Understanding general rules around corporate governance Understanding the duties of directors Understanding the impact of strong electoral policies and guidelines for elected officials

1. 5TH MINI LLB FOR ABORIGINAL
LEADERSHIP COURSE
MARCH 15, 2016
CHRIS HYLTON
&
CHARLENE BRUNO
Good Corporate Governance
and Duties of Directors

2. Disclaimer
2
The information presented to you today is considered
to be general best practices. This is not intended to
provide expert counsel or advice.

3. Speaker Bios
3

4. Learning objectives
 Understanding general rules around corporate
governance
 Understanding the duties of directors
 Understanding the impact of strong electoral
policies and guidelines for elected officials
4

5. 5
Image courtesy of www.healthcaregovernancereview.org

6. 6
Corporate Governance

7. Key elements of good corporate governance
7
 Corporate framework
 Quality decision making
 Policy development
 Duty of care including fiduciary duty
 Defense and protection
 Standard of review

8. Corporate framework based on critical functions
8
Canada Business Corporation Act (CBCA)
 Articles of incorporation
 Name
 Authorized share capital
 Restrictions on share transfers
 Number of directors
 Other matters such as restrictions on business
Source: Haskayne School of Business - Executive Education

9. Corporate framework based on critical
functionsBylaws
• Officers and
their roles
• Director
meetings
• Shareholder
meetings
• Indemnification
• Signing
authorities
9
Source: Haskayne School of Business - Executive Education

10. Corporate framework based on critical functions
10
Internal authority
 Corporation
 Capacity and powers of a natural person
 Shareholders
 Elect directors annually to represent their interests
 Appoint external auditor on an annual basis
 Approve fundamental changes
Source: Haskayne School of Business - Executive Education

11. Corporate framework based on critical functions
11
Internal authority (cont’d)
 Directors
 Elected by Shareholders
 Manage, or supervise management of, business and
corporation affairs
 Delegates, subject to stated limits
 Minimum of 3 in a public company
 Must meet qualifications
 Independence requirements
Source: Haskayne School of Business - Executive Education

12. Corporate framework based on critical functions
12
Internal authority (cont’d)
 Audit Committee
 Appointed by Board
 Required in a public corporation
 Minimum of three
 Independence requirements
Source: Haskayne School of Business - Executive Education

13. Internal authority (cont’d)
 Officers
 Designated and appointed
by Directors
 Delegated responsibility
from the Board
 Day-to-day management
of the corporation
Source: Haskayne School of Business -
Executive Education
Auditor
 Appointed by
Shareholders
 May be dispensed with in
a non-public corporation
 Provides audit opinion on
the corporation’s financial
statements
13
Corporate framework based on critical functions

14. Corporate framework based on critical functions
14
 Flexibility
 The framework must be able to adapt to the needs of the
corporation
 Shareholder protection through the roles and
responsibilities of Directors and officers
 Fiduciary duty
 Duty of care
 Remedies for Shareholders
 Oppression remedy
 Derivative action
Source: Haskayne School of Business - Executive Education

15. 15
Quality Decision Making
One of the
cornerstones
of good
corporate
governance
is consistent
and quality
decision
making.

16. Quality decision making
16
 Underlying quality of materials and information
 Effective systems, controls, and internal reporting
 Consider reliability of information
 Use of and reliance on experts when appropriate
 Consideration of viable alternatives
 Awareness around conflicts of interest
 Decision making done by independent majority
Source: Haskayne School of Business - Executive Education

17. Quality decision making
17
 Effective use of committees
 Avoid making decisions under pressure whenever
possible
 Allocating sufficient time to decisions relative to
their importance
 Gathering reliable information and asking questions
as required
Source: Haskayne School of Business - Executive Education

18. 18
Policy
Development

19. Board governance policy development
19
Directors’ and Officers Liability Insurance
 Director obligation to manage, or supervise the
management of, the business and affairs of a
corporation (CBCA, section 102(1))
 Fiduciary duty to “act honestly and in good faith
with a view to the best interest of the corporation”
(CBCA, section 2 (1)(a))
 Disclosure
 Confidentiality
 Conflict of interest
Source: Haskayne School of Business - Executive Education

20. Board governance policy development
20
 Duty of care requires that directors and officers must
exercise a standard of care to avoid injury to the
corporation
 “Exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances.”
(CBCA, section 122(1)(b))
Source: Haskayne School of Business - Executive Education

