Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 17 - Evidence, June 22, 2000

OTTAWA, Thursday, June 22, 2000

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-25, to amend the Income Tax Act, the Excise Tax Act, and the Budget Implementation Act, 1999; and Bill S-19, to amend the Canada Business Corporations Act and the Canada Cooperatives Act and to amend other Acts in consequence, met this date at 11:00 a.m. to give consideration to the bills.

Senator E. Leo Kolber (Chairman), in the Chair


The Chairman: Honourable senators, prior to hearing our witnesses, we have some unfinished business from yesterday. I would start by saying that last night, tempers were frayed. Certainly mine was, as was my deputy chairman's. I unabashedly apologize for any untoward remarks or statements that I may have made.

Senator Tkachuk: Apology accepted.

The Chairman: Based on some further discussions between myself and the deputy chair, I would now propose the following motion. Is there leave to revert to consideration of clauses 70 to 72?

Hon. Senators: Agreed.

The Chairman: Shall clauses 70 to 72 carry?

Hon. Senators: Agreed.

The Chairman: Carried. Shall clause 73 carry?

Hon. Senators: Agreed.

The Chairman: Carried. Shall the title carry?

Hon. Senators: Agreed.

The Chairman: Carried. Shall I report Bill C-25 unamended to the Senate?

Senator Tkachuk: On division.

The Chairman: Carried.

Honourable senators, I now call on our next order of business, which is the study of Bill S-19. I would welcome our witnesses from the Canadian Bar Association and ask them to please proceed.

Ms Tamra L. Thomson, Director, Legislation and Law Reform, Canadian Bar Association: On behalf of the National Business Law Section of the Canadian Bar Association, we are very pleased to appear again before this committee on Bill S-19. The Canadian Bar Association is a professional association of more than 36,000 lawyers and other jurists across Canada. Among our primary objectives are improvement of the law and improvement of the administration of justice. It is again in that rubric that we appear before you today.

Since our last appearance, we have met and had extensive discussions with the Industry Canada officials. You have before you a second, more comprehensive brief, as well as a cover letter that outlines the major policy issues that are still at stake. I will ask Mr. McIninch and then Dr. Anisman to speak to you on the substance of those policy matters.

Mr. John McIninch, Barrister & Solicitor, Canadian Bar Association: In our appearance before the Senate Banking Committee on May 10, we undertook to discuss our comments on Bill S-19 with department officials and return to this committee with a revised submission emphasizing issues remaining outstanding. Since then, our discussions with departmental officials have resulted in agreement, both in principle and detail, on a substantial number of amendments to the bill.

We understand our second submission was delivered to this committee on Wednesday of last week.

Although when we left you our intention was to reduce the size of the submission by limiting it to major outstanding policy issues, our second submission is, in fact, longer than the first one. It is longer because of the additional time permitted us to comment on a few more issues and on issues raised by committee members during our last appearance. In addition, we also kept the comments that departmental officials accepted so that the committee would have a full record of our analysis.

However, to help the committee, we organized our comments in three sections. The first addresses broader issues of policy, which you will find in Part II of our submission. Part III and Part IV deal with issues that are primarily technical issues. We separated those which the departmental officials have accepted and agreed with, and those which they have not. We also added a detailed table of contents to provide easy access to specific provisions with which you may have particular concern or interest.

In order to keep our introduction brief, we shall focus on the major policy issues in our submission. I shall provide a brief overview and then ask my colleague, Dr. Anisman, to comment on some key aspects of these issues.

The major policy issues reflect the guiding principles of the Dickerson committee report, which formed the basis for the CBCA. Those principles are, first, structural and managerial flexibility; second -- and this is countered by the flexibility -- shareholder participation and accountability mechanisms; and, third, minimal discretion for the director under the CBCA.

