Kyra - Introduction, Agenda & 11.

Intro:

This chapter is on Responsible Ownership and Governance. Owners are key stakeholders in a capitalist system
as they provide a major portion of the capital to finance corporations.

Slide 1: (Agenda??)
· This chapter is on Responsible Ownership and Governance.
· Owners are key stakeholders in a capitalist system as they provide a major portion of the capital to
finance corporations.
Chloe- flip slides after I have read out the Agenda
Part 1:

Who owns Canadian businesses?

Many would say “shareholders”, but the answer is more advanced than that. Owners of a Canadian
Business can be;
 Investors- such as a bank,
 Entrepreneurs—Ownership of business by individuals,
 Employees and managers—Employees including managers may own all or parts of
corporations,
 Customers or consumers—The most common type of business organization owned by customers
is the co-operative,
 Producers-such as farmers, Ownership through mutual funds—A mutual fund is a pool of money
from many individual investors that is invested on their behalf,
 Ownership interest through pension funds—A substantial portion of pension fund assets are
invested in corporate stock.,
 Corporate ownership—Corporations often own shares in other enterprises,
 Private equity firms—The firms are private in the sense that they are not listed and traded on a
stock exchange.,
 Venture capital companies—A venture capital company is a type of private equity firm that
usually acquires part ownership of business enterprises for which they provide financial and
management assistance.,
 Not-for-profit organization ownership—such as churches, non-governmental organizations
(NGOs), foundations,
 Government ownership—Canadian federal, provincial, and municipal governments all operate
many business enterprises.

Many corporations operate with dual- class stock. Where there are different voting rights for owners.
Such as non-voting shares where you have common shares without voting privileges and Restricted Shares
where there are some limits on voting. I think it’s very important to know that every owner might not have the
same voting rights. For example one vote for every 10 shares owned.

Slide 2:
Title: The Ownership of Canadian Business
· Investors
· Entrepreneurs
· Employees and managers
· Customers or consumers
 · Producers
· Ownership through mutual funds
· Ownership interest through pension funds
· Private equity firms
· Venture capital companies
· Not-for-profit organization ownership
· Government ownership
Voting rights
· Non- voting shares: common shares without voting
· Restricted Shares: some limits on voting

Discussion question: What do you think some pros and cons are for a corporation to operate with non-voting
shares and Restricted Shares?

Chloe flip slide- after the discussion (discussion question)

Chloe - 11.2 & 11.3

Kyra - 11.4

Part 4: Protecting Owners and Investors

Protection of owners and investors is a primary issue.

There are many investors scams out there, one that you might have heard is a pyramid scheme. Where in the
end you rarely get back what you give into the company..
Shareholder democracy: the exercise of power of owners to ensure that they are treated fairly and enjoy equally
the privilege and duties of ownership Stakeholder protecting the rights of owners Governments- Canada
Business Corporations Act
Self-regulatory Agencies and Organizations- Stock exchanges, Securities Exchange Commission in each
province and territory
Organizations Representing Shareholders- The small investor protection association
Many corporations have investor relations departments The managers of these
departments strive to maintain the confidence of investors and are active in communicating information about
the corporation to existing and potential investors.

Slide 3:

· Protection of owners and investors is a primary issue.

· Shareholder democracy: the exercise of power of owners to ensure that they are treated fairly and enjoy
equally the privilege and duties of ownership Stakeholder protecting the rights of owners
· Governments-
o Canada Business Corporations Act
· Self-regulatory Agencies and Organizations-
o Stock exchanges, Securities Exchange Commission in each province and territory
· Organizations Representing Shareholders-
o The small investor protection association
· Many corporations have investor relations departments The managers of these departments strive to
maintain the confidence of investors and are active in communicating information about the corporation
to existing and potential investors.
*Pyramid schemes don’t just turn investors into victims – they inadvertently turn them into promoters of the
fraud too. The scam is based on a hierarchical structure like a pyramid, where participants recruit new
participants to make money from, who then in turn recruit more for themselves. The recruiters move up the
pyramid as new investors get involved until new recruits stop joining and the scam collapses. The scheme
always seems attractive with promises of high returns and claims of legitimacy; however, the majority of those
who buy in lose their investment.*