21. Board governance policy development
21
 Business Judgement Rule decrees that Canadian
courts will not second guess business decisions
made:
 Independently, without conflict of interest
 In good faith
 On a reasonably informed basis
 Based on information available at the time, where the decision
falls within a range of reasonable options available at the time
Source: Haskayne School of Business –
Executive Education

22. Duty of care
22
 Corporations must exercise the care, diligence, and
skill that a reasonably prudent person would exercise
in comparable circumstances
 This applies to both directors and officers
 This is based on an objective standard: Look outside in rather
than inside out
Source: Haskayne School of Business –
Executive Education

23. Duty of care
23
 Skill level required
 Must employ skill and knowledge they possess
 Higher standard of care expected of those that possess greater
knowledge or skill
 Must be diligent in attending to the operations of the
corporation
 For example: attend meetings regularly, become knowledgeable
about the corporation’s business
Source: Haskayne School of Business – Executive Education

24. 24
Fiduciary Duty
Fiduciary duty
includes
adherence to
guidelines
around
confidentiality
and disclosure

25. Fiduciary duty
25
 Confidentiality
 Strict adherence to maintaining confidentiality of information
 Disclosure
 Information affecting the corporation in a vital aspect of its
business
Source: Haskayne School of Business – Executive Education

26. Fiduciary duty
26
 When joining a board, members should consider
how connections may impact board duties
 When making decisions, members must determine if
 All Stakeholder interests have been considered
 Decision is in the long-term best interest of the corporation
 Information should remain confidential and never
used for personal gain or other purposes
 Material conflicts of interest should be disclosed
 Members should be required to disclose potential
conflicts of interest on an annual basis
Source: Haskayne School of Business – Executive Education

27. Due diligence defence Indemnification provisions
 Directors and officers
should be aware of
exposure to personal
liabilities
 Must be a clear
understanding of what
constitutes appropriate
diligence
 Corporate statutes
 Corporate bylaws
 Contractual – Federal
Agreements
Source: Haskayne School of Business –
Executive Education
27
Defense and protection

28. Risks to Directors and Officers
28
 Criminal liability
 Fraud, personal profit
 Employee injury or death
 Tort liability
 Negligence
 Breach of fiduciary duty or duty of care
 Misrepresentation
 Regulatory
 Workers’ Compensation
Source: Haskayne School of Business – Executive Education

29. Risks to Directors and Officers
29
 Statutory liability
 Statutes impose Personal Liability on Directors and Officers
 Corporation MUST operate within a wide range of laws
 Corporate
 Employment
 Taxation
 Product liability
 Occupational Health and Safety
 Environmental
 Securities
 Financial Reporting
 Bankruptcy/Insolvency
 Competition
Source: Haskayne School of Business – Executive Education

30. Director and Officer liability insurance
30
 D & O liability insurance protects Officers and
Directors against personal liabilities incurred while
carrying out duties and functions in directing the
affairs of the corporation
 Keeping Shareholders informed
 Raising capital (securing debt)
 Contract negotiations
 Regulatory, financial, and disclosure compliance
 Key employee recruitment and termination
Source: Haskayne School of Business – Executive Education

31. Director and Officer liability insurance
31
 Policies should cover
 Directors
 Officers
 Employees (generally as co-defendants)
 Spouses (covered by policy as protection for personal assets)
 Trustees
Source: Haskayne School of Business – Executive Education

32. Director and Officer liability insurance
32
When obtaining D & O liability insurance,
corporations should consider
 Ability of company to fund deductible
 Other insurances purchased
 Unusual business structures covered
 Income trusts, partnerships, joint ventures
 Cancellation policy
 Signatures required
Source: Haskayne School of Business – Executive Education

33. Director and Officer liability insurance
33
 Conduct exclusions
 Payment of defence costs for allegations of misconduct
 Coverage for statutory liabilities
 Director share limits with
 Entity
 Employment practices
 Fiduciary/Pension/Benefits
 Opportunity for Directors to consult on the scope
and structure of the policy
Source: Haskayne School of Business – Executive Education

34. Standard of review for corporate governance
34
 Toolkit to assist reliance on the business judgement
rule
 Appropriate time spent on the decision
 Avoid conflicts of interest; use of independent committee in
non-arm’s length situations
 Review of critical deal documents or summaries
 Appropriate advice sought from outside experts such as
accountants, financial advisors, compensation consultants,
valuators, etc.
 Regular consideration of options and alternatives
 Opportunity for board to ask questions and seek answers
Source: Haskayne School of Business – Executive Education

