverse and increasingly innovative Canadian corporate issuer market. By imposing a rigid and narrow definition of independence, designed for widely-held public companies, the CSA indirectly penalize family-controlled companies and corporate groups such as ours, who choose to tailor their governance structure to their particular context. 

Within the Power group, our governance model, which has been developed over many decades, provides for the inclusion of parent officers (and directors) on boards of subsidiary companies. We believe that the participation of the controlling shareholder is beneficial to all stakeholders. A controlling shareholder is able to support management in the pursuit of long-term strategies and to provide directors who are experienced and knowledgeable about the business of the subsidiary. Serving as a director of a subsidiary is an extension of the role as an officer of the parent shareholder and assists such person in discharging their corporate law duties by focusing on and being knowledgeable about the affairs of the subsidiary. Meanwhile, the interests of the parent are well served by the experience of and expertise in the affairs of group companies brought to the parent by those officers who also serve on the boards of its subsidiaries. The presence of our officers and directors on our subsidiaries’ boards assists our board in the proper stewardship of our holdings, enriches the discussion, and enhances the quality of governance, at both our board and our subsidiaries’ boards. 

Furthermore, we believe it is appropriate for officers of the parent to be members of the subsidiary’s key committees (i.e. Audit, Nominating and Compensation Committees), to provide the knowledge and perspective of the controlling shareholder with respect to the matters under the responsibility of such committees. However, the current regime established by NI 52-110 inappropriately prevents us from including an executive officer of Power (e.g., our Chief Financial Officer) on the Audit Committees of our public subsidiaries. We believe that, given our corporate structure, our Chief Financial Officer would provide an important, value-added perspective and independent oversight with respect to financial matters at our public subsidiaries, for the benefit of all shareholders.

Similarly, Power and its public subsidiaries are made to appear to be “non-compliant” under the “comply or explain” regime established by Form 58-101F1, because of the presence of parent officers (deemed non-independent) on the Nominating and Compensation Committees at Great-West Lifeco Inc. and IGM Financial Inc. This gives an inappropriate and misleading impression to the marketplace, as our officers sitting on our publicly-traded subsidiaries’ boards and key committees are deemed to be non-independent when in fact they do not have any direct or indirect relationship with the issuer which could, in the view of the issuer’s board of directors, be reasonably expected to interfere with the exercise of the director’s independent judgment. 

The CSA’s strict regime with respect to director independence on board and key committees has been adopted by a number of governance stakeholders, including governance rankings and proxy advisory firms and has resulted in negative perceptions, lower governance scores and adverse voting recommendations for Power and its group companies. We find this troublesome given that we seek to meet the highest standards of governance. 

The Value of Family-Controlled Businesses and the Need for a More Flexible Governance Framework

There is no single model of good corporate governance and the structures and practices that are most appropriate vary among issuers. It is therefore important that the CSA not be overly prescriptive in the definition of independence, but rather facilitate the ability of public issuers to arrange their governance structures in ways that they determine as being appropriate to their particular circumstances and to adapt such structures as their business evolves over time. This also allows investors a wider choice of investments and governance models. 

As noted by various governance commentators, including the Clarkson Centre for Board Effectiveness (“CCBE”), family-controlled firms are subject to very different realities from widely-held firms. As a consequence, because they do not conform to a one-size-fits-all governance framework, especially with respect to director independence, “they tend to be discounted from discussions about the best-governed firms.” However, as CCBE points out, “family firms often appear best able to create value for their shareholders when they choose not to adhere to typical best practices in share structure and independence”.⁴

Family-controlled businesses are the cornerstone of the Canadian economy, with some 90% of companies in Canada being estimated to be family-owned, generating 60% of Canada’s GDP.⁵ This includes a significant presence in larger businesses, where 10 of Canada’s 25 largest employers are family-controlled.⁶

Family control provides unique and inherent advantages, the most important of which is the ability to focus on long-term sustainable profitability. A financially strong and long-term oriented controlling shareholder is aligned with the interests of other shareholders in this respect and can have a significant positive impact on a corporation’s long-term returns, benefiting all shareholders and the corporation as a whole. As noted by Robert Monks, the founder of Institutional Shareholder Services (“ISS”), “in Canada, you have several examples of responsible ownership: The Westons, Thomsons, Desmarais and Irvings easily come to mind. […] when a leader has a personal brand at stake, as owners do, they behave differently. Responsible owners are accountable. They’re vulnerable to the consequences of their company’s actions and outcome. So they care, and make corporate decisions with both the business and their conscience in mind. […] It’s better to have owners who are dedicated to the business, able to sustain a long-term vision and apply their personal values to the enterprise.”⁷