Chloe- Flip slide when after i talk about the investor relations department section

Maija - 11.5

Part 5: Corporate Governance and the Board of Directors

Slide 4:
The Definitions of Corporate Governance:
 The Three Definitions
Corporate Stakeholders:
 Definition
 Roles of the Stakeholders
Board of Directors
 Definition
 Roles of the Board
 Issues with CEOs
How Corporate Governance Practices Have Changed

Board Structure and Membership:

 Structure
 Seperation of Board Chair and CEO
 Becoming a Board Member
Independent Directors
 Definition
 Prospective Directors

Slide 5:
Board Diversity
Women and the Board of Directors
 Canadian Board Diversity Council (CBDC)
 Disclosure of Corporate Governance Practices rule
 Canadian Securities Administrators
 Key findings of the 2018 review

Executive and Director Compensation:

 Compensation
Attention to the Appropriateness of Compensation:
 Say-on-Pay
 CEO Pay Ratio
 Do you believe that we will begin to adopt this principle in Canada? If yes, how would it reflect in
society?
 Director Compensation
Slide 6
Disclosure and Transparency
Disclosure of Corporate Governance Practices
 Management Information Circular (MIC)
Disclosure Requirements and Responsibilities
 Mandates
 OECD Principles of Corporate Governance
Audit Committee

Evaluation:
 Directors and Evaluation

Do you believe that we will begin to adopt this principle in Canada? If yes, how would it reflect in society?

Slide 4:
The Definitions of Corporate Governance:
 The Three Definitions

The Definition of Corporate Governance:

1. The processes, structures, and relationships through which the shareholders, as represented by a board of
directors, oversee the activities of the corporation.
 In this definition, the stakeholders and owners hold a more traditional role:
 Basically means stakeholders and owners are given reliable information about the
company to discuss the ethics and voice opinions about the organization

2. The literature: Governance is concerned with the intrinsic nature, purpose, integrity, and identity of the
institution, with a primary focus on the entity’s relevance, continuity, and fiduciary aspects. Governance
involves monitoring and overseeing strategic direction, socioeconomic and cultural context, resources,
externalities, and constituencies of the institution
 In this definition, the scope of governance is much larger than the first and third.
 It is used in recognition of the numerous stakeholders that influence the ethics of the corporation

3. More practical or applied:

“Corporate governance” means the process and structure used to direct and manage the business and
affairs of the corporation with the objective of enhancing long-term value for shareholders and the
financial viability of the business.
The process and structure define the division of power and accountability among shareholders, the board
of directors, and management, and can have an impact on other stakeholders such as employees,
customers, suppliers, and communities.
 Again, the influence of Shareholders is mentioned.
 For sake of argument, this will be the definition of Corporate Governance I will be referring to


4. Internationally: Including stakeholders in the definition of corporate governance was an important step
and endorsed by the OECD (Organization for Economic Co-operation and Development)
*Continued Slide 4:
Corporate Stakeholders:
 Definition
 Roles of the Stakeholders

Corporate Stakeholders:
What is the role of stakeholders in corporate governance?
 The OECD added a section to their Principles of Corporate Governance, on the role of stakeholders.
Some of the major points included were:
1. The rights of the stakeholder are respected when established by law or mutual agreements.

2. Effective redress should be available to stakeholders when their legally-established rights are violated.

3. If stakeholders participate in the governance process, they should have access to all the
information necessary to carry out their role.

4. Stakeholders should be allowed to freely communicate concerns about illegal or unethical

practices to the board without fear of retaliation

Board of Directors
 Definition
 Roles of the Board
 Issues with CEOs

Board of Directors:
The members of a corporations’ board of directors are...
 the stakeholders directly involved with governance.