The major issues addressed, as you will see in the policy section, are, first, director residency requirements; second, harmonization with provincial securities laws of the insider trading and going-private transaction provisions; third, principles of corporate democracy and shareholder participation; fourth, the small investor exemption from the bill's proportionate liability regime; and, fifth, process issues concerning rule-making authority and its exercise.

In our prior appearance, we addressed the Canadian residency requirement for directors. As you know, and as we then stated, we believe the requirement should be repealed. We will say nothing further now about such requirements. You may have questions after our opening comments.

I would now ask my colleague, Dr. Anisman, to make a few comments on the key policy issues.

Dr. Philip Anisman, Barrister and Solicitor, Canadian Bar Association: Honourable senators, I will address in more detail the substance of a number of our major policy recommendations. These are outlined, as you know, in Part II of our second submission and in the overview letter that was provided to the committee. I will address them in descending order of significance, although I think they are all significant; and in ascending order of technicality.

The first, and probably most significant from a policy perspective, relates to shareholder participation and corporate democracy. In particular, we have made recommendations on the proposed amendments relating to shareholder proposals, and the definition of solicitation for purposes of proxy solicitation.

There are three areas with respect to proposals that I should mention now. The first has to do with the eligibility requirements. Put simply, it is our view that any shareholder, and that includes a registered shareholder and a beneficial owner of shares, of any number of shares, should be entitled to submit a proposal. Any shareholder is entitled to attend a meeting, speak at a meeting, and move resolutions at a meeting. The point of a shareholder proposal is to make that ability effective.

We support the proposal in the amendments to grant status to submit a proposal to beneficial owners, although we have some technical comments on how to accomplish that with which the department agrees. However, we do not support the more restrictive eligibility requirements that are contemplated in the bill that would impose minimum ownership requirements and minimum holding periods before a shareholder would be entitled to submit a proposal.

In fact, we have noticed a technical element in the bill in this part that would permit the provision in the bill to be interpreted to preclude a shareholder who is not entitled to submit a proposal from speaking at a meeting. That results from reading clauses 137(1) and (1.1)(a) together. We do not think that was intended, but it highlights the importance of maintaining a shareholder's right to speak at a meeting, to move resolutions, and to submit proposals. That is the first area where we recommend amendments with respect to shareholder proposals.

The second element relates to the word limit and the fact that it is tied to both proposals and supporting statements. We think that could be read to limit the number of proposals a shareholder might submit. This was not intended. We see no need for it. It would lead to contortions. Shareholders should be able to put in a couple of related proposals as long as they are not being abusive. We make recommendations on that.

The third issue relating to shareholder proposals is the exemption for so-called "social or public interest proposals." We understand that that is a matter on which the committee has received other submissions.

There are two elements in the new exemption that raise controversy. One is the standard for exemption, and that is the requirement that the proposals have to relate, "in a significant way," to the corporation's business or affairs. "In a significant way" is a fuzzy phrase, to put it simply. The second element that has been controversial is that the provision imposes a burden on shareholders to demonstrate that relationship. We understand that you have had submissions on both elements.

Our recommendation is quite simply to move toward an objective standard. In our view, any shareholder should be entitled to raise any issue at a corporate meeting that relates to the business or affairs of the corporation. Therefore, we would submit that an objective standard be imposed so that a shareholder could submit a proposal as long as it relates to the business or affairs of the corporation. It is simple. It is an objective standard. It does away with the controversy over the burden and it enhances shareholder democracy by ensuring that shareholders can speak on issues of relevance to the corporation, but are limited to issues that have that relevance.

The fourth issue relating to shareholder democracy concerns the definition of solicitation with respect to proxy solicitation and the requirement to prepare, in effect, a dissident proxy circular. The definition of solicitation in the bill is very broad indeed. It catches any communication between shareholders that relates to any matter that might come before a meeting. Then it provides exemptions. One of the exemptions is to permit shareholders to publicly announce how they will vote. The effect of this exemption to preclude shareholders from privately informing other shareholders how they will vote, at least if they tell more than 15.