According to a study by National Bank of Canada: “Over the last 10 years, large Canadian family-controlled public companies have outperformed the S&P/TSX Composite Index by 120%”, with total shareholder returns of 192.0% (11.3% per year) compared to 71.7% (5.6% per year).⁸ The study cites longer-term tenures for senior management, superior branding and reputation, the ability to make quicker decisions and the loyalty of employees as some of the other factors which contribute to the outperformance of family firms. Similarly, the CCBE found that “Canadian family-controlled issuers have performed better than their peers over the past 15 years, greatly benefiting minority shareholders”, while noting that the performance gap “suggests that family-controlled issuers are benefiting from their longer-term outlook, and perhaps also from their unique governance structure”.⁴ Furthermore, a McKinsey & Company article comments on the same topic as follows: “what’s noteworthy about [family businesses’] performance is asset productivity and brand value: their asset turnover, or ratio of revenues to invested capital, is roughly twice that of other companies, and they account for 80 percent of the brand value of the world’s most valuable labels”.⁹

Also, family-controlled companies have been increasing their presence among global businesses and are expected to continue to do so over the next decade. In 2014, family-controlled companies made up 19 per cent of the companies in the Fortune Global 500 (which tracks the world’s largest companies by sales), up from 15 per cent in 2005. By 2025, they are expected to increase their share of the Fortune Global 500 group to 40 per cent.¹⁰

In light of the above, we strongly believe that the current approach to director and committee member independence should be revised to permit family-controlled companies to adopt appropriately-customized governance frameworks that are based on factual circumstances and are aligned with and protect shareholder interests within the particular context of such issuers.

Conflicts of Interests and Protection of Minority Shareholders

With regard to protection of the interests of minority shareholders, deeming individuals with a relationship with a controlling shareholder to be non-independent directors of the controlled issuer inappropriately casts an overly-broad net, resulting in unnecessary negative consequences, as discussed above.

Securities laws in Canada already provide a robust regime of minority protections in Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”), requiring a separate approval of certain related party transactions and business combinations by a vote of disinterested minority shareholders, formal valuations, and including augmented and detailed disclosure requirements for proxy circulars concerning such shareholder meetings and any related material change reports. MI 61-101 also mandates the involvement of a special committee of independent directors in specific circumstances and the Companion Policy to MI 61-101 recommends their use in all material conflict of interest transactions, while Multilateral CSA Staff Notice 61-302 – Staff Review and Commentary on Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions provides extensive guidance regarding such committees and their mandates. 

Furthermore, it is important to be mindful of the legal requirement that all directors must always act with regard to the best interests of the corporation as a whole, including its shareholders generally, and not any single shareholder or any shareholder group. This duty is undiminished by any relationship a director may have with a controlling shareholder, such as acting as an officer of the shareholder. Such directors must identify what they regard as the best interests of the controlled company, whether this interest conflicts with or coincides with the best interests of a particular shareholder. 

In most cases, the best interests of a controlled company will be consistent with the interests of a controlling shareholder, which interests will also be aligned with the interests of minority shareholders: the creation and preservation of long-term shareholder value. 

The potential governance issues (which are sometimes referred to) typically associated with controlling shareholders are not ones of “independence” but rather relate to conflicts of interests and self-dealing. Any such concerns which may exist in a controlled company should be resolved directly through a process involving only directors who are independent of the controlling shareholder and the controlled company (e.g., a committee of independent directors). Accordingly, our governance model includes such a committee, the Related Party and Conduct Review Committee, at Power and each of our publicly-traded subsidiaries. This Committee reviews any transaction between the controlling shareholder and the controlled entity to ensure that the transaction is done at market terms and conditions.

Such a mechanism provides for a precise response to a potential governance weakness and can be expected to be more effective in addressing any self-dealing or conflicts issues than the overly-broad definition of independence.

The interests of minority shareholders are not imperilled by providing that directors with a relationship with a controlling shareholder can be considered to be independent directors of the controlled issuer (as long as these directors do not have any other relationship with the controlled issuer other than as directors thereof). This view is supported by the approach taken in other jurisdictions, as identified in the CSA Consultation Paper, wherein there is an absence of evidence that such approach has been in any way detrimental to the capital markets in such jurisdictions. 

Recommended Approach

The definition of independence should be adjusted to provide broader regulatory flexibility, while providing proper protection for all stakeholders involved.