Definition:
 A board of directors is a group of individuals elected by shareholders to govern or oversee the
corporations affairs
Roles of the Board of Directors:
 Fiduciary duties: obligations owed by directors to shareholders that are prescribed by laws or
regulations.
 To monitor and evaluate the corporation’s activities and performance. The board has the power to select,
evaluate, and terminate the chief executive officer and top management.
 Required to provide shareholders with financial statements and an auditor’s statement, and other
financial and operational information required by the articles, by-laws, or a shareholder agreement.
(Usually in an annual report)
 Long-term planning by participating in a strategic planning process, and ensuring continuity and
succession in the management team,
 Chief Executive Officers:
 Monitors their (the board’s) behaviour, evaluates their performance, and, if necessary, dismisses
them
Issue with CEOs:
  Some CEOs have not been sufficiently accountable to the board, and thus to the owners of the
corporation
 Suggests an imbalance of power as some managers behaved like monarchs or military dictators.
 Corporate Governance has restored power to the board and taken it away from the all-powerful CEO
 The board is now more independent; in particular, its audit committee is a much more
independent body.

How Corporate Governance Practices Have Changed

 In the past…
 Directors may have questioned management’s decisions but rarely rescind them, even though
they had ultimate authority over key policy decisions
 Now…
 They are playing a bigger role in:
 determining and assessing strategy,
 acquisition decisions,
 succession planning,
 crisis responses,
 financial reporting practices,
 relations with stakeholders,
 and ethical responsibilities.
 Boards are meeting more often;
 seeking more qualified directors, often with particular competencies;
 meeting without management present;
 and hiring their own experts on various matters including executive compensation,
accounting policies, and legal issues.

*Continued Slide 4:
Board Structure and Membership:
 Structure
 Separation of Board Chair and CEO
 Becoming a Board Member

Board Structure and Membership:

(11.6)
Structure:
 Most boards comprise 10 to 15 members who also serve on various committees.
 Common committees include: (Often combined, usually resulting in 3-6 committees)
 audit,
 finance,
 human resources,
 pension,
 compensation,
 nominating,
 governance,
 and strategic planning
 More recently, formation of social responsibility or environment committees

Separation of Board Chair and CEO

 This decision has been controversial to say the least.
 Corporate governance experts and regulatory bodies recommend that...
  different persons occupy the positions and an independent director acts as chair.
 The independence of the board is at issue and many boards have adopted the separation of the
positions to help with that

Becoming a Board Member

 In the past…
 It was a closed process with:
 corporate executives dominating membership,
 acquaintances of executives appointed,
 and the existence of interlocking directorships; that is, directors serving on one another’s
boards
 Corporate governance reform has altered this process in most publicly listed corporations
 Director positions have job descriptions outlining what is expected
 New members are sought through a nomination process, given an orientation to the corporation,
and provided with a continuing education program
 The qualifications of a director are varied
 Financial acumen and the capability of identifying risk are essential
 Operating experience is an asset, and knowledge of governance processes is expected.

**Slide 4 Continued
Independent Directors
 Definition
 Prospective Directors

Independent (or Unrelated) Directors:

 A major issue on board memberships, has been their independence from the operations and management
of the corporation
 Basically, a major issue on board memberships is when there are too many insiders or people heavily
involved with the corporation
 It becomes harder to hold individuals accountable for unethical behaviours
Definition:
 Independent Director:
 a director who is free from any interest and any business or other relationship related to the
organization so they are able to perceive the corporation as it is (or unbiased)
 Could, or could reasonably be perceived to, materially interfere with the director’s ability to act
in the best interests of the corporation
 Again, this basically means that
 they are a director who has no immediate correlation with the corporation
 so they are able to see it unbiasedly
 and act in the best interests of the corporation
 An immediate or direct correlation to the corporation would be:
 Family members,
 current executives,
 recently departed members of management,
 and professional advisers such as lawyers

 There must be a majority of independent board members or an appropriate explanation provided

 Prospective directors must be interested in:
 the quality and reputation of the existing board,
 the quality of governance processes,
 the board’s independence,
  and the corporation’s approach for integrity and social responsibility.

In Class Question: How have corporate governance practices changed? Can anyone think of an example?

End of Slide 4
CHLOE - Next slide after we and the class discuss…
 How have corporate governance practices changed? Can anyone think of an example?

Slide 5:
Board Diversity
Women and the Board of Directors
 Canadian Board Diversity Council (CBDC)
 Disclosure of Corporate Governance Practices rule
 Canadian Securities Administrators
 Key findings of the 2018 review

Board Diversity:
(11.7)

Why?
 Brings a range of outlooks, opinions and suggestions regarding the corporation, decision-making, and
problem solving.