In our submission, that definition is over broad unless there are additional exemptions. Those exemptions should go to three things.

First, shareholders should be able to discuss among themselves any management proposal at all so long as they are not actively soliciting proxies. That will give shareholders an ability to deal with management proposals. In fact, there is a similar exemption under the SEC's rules.

Second, we recommend an exemption for proxy advisory services so that proxy advisory services can advise their institutional clients about how they might want to vote. At the moment, that would be a solicitation requiring a dissident proxy circular. It is exempted under SEC rules. It should be exempted here.

Third, we recommend an exemption to permit shareholders to discuss among themselves issues with a view to organizing a dissident proxy circular, and submitting one. In those circumstances, a circular would be submitted, and the goals of the legislation would be met. We recognize that this is an issue that could be dealt with in regulations. We raise it now because it is sufficiently important, in our view, to the process that unless the departmental officials and the minister are prepared to commit --

Senator Kroft: May I interrupt? I would like to make sure that I am connected with your brief, and can follow to the best extent possible.

Mr. McIninch: It is page 14, recommendation 11.

The Chairman: How many recommendations do you have?

Dr. Anisman: There are 64 recommendations. We do not propose to go through all of them.

The Chairman: I am at a bit of a loss as to how to handle 64 recommendations.

Senator Fitzpatrick: If you skip any, would you please give us the page and the clause?

Dr. Anisman: I would be happy to do that. I think I have taken up most of the time. Let me just skirt over the other issues. I will not refer you to them in the brief. We can come back, and I can direct them to you more specifically as we touch on them.

The other major policy theme is harmonization of the provisions of the CBCA with respect to distributing corporations with provincial securities laws. In our submission we outline the basic technique that should be adopted in all three areas to which this relates -- takeover bid provisions, going-private transactions, and liability for insider trading <#0107> and that is adoption by reference with a requirement that CBCA corporations comply with applicable securities laws. Our basic approach will not impose additional obligations on CBCA corporations that they might not otherwise have under provincial securities laws. However, it does ensure that they must comply with them in a way that is harmonious, because there will be only one set of laws with which compliance is required.

With respect to insider trading particularly -- and our insider trading provisions are in three sections in the submission -- we have encountered a substantial difficulty in drafting civil liability provisions, within federal drafting style, in a manner that comports with all of the requirements of provincial legislation, and that is part of what leads us to recommend that the adoption by reference technique be used.

We address two other major issues in Part II of the submission, and there is an additional one. One is the exemption from the proportionate liability regime for small investors. We suggested at our last attendance at this meeting that we thought that the provision in the bill which ties that exemption to the amount of an investment in a specific CBCA corporation is arbitrary and does not address the net-worth concern that this committee expressed in its two reports.

We recommend that there be a return to a net-worth criterion to be defined in regulations. We understand that the major concern that led the bill to diverge from your recommendations grows out of Charter issues, and a concern that the exemption based on net worth might invade privacy in a manner that infringes the Charter.

We do not believe that there is a significant constitutional consideration or any likelihood that the provision would be struck down, for three reasons. First, financial data is not at the core of Charter protections. Second, financial information of this nature is regularly required in civil proceedings in courts throughout the country. Third, the provision does not mandate disclosure; it does not require anyone to disclose. A shareholder wishing to be removed from the proportionate liability regime in order to be fully compensated has a choice. That choice is to make the disclosure or not, but the choice is left to the shareholder. For these reasons we think it extremely unlikely that the provision would be struck down under the Charter. We understand that was a concern.

The fourth major policy concern relates to the rule-making procedure. There is a broad delegation of legislative authority in this bill. It gives the cabinet power to adopt regulations and the director power to make rules. It is our submission that the rule-making process should require affected persons to have an opportunity to comment. The CBCA imposes that requirement now. The bill would delete it. In our submission, it should be retained, not only for regulations, but also for rule making by the director.

