October 16, 2014
Directors of corporations have good reason to be concerned about their responsibilities and potential liabilities. Society is very interested in proper corporate governance and, in particular, the accountability of individuals who direct corporate behaviour. There is complex securities regulation in the corporate governance area in Canada and the United States. Courts, regulators, legislators and shareholders closely scrutinize the way in which directors discharge their responsibilities.
Directors respond by closely monitoring the activities of the corporation they serve, by critically evaluating their exposure to liability as a result of the corporation’s activities and financial condition, and by recognizing that, in many cases, they can manage the risks if they fully understand the nature of their obligations so that they can properly discharge them.
This guide [PDF] outlines the responsibilities and liabilities imposed on directors of Canadian corporations. While the guide focuses on public companies, private company directors have essentially the same responsibilities and liabilities as their public company counterparts except for those imposed by securities laws or stock exchange requirements. The guide deals with the issues confronting directors in the following way:
- Part I sets out corporate and common law duties of directors and describes the general principles applicable to the discharge of those duties. It also outlines the manner in which the corporation, shareholders and third parties may enforce those duties.
- Part II describes the role of shareholders.
- Part III addresses corporate governance as it relates to the process by which boards of directors discharge their responsibilities.
- Part IV discusses a number of decisions that directors typically face and highlights the issues which should be of particular concern to directors making such decisions.
- Part V describes some of the additional statutory duties imposed on directors, the penalties associated with a breach of those duties and the defences available to directors.
- Part VI reviews the ways that directors can reduce their risk of personal liability, in particular through indemnities and insurance.
DOWNLOAD PDF: Directors' Responsibilities in Canada
Reference is made primarily to corporations governed by the Canada Business Corporations Act (the CBCA) and the duties and liabilities imposed on directors of those corporations. While provincial business corporations legislation is, in most cases, substantially similar to the CBCA, there are differences from one statute to the next in the provisions dealing with directors. Some significant differences are highlighted, but directors should consult counsel to ensure they are aware of all of the responsibilities imposed on them by their corporation’s governing statute. Corporations that carry on business in regulated industries such as banking are not subject to these corporate statutes. However, the governing statutes of many of these corporations impose the same broad duties on directors as do the corporate statutes, in addition to certain other responsibilities relevant to the particular industry in question. These industry specific responsibilities are referred to occasionally, but are not treated exhaustively. Again, boards of directors should consult their legal advisors for advice on liabilities pertinent to their industry.
Reference is made to the 1994 report (the “1994 TSX Report”) of the Toronto Stock Exchange Committee on Corporate Governance in Canada (informally known as the Dey Committee after its chair, Peter Dey) and the 2001 report (the “2001 TSX Report”) of the Joint Committee on Corporate Governance (informally known as the Saucier Committee after its chair, Guylaine Saucier). The guide also details recommended or required corporate governance practices under securities laws. In particular, the guide describes the corporate governance guidelines in National Policy 58-201: Corporate Governance Guidelines (NP 58-201), corporate governance disclosure requirements in National Instrument 58-101: Corporate Governance Disclosure (NI 58-101) and standards for audit committee composition and practices in National Instrument 52-110: Audit Committees (NI 52-110).
Finally, this guide [PDF] identifies only a sampling of the more significant statutory duties imposed on directors. Directors must ensure they are fully informed of all their responsibilities and potential
liabilities in order to meet the standards imposed on them by law.
Leaders from Osler and the Institute of Corporate Directors discuss the evolution of corporate governance and the release of Directors’ Responsibilities in Canada [PDF] – a guide to understanding and fulfilling director responsibilities.