Women and the Board of Directors

 Right now….
 The recruitment of women and minorities is receiving attention
 About 24 percent of the directors of Canada’s largest corporations are women (depending on the
corporations surveyed)
 Progress has been made in increasing the number of women
 AND many corporations say they want women directors
 However, few follow through with electing them

 It is argued that:
 the pool of qualified applicants is small
 and women lack experience as chief financial officers and CEOs
 A “critical mass” (at least) of three or more female directors is required before they influence the board
 Critical mass: Where women are no longer seen as outsiders and are able to influence the
discussion process
 Responsibility for Ethics 11.7
 EXAMPLES
 describes organizations involved in enhancing the board membership diversity. Mandatory quotas have
been suggested, but they are opposed by most advocates who want to of increase board diversity

**Slide 5 Continued
 Disclosure of Corporate Governance Practices rule
 Canadian Securities Administrators
 Key findings of the 2018 review
Canadian Board Diversity Council (CBDC)
 Surveys and reports have found that there has been little progress in increasing gender diversity on
boards
 The Canadian Board Diversity Council (CBDC) prepares an Annual Report Card on the representation
of
 women,
 minority groups,
 Indigenous Peoples,
 persons with disabilities,
 and LGBTQ on the FP500 boards.

 In the past 15 years, CBDC has found little change in diversity, including the finding in its
 “Annual Report Card 2017: Advancing Diverse Leadership on Canada’s Corporate Boards” of a
1 percent change since 2016.

Canadian Securities Administrators (CSA)

 NI58-58-101: Disclosure of Corporate Governance Practices rule
 which required corporations to disclose corporate governance practices including
 the number women on boards of directors and in executive officer positions,
 the policies relating to the identification and nomination of women directors,
 and targets for women on boards and in executive officer positions.
 This rule became known as “comply or explain.”

Disclosure of Corporate Governance Practices rule

 The key findings of the 2018 review relating to the number of women on boards since its Disclosure of
Corporate Governance Practices rule

 Here are the key findings of the 2018 review:

 The total percentage of board seats held by women increased to 15 percent in 2018, from 11
percent in 2015 (on companies CSA reviewed).
 When board seats became available and were filled, nearly three in 10 were filled by women.
 The number of issuers with at least one woman on their board increased to 66 percent in 2018,
from 49 percent in 2015.
 42 percent of issuers had adopted a policy on identifying and nominating women directors in
2018, representing an almost threefold increase since 2015.
 Issuers that adopted targets for the representation of women on their boards increased to 16
percent in 2018, from 7 percent in 2015.
 The number of issuers with at least one woman in executive officer positions increased to 66
percent in 2018, from 60 percent in 2015,
 13 Institutional investors and organizations advocating for gender representation on boards of
directors have set a 30 percent goal by 2022.
 Some progress has been made but board diversity is still a significant issue for Canadian
corporate governance and initiatives are underway to continue addressing it.

**Slide 5 Continued
Executive and Director Compensation:
 Compensation
Attention to the Appropriateness of Compensation
 Say-on-Pay
 CEO Pay Ratio
  Director Compensation

Executive and Director Compensation:

Compensation:
 A controversial topic: involving disclosure and transparency is the compensation of executives and
directors
 Securities regulation requires disclosure of executive compensation in publicly traded corporations,
 The compensation received by executives has several components including:
 salary,
 bonuses,
 incentive plans,
 share grants,
 and various perks such as health and pension plans
 Issues exist for all forms of payment and include
 the criteria used to determine salary,
 the magnitude of the compensation,
 the basis for bonus and incentive plans,
 the inverse relationship that sometimes exists between salary and corporate performance,
 the amount and pricing of options,
 and excessive severance and pension payments

**Slide 5 Continued
Attention to the Appropriateness of Compensation
 Say-on-Pay
 CEO Pay Ratio
 Director Compensation

Attention to the appropriateness of compensation:

Say-on-Pay
Definition: the ability of shareholders to vote on the remuneration of executives
 It is an annual shareholder advisory vote on…
 the board’s approach to executive compensation
 It provides shareholders with an opportunity to express their satisfaction with the approach
 Many public corporations in Canada have adopted this policy, but it has been criticized as being
ineffective
 Most shareholder votes on compensation have been supportive, but there are exceptions where
over 50 percent opposed the proposed compensation.
 There are instances when a majority or even a minority of shareholders opposed the compensation
scheme, changes were made.
 Some shareholder democracy are advocating for mandatory requirement for say-on-pay as it increases
the accountability of boards to shareholders.
CEO Pay Ratio
Definition: The ratio of the compensation between:
 The corporation’s chief executive officer (CEO)
 and the median compensation of the corporation’s employees
Another board accountability initiative is…
 the disclosure of a CEO pay ratio, implemented by the U.S. Securities and Exchange Commission in
August 2015
 It is an indication of income inequality in society and will provide shareholders more information when
voting on “say on pay”
 This initiative has not been adopted in Canada but is being discussed
Director Compensation
  Has also become an issue recently as it has increased to reflect the demands being placed on directors
 Directors can receive:
 an annual retainer,
 board meeting fee,
 annual committee retainer,
 and committee meeting fee.
 Some directors receive options,
 Some boards require directors to own shares in the corporation to enhance their stake
 A director’s compensation for a Canadian corporation can now amount to hundreds of thousands of
dollars

In Class Question: Do you believe that we will begin to adopt this principle in Canada? If yes, how would it
reflect in society?

End of Slide 5
CHLOE - Next slide after we and the class discuss…
 Do you believe that we will begin to adopt this principle in Canada? If yes, how would it reflect in
society?

Slide 6
Disclosure and Transparency
Disclosure of Corporate Governance Practices
 Management Information Circular (MIC)
Disclosure Requirements and Responsibilities
 Mandates
 OECD Principles of Corporate Governance
Audit Committee

Disclosure and Transparency:

(11.8)
 Corporate governance reform has focused on disclosure and transparency of the corporation’s operations
 Specifically with regards to financial reporting and disclosure, and how the board functions.
 This became an underlying issue with many American and Canadian corporations in the 1990s
and early 2000s
 Often due to inappropriate behaviour on the part of executives and directors.
 In Canada,
 the regulations of the Canadian Securities Administrators,
 the stock exchange regulations,
 and the self-regulatory organizations
 have had some impact, but not nearly as extensive as in the United States.
 An example of the influence the securities administrators are attempting to gain is outlined in
Responsibility for Ethics 11.8 - (we will get to in a moment)
 where they argue for the improvement in the disclosure of governance practices.
 In order to more effectively regulate, it is proposed that a national securities regulator be formed
instead of relying on the provincial ones now operating.
Management Information Circular (MIC):
Definition: Also referred to as the management proxy circular or proxy circular disclosure report
 The document is sent out to shareholders prior to the corporation’s annual meeting and outlines the
important matters to be discussed
  It includes the information listed in Responsibility for Ethics 11.8.
 The MIC also allows for proxy votes from shareholders who are not able to attend the annual meeting
 The shareholder will vote to approve the slate of nominations for board of directors or have their vote
withheld
 There will also be voting for the selection of the auditor, any major decisions, shareholder resolutions,
and sometimes other items such as say-on-pay

**Slide 6 Continued
Disclosure Requirements and Responsibilities
 Mandates
 OECD Principles of Corporate Governance
Audit Committee

Disclosure Requirements and Responsibilities:

 The Canadian Securities Administrators require that corporations listed on Canadian stock exchanges
provide to shareholders information regarding their governance practices
Examples of the information required are:
 Board of directors: Identification of independent directors, other directorships held, and independence
status of chair.
 Board mandate: Provide the text of the board’s mandate.
 Position descriptions: For the board and committee chairs, CEO.
 Orientation and continuing education: Lists measures to familiarize board members with role of the
board, its committees, and its directors, and the nature and operation of the corporation’s business.
 Ethical business conduct: Disclose whether the board has adopted a written code of its directors,
officers, and employees.
 Nomination of directors: Describe the process used to identify new candidates for board positions.
 Compensation: Describe how the compensation for the corporation’s directors and officers is
determined.
 Other board committees: List and describe functions of committees.
 Assessments: Indicate whether the board, its committees, and individual directors are regularly
evaluated.

 The Canadian Coalition for Good Governance recommends that the following also be included:
 board composition and succession planning,
 director continuing education,
 director attendance,
 director compensation and share ownership,
 strategic planning oversight,
 risk management oversight,
 shareholder engagement,
 and a Chair’s Letter to Shareholders.
Mandates:
 Any corporations listed on Canadian stock exchanges have to disclose the board’s written mandate
 This mandate would include the items mentioned above and also the following:
 The board’s satisfaction with the integrity of the CEO and other executive members,
 and that they are creating a culture of integrity throughout the corporation.
 Identification of measures for receiving feedback from stakeholders, including the possibility of
them contacting independent directors directly.
 Listing expectations and responsibilities of directors to fulfill their duties, for example:
 by attending meetings and reviewing materials prior to meetings.
OECD Principles of Corporate Governance
  This document helps policy makers evaluate and improve the legal and institutional framework for
corporate governance
 This includes some responsibilities in addition to those mentioned previously:
 Treating all shareholders fairly where board decisions affect different shareholder groups
differently.
 Applying high ethical standards and taking into account the interests of stakeholders.
 Monitoring and managing potential conflicts of interest among management, board members,
and shareholders.
 Ensuring the integrity of the corporation’s accounting and financial reporting systems.
 Overseeing the process of disclosure and communications.

**Slide 6 Continued
Audit Committee

Evaluation:
 Directors and Evaluation

Audit Committee
 An important contributor to disclosure and transparency
Definition:
 An audit committee comprises members of the board of directors and oversees the internal and external
accounting auditing function
 This ensures that financial statements accurately and appropriately represent the condition of the
corporation and that regulated disclosures are made.
 The committee makes sure that the corporation is in compliance with all regulations
 Often oversees the corporation’s codes of conduct and/or ethics.
Today…
 corporations are expected to prepare a “charter” for the audit committee
 which discloses the names of committee members,
 indicates whether they are independent,
 and describes the experience and education of each member.

Evaluation:
(11.9)

The evaluation of board performance is one of the most challenging governance reforms to implement.
 The evaluation of board and director performance has not been common in the past
 This is surprising because the performance appraisal process is being widely used in other levels
of the corporation.
 There has been reluctance by many directors who…
 do not believe evaluation is necessary,
 that the process may expose weaknesses in the governance process and be embarrassing,
 and that the collegial relationship among board members may be disrupted.

 Usually the chair or the board’s governance committee initiate the process,
 The criteria for assessing the board’s performance is established and are based on previously set
regulatory requirements
 And, a process is in place to deal with the weaknesses uncovered in the evaluation.

Directors and Evaluation:

 Directors must:
  represent shareholder interests,
 give advice on how to increase shareholder value,
 challenge management of goals and results.
 And to do this, they review the...
 legal,
 financial,
 business
 and governance functions of the corporation.

 Today...
 directors are expected to evaluate the social responsibility of the corporation
 Included in this aspect of evaluation would be:
 the monitoring of the external environment for social trends and stakeholder influences,
 overseeing ethics programs and the corporate social responsibility initiatives.

End of Slide 6
CHLOE - Next slide after I say…
 Does anyone have any questions with regards to the board of directors and corporate governance?

Tanya - 11.6, Summary

The Canadian Securities Administrators (CSA) is the umbrella organization of Canada’s provincial
and territorial securities regulators whose objective is to improve, coordinate and harmonize
regulation of the Canadian capital markets.

“It aims to achieve consensus on policy decisions which affect our capital market and its participants.”
https://www.securities-administrators.ca/about/

The Ontario Securities Commission (OSC) is an independent Crown corporation that regulates
Ontario’s capital markets by making rules that have the force of law and by adopting policies that
influence the behaviour of capital markets participants.