My final preliminary comment, honourable senators, relates to unanimous shareholder agreements. The Canada Business Corporations Act originally permitted unanimous shareholder agreements in this country. They are supplementary constitutional documents in corporations that adopt them or whose shareholders adopt them; equivalent to bylaws. They usually govern all aspects of corporate conduct with respect to the corporations concerning which they are adopted.

There are three provisions in the bill where the bill would permit certain types of corporate procedures to be adopted in the articles or in bylaws but not in unanimous shareholder agreements. I would refer to the clauses: clause 27(45)(2) which replaces subsection (45)(2), and that is at page 38 of our brief, recommendation 43; clause 58, relating to the varying of notice requirements for meetings in non-distributing corporations, that is at page 30 of the submission, recommendation 31; and the third one is clause 64 as it relates to court-ordered meetings where a meeting is impracticable under the articles or bylaws. It does not mention unanimous shareholder agreements. That is found at page 47 of our brief.

We strongly recommend that the bill be amended to ensure that unanimous shareholder agreements are treated as equivalent to bylaws, as they are in practice, and that the provisions of the bill be amended to reflect that. This recommendation also informs our submission that there should be no requirement that unanimous shareholder agreements be disclosed to the director when adopted and terminated, in a form to be determined by the director. They are private arrangements among shareholders equivalent to bylaws. Bylaws do not have to be filed with the director and neither, in our submission, should unanimous shareholder agreements.

Those are our preliminary submissions, honourable senators. We have attempted to give an overview and highlight the more important ones in the submission, but I would stress that a number of the ones we have not mentioned also have significant elements to them.

Mr. McIninch: Mr. Chairman, we have divided the report into three sections, the second refers to the major policy issues we believe are outstanding. That includes pages 3 to 20 and recommendations 1 to 16, many of which are related, so it boils down to about five policy areas.

What we have put in the third part are the technical issues where we have worked out an agreement, at least in principle, with Industry Canada so there would be no need to discuss the recommendations on pages 20 to 34. There are other technical issues for consideration in a clause-by-clause type of discussion.

We did listen last time to your request and identified in Part II of the brief, which runs from page 3 to page 20, 16 recommendations that are interrelated into about five major policy areas that I have tried to describe for you.

Senator Meighen: On page 17, on the issue of proportionate liability and small investors, how desperately strongly do you feel about that recommendation? As you pointed out, we recommended otherwise, and you do not have to be a rocket scientist to figure out why we changed our mind, because it is the only way we could get something. We figured that half a loaf was better than no loaf. Do you think half a loaf is worse than no loaf? Assuming we cannot get a change now, do you have a difficult time living with what is proposed?

Mr. McIninch: When you put it in those terms we could certainly live with what is proposed.

Senator Meighen: It is not as good as it could be.

Mr. McIninch: I suggest that it bears very little relation to the whole policy behind having the exemption in the first place.

Senator Meighen: We tried, but we were obviously no more persuasive than you were.

Senator Fury: I wish to refer to your comments on proxy solicitation. Your comment was that the expanded definition of solicitation in proposed section 147 has the effect of treating any communication between or among shareholders about a meeting as a solicitation of proxies unless it is exempted.

In your recommendation, you refer to the National Business Law Section of the CBA, and you recommend:

...that the definition of "solicitation" be amended in the regulations, or failing a commitment from the exclude:

(a) communications among shareholders concerning a management proposal for which no formal proxy is solicited by the communicating shareholders;

(b) communications amongst shareholders for the purpose of organizing a dissident proxy solicitation.

How would you respond to the statement: Except in very unusual circumstances, the whole idea of proxy solicitation is more of a process than an event, and the process would involve many of the things that you want to except?