35. 35
Duties of Directors

36. Duties of Directors
36
 Fiduciary duty and duty of care
 Act honestly and in good faith to the best interests of the corporation
 Exercise care, diligence, and skill that a reasonable person would
exercise in comparable circumstances
 Duty to comply
 CBCA, articles, bylaws
 Unanimous Shareholder Agreement
 Non-delegable matters
 Filling Director or Auditor positions
 Issuing securities, declaring dividends
 Approving annual financial statement
Source: Haskayne School of Business – Executive Education

37. Duties of Directors
37
 Personal liability
 Issues for less than fair value non-money consideration
 Redemption of and dividends on shares
 Improper financial assistance
 Improper indemnity
 Wages (6 months)
 Right of reliance – a defense
 Financial statements
 Experts
 Auditors, lawyers, engineers, financial advisors, other
professionals
Source: Haskayne School of Business – Executive Education

38. Emphasis on fiduciary duty
38
 Directors must act honestly and in good faith with a
view to the best interests of the corporation
 Corporate interests must be placed above personal interests
 Directors must act in the interests of the corporation as a
whole rather than interest of any particular Shareholder, group
of Shareholders, or other stakeholders
Source: Haskayne School of Business – Executive Education

39. Conflict of interest and duty
39
 Directors must not enter into agreements in which there
exists, or could exist, a conflict of interest and/or duty
 CBCA section 120 requires disclosure of interest in
material contract or transaction
o Applies to a director or officer who (a) is party to the contract or
transaction, (b) is a director or officer of a party to the contract or
transaction or (c) has a material interest in a party to the contract or
transaction
o Must disclose nature and extent of interest and record in minutes
o Must not vote (subject to exceptions)
o Must be fair to the corporation when approved
o If procedures not followed, the contract or transaction may be set
aside by a court and the director or officer required to account to the
corporation for any profit or gain realized
Source: Haskayne School of Business – Executive Education

40. Board meetings
40
 Directors are responsible for effective leading of
board meetings to ensure that required protocols,
procedures, and due diligence are adhered to
 Recording sufficient information to reflect how decisions were
made in the event anything is challenged in court
 Ensuring presentations and reports are accurately captured in
minute package
 Ensuring accurate notes are kept that can be used in court
cases, as required
Source: Haskayne School of Business – Executive Education

41. Director evaluation
41
 Appraisals must include specifics, clearly defined
steps and practices, commitment from Directors and
the CEO/Executive Director/General Manager
 Assessment must recognise the distinctive set of
competencies that each Director brings to the
corporation
Source: Haskayne School of Business – Executive Education

42. Director evaluation
42
 Knowledge of the business
 Knowledge of senior management
 Initiative
 Preparation
 Time
 Judgement and candor
 Integrity
Source: Haskayne School of Business – Executive Education

43. 43
Electoral Policies and
Guidelines for Officials

44. Strong electoral policies
44
 Give Shareholders and voters and equal say in the
selection of people who will represent them and their
best interest
 Encourage participation
 Policies must make it easy for people to participate in the
process in an informed and meaningful way
 Based in fairness
 All qualified candidates must have equal opportunity to
declare their candidacy and be able to participate in the
process

45. Strong electoral policies
45
 Transparent
 Candidates must be accountable for being transparent
regarding their motivation, potential conflicts of interest,
future goals for the organization and plans for achieving those
goals
 Ensure privacy
 Private ballots are essential
to ensure voters cannot be
intimidated or bribed into
voting a particular way

46. Strong guidelines for duties of elected officials
46
 Required to protect the democratic process
 Failure to protect the democratic process can result in leaders
who behave unethically and Shareholders who become
disillusioned and stop participating in the process
 Help to ensure prompt and proper delivery of
services
 Guides appropriate use of funds
 Protects against waste of resources and inefficiencies

47.  Protect against theft
 Eliminate conflicts of
interest
 Protect against bribery
 Protect against
influence
 Protect confidential
information
 Protect against fraud
47
Strong ethics guidelines

48. 48
Questions?

49. THANK YOU!
49
Thank you for the opportunity to
present to you today!

50. About us
50
Our services
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51. Contact us
51
#517-7620 Elbow Drive SW
Calgary, AB T2V 1K2
403-264-5288 www.hylton.ca
800-449-5866 chris@hylton.ca

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