The determination of director independence should be based upon whether or not the director (i) is independent of the issuer’s management, and (ii) has any other relationships with the issuer which could reasonably be expected to interfere with the exercise of the director’s independent judgment. Independence is a question of fact that should be determined by the issuer’s board of directors, on a case-by-case basis, and without reference to any presumptions such as those currently contained in NI 52-110. Directors with a relationship with a controlling shareholder should not be considered to be non-independent by definition. 

With such a revised methodology for determining independence, under the “comply or explain” regime established under Form 58-101F1 and the guidance provided by National Policy 58-201, independent directors with relationships with a controlling shareholder could sit on a controlled company’s nominating and compensation committees and, under NI 52-110, could sit on a controlled company’s audit committee.

Alternative Approach

Many investors expect controlling shareholders to have substantial influence over the strategic direction of the company, the election of directors, the appointment of executives, the financial affairs of the business and executive compensation. If the CSA are unwilling to remove relationships with a controlling shareholder from the non-independence deeming provisions, NI 52-110 should be, at a minimum, updated to distinguish between directors that have a relationship with an issuer’s management, and directors that have a relationship with the controlling shareholder, but are independent of the issuer’s management (i.e., a “Related Director”), while Form 58-101F1 and National Policy 58-201 – Corporate Governance Guidelines (“NP  58-201”) should at a minimum be updated to recognize the alternate forms of good governance practices at controlled companies.

• Item 1 of Form 58-101F1 and Section 3.1 of NP 58-201 currently provide that a Board of Directors should have a majority of independent Directors. In our view, a controlled company’s board should include both independent directors and Related Directors. The determination of the appropriate number of each category of director should be made by the board of directors of the issuer, based on its own particular circumstances.

• Item 6(b) of Form 58-101F1 and Section 3.10 of NP 58-201 currently provide that the Nominating Committee should be composed entirely of independent directors, while Item 7(b) of Form 58-101F1 and Section 3.15 of NP 58-201 currently provide that the Compensation Committee should be composed entirely of independent directors. In our view, it is normal and appropriate in the case of a company with a controlling shareholder, to have Related Directors as members of the subsidiary Board committees (to provide knowledge and perspective of the controlling shareholder with respect to executive compensation, appointments and board nominations), as well as independent directors. The determination of the appropriate number of each category of director on the Nominating and Compensation Committees should be made by the board of directors of the issuer, based on its own particular circumstances.

• Further, Section 3.1(3) of NI 52-110 should be revised to permit Related Directors to sit on an issuer’s audit committee. Such Related Directors can provide important, value-added perspective to both the subsidiary issuer and the parent with respect to financial matters. The determination of the appropriate number of each category of director on the audit committee should be made by the board of directors of the issuer, based on its own particular circumstances. Failing the foregoing changes, Section 3.3 of NI 52-110 (which provides a limited allowance for parent company officers to sit on a subsidiary issuer’s audit committee) should be amended to remove the qualification pre-requisite that the proposed audit committee member not be an officer of an affiliated issuer whose securities are traded on a marketplace. Section 3.3 already recognizes that one size does not fit all and alternate forms of audit committee composition can be appropriate in different contexts. However, it is unclear why having the affiliated issuer’s securities being traded on a marketplace diminishes the acknowledged legitimacy of participation on an issuer’s audit committee by a director who is an officer of such an affiliated issuer. 

The foregoing differences are already recognized as acceptable alternative forms of good governance by many commentators that distinguish between directors that have a relationship with an issuer’s management and directors that have a relationship with the controlling shareholder, but are independent of the issuer’s management, including the Canadian Coalition for Good Governance’s (“CCGG”), in their policy Governance Differences for Equity Controlled Corporations, which, in order to “take into account the legitimate governance differences of equity controlled corporations”, also provides for greater participation by Related Directors on the Board¹¹ and committees¹² of a controlled company. For example, CCGG is of the view that “given their connection to the Controlling Shareholder, Related Directors can bring an important perspective to the audit committee which may add value to the Controlled Corporation.” A similar approach is taken by certain institutional investors, including the Caisse de dépôt et placement du Québec¹³, and by proxy advisory firms ISS¹⁴ and Glass Lewis¹⁵. 

Even as far back as the 1994 Report of the Toronto Stock Exchange Committee on Corporate Governance in Canada (the “Dey Report”), it was recognized that governance, as a “dynamic concept”, was not a one-size-fits-all proposition and that, in particular, directors with a relationship with a company’s controlling shareholder could still be independent of the controlled company, comprise a significant proportion of the board and sit on the nominating and compensation committees of the controlled company, together with directors who are independent of the issuer and the controlling shareholder.