Dr. Anisman: There is a process that leads to the solicitation of a proxy. The dissident proxy circular requirements were initially adopted in the United States and then imported into Canada, primarily to deal with contests for corporate control, for the election of directors. Given the breadth of the definition -- and it is a broad definition -- that has the potential to impede legitimate discussion of corporate issues among shareholders in circumstances where the risk of a change of control without all shareholders having an opportunity to know who is soliciting, who is running, and what the information is, will not be relevant. There have always been exemptions to the definition. In fact, the CBCA now does not contain exemptions because the Dickerson committee was of the view that the definition of solicitation contained in it does not catch most of the kinds of activity that we suggest must be exempted.

The problem is not that it is not a process. The problem is that if you focus only on the process element and the fact that communications can affect how people will vote, even if the communications are not designed to obtain a proxy, there are other consequences that impede shareholder democracy, shareholder discussion.

This has been recognized in the United States, where the SEC rules contain two of the exemptions that we recommend; parallel exemptions are contained in the SEC rules. The new definition in the bill is more comprehensive because it expressly contains exemptions that the Dickerson committee thought were not necessary.

I refer you particularly to clause 67 on page 45 of the bill, the definition of solicitation, and the exemption in subclause (b)(v).

The Chairman: More regulations, which we have not yet seen, are coming in from the department. I am told that they have already agreed to some of the ones you are talking about and some they have not. Are you informed on this?

I will distribute to the members of the committee and to the witnesses the list of recommendations with the indication of whether there will be a change and, if there will be change, what it is.

Dr. Anisman: We have been informed of some of those regulations, but not all of them. When we spoke to departmental officials about these in particular, they were not in a position to make any commitment on them at all.

The Chairman: The whole process seems a bit fuzzy to me.

Senator Furey: I think I understand the scope of what you are saying. However, if the purpose of the recommendation is to exempt what I consider to be fairly critical elements in the process of moving toward proxies, perhaps you are impeding the accomplishment of the intent of having it there in the first place.

Dr. Anisman: The only provision that we recommend that I think deals specifically with the issue you are raising, senator, is the one relating to communications for purposes of organizing a dissident proxy circular. There is a spectrum there, and one can contemplate the possibility of an improper attempt to solicit proxies on the representation that its purpose is to go to a dissident proxy circular when no dissident proxy circular is ever published. However, if that were to occur, I would suggest that that would be a clear violation of the act.

Communications aimed at a dissident circular are part of the spectrum. The exemption for communications with fewer than 16 people is intended, I think, to deal with that problem. However, organizing a dissident proxy circular may require speaking with more and raising funds from more, especially if it is a smaller shareholder doing it.

In our view, as long as the dissident proxy circular is actually filed, it is not exposed to the kind of danger of avoiding the purposes of proxy circulars that I think you are addressing. That is what underlies that.

The other two do not go to proxy solicitation at all. They are part of a process to permit shareholders to discuss management proposals, not their own, as long as they are not actively soliciting proxies.

Senator Furey: Which sometimes can become the reason for moving on. That is why I say it is the process. If you are excepting it at that stage, perhaps you are taking away a part of what should be in the process to get to a dissident proxy.

Dr. Anisman: The difficulty with that is it would preclude shareholders from talking among themselves except through public fora such as press releases and public statements. As I say, the SEC itself, where abuse has been much greater in the U.S., has seen fit to exempt exactly this type of communication.

Senator Angus: I want to compliment the CBA and its business law section for all the great work you have done in connection with this complicated bill. I think we are all of like mind, lawyers and legislators alike, in terms of trying to get it right. Wearing my hat as a lawyer and a practitioner, I would say that this is certainly long overdue. I know that the profession is anxious to have this legislation. However, to get it wrong and have to wait another 20 years would be awful.

Wearing my senator's hat, I am of the view that we should get it right. Therefore, I am interested in this grid that the chairman has just distributed which indicates the degree of success and failure you folks have met with in your negotiations.

One of my pet peeves is the residency issue. On a scale of one to 10, where does that rank with you? If you could only have one amendment that is so far being denied you, is that the one you would like to see? It is the one I would like.

