Canada: Director Independence Regime – Time For A Change?

Last Updated: April 25 2018
Article by John Tuzyk and Matthew Merkley

The Canadian Securities Administrators (CSA) have received formal submissions (Submissions) on Consultation Paper 52-404 – Approach to Director and Audit Committee Member Independence (Consultation Paper) from 27 commentators, ranging from public companies, large investors, governance commentators, professional bodies and practitioners at law firms, among others, with several Submissions representing the collective views of numerous contributing organizations. The Consultation Paper considers the CSA's current approach to director independence determinations and board committee membership. (See our November 2017 Blakes Bulletin: Are Directors Independent? It Depends: CSA Revisiting Regime). 

Currently, a director is considered independent if he or she has no direct or indirect material relationship with the public issuer, any of its subsidiaries or any controlling shareholder of the issuer. For these purposes, a relationship is material if, in the view of the issuer's board, it could reasonably be expected to interfere with the director's exercise of independent judgment.

However, certain relationships are deemed to be material and automatically result in a director being considered non-independent by the CSA, even if the issuer's board has factually determined otherwise. Most notably, executive officers of controlling shareholders of issuers are deemed to be non-independent under the current rules, even if factually they are independent of the issuer's management.

Generally, the Submissions focused on two related themes: (i) whether to shift the current regime to a "principles-based" approach for independence determinations; and (ii) whether the current approach to determining independence is appropriate for companies that have a controlling shareholder.


As noted by the CSA in the Consultation Paper, "[t]he definition of independence is a central component of our corporate governance regime" and "the exercise of independent judgment contributes to the effectiveness of boards and board committees". The Submissions did not take issue with these statements, but rather expressed both support and criticism of the current approach to determining director independence given inherent consequences of such determinations.

Some commentators viewed the current regime as striking the right balance, ensuring consistency and predictability, taking pressure off directors for making determinations, and obviating the need for shareholders to investigate particular situations in order to reach their own conclusions. Others contended that the current deeming provisions are overly restrictive, capture immaterial relationships and result in suitable individuals being precluded from serving as independent members of boards and their committees.

Further Submissions provided for a middle ground by advocating for: (i) maintaining the "bright-line tests" with some updates (e.g., to increase thresholds for non-director compensation paid to directors by the issuer or to align with similar provisions employed in the U.S.); (ii) augmenting a reduced set of "bright-line tests" with a set of best practices or expanded commentary on the types of relationships that often can reasonably be expected to interfere with the director's exercise of independent judgment; or (iii) expanding the applicable exceptions to better accommodate the particular context of an issuer and the director in question.

Several commentators supported the current regime, but requested that the CSA provide greater focus on the base determination (i.e., a director is considered independent if he or she has no direct or indirect material relationship), fearing that boards may too often curtly conclude that if an individual is not "caught" by the deeming provisions, the individual is necessarily, and appropriately viewed as being an independent director.

Other Submissions noted that the deeming provisions are troublesome in that they can actually result in disclosure that is misleading to investors, by labelling a director as being non-independent despite the board of the issuer having reasonably come to a contradictory conclusion.

Controlled Companies

In particular, one context that was frequently the core focus of many of the Submissions was the inappropriate application of the current regime to issuers with controlling shareholders. These Submissions propose that the determination of director independence should be factual and contextual, undertaken by the issuer's board of directors on a case-by-case basis based on actual relationships with an issuer's management, without reference to any determinative presumptions, including, in particular, relationships with a controlling shareholder.

Certain Submissions argue that the automatic deeming provisions result in a one-size-fits-all regime that is inconsistent with the history of CSA's principles-based approach to corporate governance (as well as the 1994 Report of the Toronto Stock Exchange Committee on Corporate Governance in Canada (known as the Dey Report)) and outdated given the acceptance of alternative forms of good governance by various governance commentators (for example, see our October 2011 Blakes Bulletin: CCGG Releases Governance Guidelines for Equity Controlled Corporations) and proxy advisory firms (for example, see our January 2018 Blakes Bulletin: 2018 Proxy Advisory Firm Voting Guidelines: Canadian Highlights).

The authors of such Submissions also note their belief that members of key committees (i.e., audit, nominating and compensation committees) of a board should be permitted to have a relationship with the controlling shareholder (i.e., serving as an officer of such shareholder), to provide the knowledge and perspective of the controlling shareholder with respect to the matters under the responsibility of such committees. However, the Submissions point out that such directors would not be "representatives" of the controlling shareholder since corporate law provides 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.

Several of the Submissions note that, 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, such as senior management compensation. The potential governance issues typically associated with controlling shareholders relate to conflicts of interests and self-dealing, which, the Submissions provide, to the extent they arise, should be resolved directly through a process involving only directors who are independent of the controlling shareholder and the controlled company rather than using the broad brush of deemed non-independence.

Other Suggestions

Submissions also advocated for, among other things:

  • Connecting director tenure to determinations of independence
  • Enhancing the provisions of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions in a targeted manner (as a more appropriate way of addressing transactions involving controlling shareholders rather than deeming directors to be non-independent)
  • Using the same independence criteria for the board and committees (i.e., no "enhanced" independence for the audit committee)
  • Revising the application of the provisions to employees of professional services firms that are not personally involved in advising an issuer
  • Providing further commentary on what it means to be "financially literate" for purposes of sitting on an audit committee.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
30 Oct 2019, Other, Toronto, Canada

The materials on the Blakes Business Class website are provided for informational purposes only. Accessing this information does not create a lawyer-client relationship.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions