Canadian Watchdog Adopts Governance Principles

February 24, 2003 ( - The Investment Counsel Association of Canada (ICAC) has announced its Principles of Corporate Governance.

The ICAC, representing Canadian investment counsel and portfolio management firms, has aimed release of the principles at its 70 member firms  in an effort to press for improvement in the standard of corporate governance in Canada.  “These principles have been drafted after much debate and represent the standards of corporate behavior that our members expect of the companies they invest in.   Canadian corporate management must understand that the ICAC member firms will not support proposals and activities that are inconsistent with these principles, ” Barbara Lockhart, Chair of the Investment & Corporate Governance Committee, said in a statement.

Laid out in three parts, the principles provides guidelines to be used when:

  • selecting a Board of Directors
  • determining how the Board should be managed
  • the rights shareholders will have in their company’s structure.  

Board of Directors

The ICAC views as best practice corporate governance guidelines for public companies that include separate votes for individual Board of Director nominees through disallowing cumulative voting.   The majority of nominated, and later elected, members of the Board should be unrelated to the company, management or majority shareholder and serve on a board that is not staggered.   Instead, the ICAC proposes the election of all directors annually, by individual.

Further, the position of Chair of the Board and Chief Executive Officer should be separate, unless an independent Corporate Governance Committee exists. Overall size of the Board should be no fewer than seven, but also not larger than 15 members. To ensure issues are dealt in a timely and fair manner, the Board should establish issue committees, such as an:

  • audit committee   – responsible for accurate accounting and reporting of the company’s financial performance
  • corporate governance committee   – responsible for governance issues
  • compensation committee   – responsible for assessment and compensation of senior management
  • nominating committee   – responsible for assessment of existing directors, identification, recruitment nomination and orientation of new directors.

Finally, the Board should release an annual report to shareholders.   This report will outline the board members’ backgrounds as well as compensation and other corporate boards they serve on.


ICAC views compensation structures as a way of aligning the interests of directors, management and shareholders.   Among the recommendations is the establishment of a compensation committee on the Board of Directors to oversee management compensation to be competitive, but not excessive.   Part of the total compensation package should then be linked to the company’s performance to better align the Board’s interest with that of the company’s long-term success.   Additionally, “Golden Parachutes”, if utilized, should be reasonable and disclosed.

One way in which compensation can be linked to the company’s performance is through stock option and incentive compensation plans.   ICAC recommends these grants should not vest immediately, rather over a specified period of time.   Further, stock options should have a minimum holding period of three years before they are eligible to be exercised or sold.

A compensation practice not advised by ICAC is corporate loans.    ICAC suggests companies should not provide corporate guarantees for a board member’s bank loan or to purchase company stock.   If loans are to be considered in non-financial institutions, they should be for a maximum of one-times an employee’s annual salary.  

Shareholder Rights

The association regards the proxy vote as an important client asset.   Shareholders’ rights should be protected through ICAC recommendations that included confidential voting by shareholders.   When shareholders are conducting their votes they should be protected from dual class shares, by which one type of issued stock has more weight than another and linked proposals; two separate proposals in one proxy vote should be discontinued.

Shareholder rights proposals should be given an opportunity to be heard by the management or the Board.   Additionally any business transactions dealing with the fundamental issues affecting the future of the company should require a super-majority approval of business transactions.   ICAC sees 67% approval level as sufficient to achieve proper balance

Finally, ICAC recommends full disclosure, under which reporting of proxy votes should be timely and include minimum votes for, against and withheld.

The principles can be accessed through .