Mr. McIninch: It would rank very high on my list, if for no other reason than that, on a daily basis as a practitioner, I watch it being avoided, either by forum shopping or by employing unanimous shareholder agreements and rendering the whole board nugatory.

Senator Angus: Yes. As well, you go to Yukon or New Brunswick, and you wonder what is going on.

Mr. McIninch: Then you consider public corporations which usually have considerably more than a majority, and that is driven not by the CBCA or any corporate statute but by business considerations. It ranks high on my list because, as a practitioner, I see it being avoided on a daily basis, either by forum shopping or by the highly technical use of unanimous shareholder agreements to render the whole board concept irrelevant to the managerial process.

Senator Angus: You have expressed that very clearly. What arguments were put to you by the officials against that position? Did they give you any rational arguments?

Mr. McIninch: Are you referring to the Canadian residency requirements?

At the risk of offending someone, my answer would be, quite frankly, no. In some cases, our answers from the committee were simply that they had not had time to do the consultation or were not in a position to discuss it, for reasons that mystified us. I can say that Industry Canada did not give us any justification for the 25 per cent rule.

Dr. Anisman: In fairness to the officials, they felt that there was a policy decision taken with respect to the residency requirements with which they were not in a position to deal with us. As a result, we really did not have any discussions about them.

I can tell you that, when the residency provisions went into the CBCA in the 1970s, the technocrats opposed them because they thought there should be neutrality in the corporation law, that they would generally be ineffective, and that it was not the best place to have them if you want them. They were overridden for political policy reasons by the government.

I understood when talking to the officials this time that they had the same kinds of constraints, so I could understand why we did not discuss them.

Senator Angus: Without intending to be flippant, would it be fair for me to conclude that the reason we are not getting anywhere on this issue is because of political policy considerations which have not been supported in terms of the rationale?

Mr. McIninch: Yes.

Senator Angus: Indeed, it might be outdated in a country that is alleging that it is open for business. Would you would urge this Senate committee to seriously consider proposing an amendment in this regard?

Mr. McIninch: Yes.

Senator Angus: You have put forward 64 recommendations. I know some are in the policy realm, others are in the technical realm, and some have been acceded to. Let us assume we can have five of these little cherries. Which ones would you choose? Today, our colleagues across the room are in a much more mellow mood than usual, thanks to the good work of our deputy chairman here last night, so we want to take advantage of that.

Mr. McIninch: It would depend on who answered the question. I know Mr. Anisman's answer would be different from mine.

In addition to residency requirement, I would like to see the harmonization with the provincial securities laws of the insider trading and going-private transactions.

Senator Angus: Stopping on that, we have had high profile cases involving premiers of provinces caught up in the anomalies that arise from the lack of harmonization. The question that jumps into my mind is: What rationale was given in those instances? Is it a constitutional problem?

Dr. Anisman: In the case you are thinking of, the lack of harmonization had to do with interjurisdictional investigation rather than a distinction between the substance of the insider trading laws.

Senator Angus: It did highlight what can happen if there is a lack of harmonization.

Dr. Anisman: That becomes an enforcement issue. The CBCA is intended to be a self-enforcing act, which means, for example, with insider trading provisions, it imposes insider civil liability for improper insider trading and leaves the enforcement to shareholders who are harmed.

The interjurisdictional difficulties of which you are thinking, senator, should not occur in this circumstance. What we are talking about is the goal sought in the bill to harmonize with provincial laws and the most effective means of doing that. That is all we are talking about.

In terms of hierarchies of importance, I happen to think harmonization is near the top as well.

Mr. McIninch: I agree.

Senator Angus: That is a harmonious response. What would be your third choice?

Senator Oliver: The third, fourth, and fifth.

Senator Angus: I do not mean in any way to diminish the importance of the other 60. I know these are thoughtful considerations, but in the art of trying to achieve the possible, let us at least isolate the more important ones.

Mr. McIninch: As I said, we can virtually do away with 40 of the 60 because the department has already agreed to those. We have left them in here so that all our recommendations will be incorporated into one document, but we have isolated some in a separate part.