Conclusion

We fully endorse the proposed removal of the “bright line” tests that result in directors with a relationship with a controlling shareholder automatically being deemed to be non-independent of the subsidiary issuer. “Independence” should mean independence from the issuer and its management, and relationships between a controlling or significant shareholder and the issuer can and should be effectively addressed through the recognition and supervision of conflicts of interest. This change takes into account the realities of Canada’s capital markets and its significant proportion of controlled companies.

In the alternative, NI 52-110, Form 58-101F1 and NP 58-201 should be updated to distinguish between directors that have a relationship with an issuer’s management, and directors that have a relationship with the controlling shareholder, but are independent of the issuer’s management, recognizing the value such Related Directors can bring to an issuer’s board and committees.

Representatives of Power would be pleased to discuss the foregoing with representatives of the CSA if that would be of assistance. 

Yours very truly,

Stéphane Lemay 

Vice-President, General Counsel and Secretary
Power Corporation of Canada

 

[1] Power holds an approximately 65.5% voting interest in Power Financial Corporation.

[2] Power Financial Corporation and IGM Financial Inc. hold 67.7% and 4.0%, respectively, of Great-West Lifeco Inc.’s common shares, representing, in aggregate, approximately 65% of the voting rights attached to all outstanding Great-West Lifeco Inc. voting shares.

[3] Power Financial Corporation and The Great-West Life Assurance Company, a subsidiary of Great-West Lifeco Inc., hold 61.5% and 3.8%, respectively, of IGM Financial Inc.’s common shares, representing, in aggregate, an approximately 65.3% voting interest in IGM Financial Inc.

[4] “The Impact of Family Control on the Share Price Performance of Large Canadian Publicly-Listed Firms (1998-2012)”, Clarkson Centre for Board Effectiveness at the Rotman School of Management, University of Toronto, June 2013.

[5] “Family business in North America: Facts and figures”, EY Family Business Yearbook, 2014.

[6] “Business Families: building a brighter future”, Creaghan McConnell Group, 2014.

[7] Listed (David W. Anderson), Summer 2013, pages 33-37).

[8] “The Family Advantage – The Sustainable Outperformance of Canadian Family-Controlled Public Companies”, National Bank of Canada, October 2015.

[9] “Fine-tuning family businesses for a new era”, McKinsey & Company (Åsa Björnberg, Ana Karina Dias, and Heinz-Peter Elstrodt), October 2016.  

[10] The Economist, Business in the Blood – Family Firms, November 1, 2014, available at https://www.economist.com/news/business/21629385-companies-controlled-founding-families-remain-surprisingly-important-and-look-set-stay

[11] “The number of Related Directors of a Controlled Corporation should not exceed the proportion of the common shares controlled by the Controlling Shareholder, to a maximum of two thirds. However, if the CEO is related to the Controlling Shareholder, then at least two thirds of the directors of a Controlled Corporation should be Independent Directors.”

[12] “At least one member of each board committee of a Controlled Corporation should be an Independent Director. In addition, a majority of the members of all board committees (with the exception of the compensation committee) should be either Independent Directors or Related Directors who are independent of management of the Controlled Corporation. All members of the compensation committee should be independent of management of the Controlled Corporation. In addition, if the CEO is related to the Controlling Shareholder, no more than one member of the compensation committee should be a Related Director.”

[13] The Policy on the Principles Governing the Exercise of Voting Rights of Public Companies of the Caisse de dépôt et placement du Québec provides that “[…] when a shareholder holds a large block of shares, the nomination (or governance) and compensation (or human resources) committees must be made up entirely of members who are independent of the company, with the majority of these members also independent of the shareholder who holds a large block of shares.”

[14] ISS’s latest Proxy Voting Guidelines for TSX-Listed Companies (at “Policy Considerations for Majority Owned Companies”) provide that for qualifying controlled companies, “The number of directors related to the controlling shareholder should not exceed the proportion of common shares controlled by the controlling shareholder. […] A majority of the audit and nominating committees should be either independent directors or related directors who are independent of management. All members of the compensation committee should be independent of management.”

[15] In its latest An Overview of the Glass Lewis Approach to Proxy Advice – Canada (at “Controlled Companies”), Glass Lewis provides that, “The board of directors’ function is to protect the interests of shareholders; however, when a single individual or entity owns more than 50% of the voting shares, the interests of the majority of shareholders are the interests of that entity or individual. Consequently, Glass Lewis does not recommend withholding votes from boards whose composition reflects the makeup of the shareholder population. In other words, affiliated directors and insiders who are associated with the controlling entity are not subject to our standard independence thresholds. […] The compensation, nominating and governance committees do not need to consist solely of independent directors.”