Statutory mandate of the OCS is “to provide protection to investors from unfair, improper or fraudulent
practices, to foster fair, efficient and competitive capital markets and confidence in the capital
markets, to foster capital formation, and to contribute to the stability of the financial system and the
reduction of systemic risk.” https://www.osc.ca/en/about-us

The Canadian Securities Administration (CSA) rules

(https://www.securities-administrators.ca/resources/access-rules-policies/) include the National
Instrument which is an instrument that has been adopted in all thirteen Canadian provinces and
territories.

According to the Ontario Securities Commission (OSC),

https://www.osc.ca/en/securities-law/instruments-rules-policies/5/58-101/national-instrument-ni-58-
101-disclosure-corporate-governance-practices-0

National Instrument 58-101, Clause 5 - Ethical Business Conduct

(a) Disclose whether or not the board has adopted a written code for the directors, officers and
employees. If the board has adopted a written code:

(i) disclose how a person or company may obtain a copy of the code;
 (ii) describe how the board monitors compliance with its code, or if the board does not monitor
compliance, explain whether and how the board satisfies itself regarding compliance with its
code; and

(iii) provide a cross-reference to any material change report filed since the beginning of the
issuer's most recently completed financial year that pertains to any conduct of a director or
executive officer that constitutes a departure from the code.

(b) Describe any steps the board takes to ensure directors exercise independent judgement in
considering transactions and agreements in respect of which a director or executive officer has a
material interest.

(c) Describe any other steps the board takes to encourage and promote a culture of ethical business
conduct.

This clause basically sates that boards should disclose their corporate governance practices within
their corporate messaging and to file a copy of any code of ethics adopted, as well as any
amendments to it. By mandating corporate governance related disclosure, the goal of NI 58-101 is to
provide greater transparency on how boards apply various corporate governance principles.

Owners are taking more responsibility for their organizations’ impacts on society and are taking a
more active role in pressuring boards to improve governance and account for their social and
environmental performance. Investors have become more and more demanding of boards, directors
and management to be more responsible with their investments. Directors are responsible for
everything that happens in an organization. CSR is becoming a very important aspect of an
organization, directors have become it’s overseers and are concerned with their organizations’ ethical
conduct.

There are 5 questions Colero recommends that directors ask with regard to their organization's ethics
management:

× What is the strategy to manage ethics?

× Who is responsible for ethics in our company?

× Are people in our firm equipped to recognize and resolve moral dilemmas?

× Are people in our firm provided with a safe opportunity to discuss ethical issues of concern?

× Do we reward or punish ethical integrity and moral courage if it has a negative impact on the bottom
line?

Discussion Q: What factor(s) have had the most impact in increasing the attention of corporate
owners toward CSR? Change slide after this discussion is done :)

There are four main factors that have pushed attention toward CSR: globalization, loss of trust, civil
society activism, and investor interest in CSR.

Summary

In summary, we have shared with you the information necessary to meet the learning outcomes for
this chapter.
1. Corporations are owned by shareholders or investors. There are several types of owners including
investors, entrepreneurs, managers, employees, producers, and mutual, pension, and investment
funds.

2. Several issues relate to ownership. The most interesting to this chapter is the influence owners have
on the corporation’s social responsibility. One of the biggest tools an investor can use when
approaching issues is to promote shareholder resolutions advocating that the board of directors and
corporate executives take action on particular issues.

3. Responsible investing is the screening responses to social or ethical responsibilities as well as

financial actions of a corporation by looking at a screen comprising negative or positive criteria, and
best-of-sector.

4. Protecting owners and investors. Corporations must always be mindful of their owners; most have
investor relations departments to maintain good relationships with them. Owners rights are protected
by things like government legislation, self-regulatory agencies, industry associations, and activists.

5. Corporate governance has changed over the years due to many developments in the area of
governance and ethics. The board of directors is elected by the shareholders and is mandated to
represent their interests. The board oversees all the corporate activities including the ethics and
social responsibility of the corporation; many corporations have charters specifying the board’s
mandate in this regard. Some issues boards face regarding governance include structure and
membership, diversity, executive and director compensation, disclosure and transparency, and
evaluation.

6. A connection exists between ownership, corporate governance, and ethical conduct and CSR.
Governance is an influence on corporations when it comes to their conduct regarding the interests of
shareholders and other stakeholders, and as a part of corporate social responsibility. Change Slide