Senator Angus: Frankly, it also demonstrates to me, and hopefully to the other members and to the public, the degree of work that has gone into the preparation of this submission, and the sincere effort made by both the government officials and yourselves to have a meeting of the minds. That is a very positive demonstration of cooperative legislation.

Mr. McIninch: Yes. May I just say, the Canadian Bar Association has been working with Industry Canada, the policy directorate, and other branches of government for about two and one-half to three years on the background to Bill S-19. This cooperation and dialogue has been an ongoing process.

As I said last time, and I do not withdraw the comment, we were a bit surprised when Bill S-19 hit us. We had no idea what decisions had been finally made from a policy point of view. We had no idea how they were implemented. For us to be able to give this kind of response did take quite some time and a serious commitment.

Dr. Anisman: If I might return to your question, senator, in terms of prioritizing, we have attempted to do just that in Part II of the submission and in the accompanying covering letter.

As Mr. McIninch said in his opening remarks, there are five areas that we believe raise major policy issues. We do agree on them, in fact.

These are: directors' residency requirements; harmonization, to which we just referred; corporate democracy and shareholder participation issues that I addressed in my part of our opening remarks; the issue about proportionate liability, although, in fairness, that is not quite as significant as the other three; the regulation and rule-making process, which we think is very significant indeed, although in specific provisions one could argue that, but as a matter of process we think these are quite significant; and finally, a recognition that a unanimous shareholder agreement is a constitutional document and should be treated as such.

Those would be our five or six priorities, if you want to put it in those terms.

Senator Angus: You are all ad idem on that?

Mr. McIninch: Yes.

Senator Angus: Thank you. That is helpful.

Senator Meighen: Could you elaborate for my benefit? You characterize this as an objective definition -- and I am referring to this question of the relationship to the business of a corporation. The word proposed now is, "significant."

Dr. Anisman: The phrase is, "In a significant way."

Senator Oliver: -- to the business or affairs of the corporation.

Senator Meighen: Do you take the position that, by eliminating that qualifier, we would have a more objective test as to whether the matter relates or does not relate to the business of the corporation.

Mr. McIninch: Yes.

Senator Meighen: It would seem to me at first blush that the qualifier might be even wider than: "in a significant way."

Senator Oliver: Put it in the context of Talisman.

Dr. Anisman: If you think of it in the context of a corporation whose business activities raise serious political considerations in a country in which it is operating, there is no doubt, in the context of Talisman as was suggested by Senator Oliver, that what is going on in Sudan is a significant aspect of the business of the company.

If it were a smaller part of the business, there may be doubt about how significant it would be, but as long as it relates to the conduct of the corporation's business, the manner in which it should be dealt with should be open to consideration by shareholders.

If you leave in the phrase: "in a significant way," that focuses on significance rather than relationship. It will be fairly straightforward to determine whether a corporation's business or affairs are related to the subject matter of a proposal. For example, the conduct of a bank branch is not likely to have a significant impact on environmental laws. Thus, a shareholder proposal relating to environmental laws put into a bank would appear to have no relationship to the conduct of the business or to its affairs. That would not be permitted.

However, if it were a company that had one major factory, for example, although it is less than 5 per cent of its bottom line, and that major factory is a polluter, then that might have a relationship to the business or affairs. One should not be debating significance. The shareholders can decide that. What informs our recommendation is those kinds of considerations.

I might add that it is not only the business and social purpose issues. In the Verdun case, one of the issues argued that did not get before the Supreme Court because of their standing decision exemplifies this concern. All the proposals in that case related to the structure of the board of directors. The argument was made that Mr. Verdun was proposing them for personal purposes unrelated to the corporation.

One could argue that a proposal that there be one woman on the board of directors does not relate in a significant way to the board of directors when there are 20 directors. That is not an issue on which you should be having that debate. That is an issue that should go to shareholders.

