Canada: Bill C-25 And Its Amendments To The CBCA: A Legislative Tortoise Approaches A Finish Line

Bill C-25 is a federal government bill that would, if adopted, introduce sweeping changes to the corporate governance regime for reporting issuers incorporated under the Canada Business Corporations Act (CBCA). Like the proverbial tortoise, the bill has moved unhurriedly through the legislative process, in part due to several changes made to the bill since our previous post that discussed Bill C-25. The bill's enactment would be just one of many "finish lines", and it may take several years for all provisions of the bill and accompanying regulations to be drafted and brought into force. This post will canvass the amendments made so far to Bill C-25, with a focus on the proposed gender diversity disclosure framework, and will show a path forward to its eventual coming into force.

What has changed in Bill C-25?

Bill C-25 has been amended in several ways by both houses of Parliament since it was originally introduced in September 2016.

• Majority voting: The most significant amendments made to the bill have changed the operation of the majority voting system that Bill C-25 proposes to enshrine into the CBCA. As originally drafted, Bill C-25 provided that a director candidate in an uncontested election would be elected only if they received a majority of the votes cast in their favour from among all votes cast "for" and "against" them. Senator Wetston, a former Chair and CEO of the Ontario Securities Commission and the sponsor of Bill C-25 in the Senate, proposed instead that a director candidate who receives the support of less than a majority of votes cast may continue in office until the earlier of (a) the 90th day after the date of their election, and (b) the day on which their successor is appointed or elected. Senator Wetston's amendments were ultimately adopted the by the Standing Senate Committee on Banking, Trade and Commerce (BANC) and the Senate as a whole. The revised regime is somewhat analogous to the existing majority voting rules in the TSX Company Manual.
• Diversity review: Much of the debate over Bill C-25 has been about its impact, or lack thereof, on diversity in corporate leadership. During hearings before the House Standing Committee on Industry, Science and Technology (INDU), several witnesses and both main opposition parties pressured the government do more to promote diversity. INDU ultimately voted to insert a five-year review period in respect of the bill's diversity disclosure regime. The five-year review period starts on the day the diversity disclosure provisions are brought into force, which may take years (as described below), meaning such review may not occur until about 2025. The Conservatives and NDP attempted to shorten the time to review to three and two years, respectively, but the Liberals used their majority on INDU to defeat such amendments.
• Other amendments: Both INDU and BANC also adopted several housekeeping amendments. In particular, they corrected certain drafting problems to ensure CBCA reporting issuers can make full use of the notice-and-access mechanism available under provincial securities laws.

What diversity-related information would have to be disclosed?

In addition to the enshrinement of majority voting, the biggest change that CBCA reporting issuers would experience under Bill C-25 relates to diversity-related disclosure requirements.

Currently, all reporting issuers (other than venture issuers) that solicit proxies for the election of directors must disclose gender-diversity-related information regarding their directors and senior management under a comply-or-explain model, as further described in Form 58-101F1 Corporate Governance Disclosure.

The changes the federal government is proposing would be effected through amendments to both the CBCA and to the regulations made thereunder. Bill C-25 would amend the CBCA to require disclosure in respect of diversity among directors and senior management, but all further details are left to regulation. Formal drafting of federal regulations does not begin until after enabling legislation is passed. However, to help understand what the full impact would be under Bill C-25, Corporations Canada has published a description of the proposed regulations that would operate alongside the statutory changes. Corporations Canada updated the proposed descriptions in January 2018. According to the proposed descriptions as amended, all CBCA reporting issuers, including venture issuers, would have to disclose the information required by items 10–15 of Form 58-101F1, subject to the following:

• In respect of items 11–15, rather than just "women", information is to be disclosed in respect of at least each of the designated groups as defined by the federal Employment Equity Act: women, Aboriginal peoples, persons with disabilities, and members of visible minorities.
• The information to be disclosed must be in respect of both directors and "executive officers" as such latter term is defined in NI 51-102 Continuous Disclosure Obligations.

In light of the apparently slow progress made among reporting issuers in achieving gender diversity among their leadership ranks, questions have been raised on the merits of continued adherence to the comply-or-explain model. As a result, a group of Senators proposed an amendment to Bill C-25 at third reading that would have required prescribed corporations to establish numerical goals for the representation of persons in designated groups, and timetables for achieving such goals.¹ The amendment was drafted such that while it would be open to prescribed companies to set any target (even zero), it would be potentially embarrassing to do so. In the end, the amendment was defeated.

When will Bill C-25 receive royal assent?

Making guesses about when legislation will pass is fraught with difficulty. Bill C-25 was granted first reading in the House of Commons back on September 28, 2016, making it one of the bills that has taken the longest to wind its way through the current session of Parliament. Its advancement has been stalled due to being amended both in the House and the Senate, and from having its time for debate consumed by, among other things, unexpected discussions of parliamentary privilege, and by political gamesmanship.

Indeed, many things could still happen to the bill to slow its progress, including further amendments, prorogation, stalling, more pressing matters unexpectedly arising, etc. In particular, the newly independent Senate has been much more inclined to amend government bills, which delays their passage. However, Bill C-25 remains a government bill proposed by a party with a majority of seats in the House of Commons, and the bill also has the support of the main opposition party, so there is every reason to think it eventually will be enacted into law.

There are three steps remaining before Bill C-25 can become law: third reading in the Senate, concurrence in the House, and Royal Assent. Concurrence is the process whereby one house of Parliament considers and, if thought fit, approves the changes made to a bill by the other house. No bill can receive Royal Assent until an identical version thereof has been adopted by both the House of Commons and the Senate. Because the Senate has amended Bill C-25, the bill will return for consideration by the House of Commons. Senator Harder, the Representative of the Government in the Senate, has previously indicated all of the amendments so far made to the bill will find favour with the government. As a result, it is expected that the House will move to concur in all of the changes proposed by the Senate, at which point the bill can proceed to Royal Assent.

From the week of March 19, 2018, Parliament has about 11 sitting weeks until it rises for the summer break at the end of June. Barring further unexpected developments, the bill should likely be passed into law by that time.

When would the changes in Bill C-25 take effect?

Many of the key provisions in Bill C-25 will not take effect on Royal Assent. Instead, they will come into force on a day to be named by order of the federal cabinet. Many provisions, including those implementing majority voting and mandating diversity-related disclosure, can function properly only if accompanying regulations come into force concurrently. The federal Treasury Board Secretariat advises that regulations normally take 6–24 months to proceed from "triage" (initial impact assessment) until enactment. Consider also that time may be required to educate investors about the changes; and, in the case of majority voting, the government may have to delay coming-into-force to avoid such a major change taking effect in the middle of proxy season. Accordingly, it may take until 2020 (or later) before all of Bill C-25's changes come into force.

We will continue to monitor the progress of Bill C-25 as it moves through the legislative process and beyond.

Footnote

1. It's unclear what corporations would have been prescribed and what designated groups would have been defined, as this would have been left to regulation. We understand that the Senators understood the framework would have been similar to what has been set out in the most recent proposed regulation descriptions published by Corporations Canada: prescribed corporations would be reporting issuers, and designated groups would be those as set out in the federal Employment Equity Act.

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