In our submission, the amendment to the objective standard that we recommend would resolve the issue of propriety and leave that for the shareholders, as long as there is a relationship. We think it has the additional benefit of addressing the concerns expressed to you about who bears the burden of proof and how they go about proving significance.

Senator Angus: Do you not think it will give rise to a lot of frivolous proposals?

Dr. Anisman: We do not have that requirement now in Canada. As far as I can tell, there have not been a lot of frivolous matters that have not been adequately dealt with by the courts. I do not think there is any indication in this country's experience that it would give rise to frivolous or abusive proposals.

Senator Angus: I am just thinking of the chairman of a meeting.

Mr. McIninch: I think that is a fair comment. We are partially persuaded by what has happened in Canada.

The only other point I would make to add to Mr. Anisman's is that when I first read the words "in a significant way" it seemed to me that what "in a significant way" added was a wide-open invitation to litigate, virtually every time you want to make a proposal.

Senator Meighen: Any qualifier, for example, the word "material," would present the same problem; is that what you are saying?

Mr. McIninch: Exactly. The corporation would say "immaterial" and we would be back in the courts.

Senator Oliver: Where is the burden now?

Mr. McIninch: I would say that the burden would be with the corporation to turn it down on the grounds that it did not relate to its business affairs.

Senator Meighen: Do you mean under the proposed wording or under your wording?

Mr. McIninch: Under our wording.

Senator Meighen: What about the proposed wording?

Mr. McIninch: As I understand the proposed wording, the burden would be with the shareholder making the proposal. Again, the burden of proof is in the wrong place. Even though I represent, almost exclusively, corporations, I still think the burden of proof is in the wrong place.

Senator Meighen: Perhaps the hotels will benefit because we will have to book a room for at least three days.

Do any of you happen to know what the practice is in the United States in this respect, or the United Kingdom for that matter?

Dr. Anisman: In the United States, where there is an articulated regime, in fact from which our shareholder proposal provisions were adopted, the burden is normally on the corporation. However, there is a regulatory mechanism for reviewing it. The SEC reviews it. What happens is a shareholder puts in a proposal and the corporation can reject the proposal. If it does, it has to give reasons. The reasons are sent to the SEC. The shareholder then has an opportunity to address those reasons with the SEC, and the SEC makes a decision that says, "We think the shareholder is right, and if you do not agree, we are going to enforce in some way." That is the process.

The process contemplated by the Dickerson committee in the CBCA was one in which the corporation can reject, the shareholder can go to court, if the shareholder so wishes, and then the corporation has to demonstrate the reason for the rejection. The reason for putting it in that way was because anything that imposes lack of clarity or obscurity, or that ensures a need to go to court, undercuts the purpose of the proposal rule, which was to enable shareholders to bring forward matters that affect the corporation and their fellow shareholders, in their view, at minimal cost. Thus, as soon as you interpose litigation, you have a major deterrent to proposals, which undercuts it.

Senator Meighen: As well as within a minimum time, presumably.

Dr. Anisman: Yes.

Senator Meighen: Going to court, surely, as compared with going before administrative bodies like the SEC, involves a world of difference in time, does it not?

Dr. Anisman: In fairness, the courts have been receptive to speedy process in these matters.

Senator Meighen: You did not recommend that process. Do I take it that, if by some miracle your suggestion is accepted by the department and adopted, you will be satisfied with that and will not be inclined to suggest that the Ontario Securities Commission, or whoever, becomes involved, as long as the courts continue their receptive attitude?

Dr. Anisman: We have not addressed the issue of imposing an administrative regulatory scheme on the shareholder proposal rules, no.

Senator Angus: A few moments ago Dr. Anisman in trying to deal with the prioritization of some of these suggestions referred to a covering letter. In the interim, I have been shown a letter dated June 14 addressed to you, Mr. Chairman. It is four pages long and is signed by Mr. McIninch and Dr. Anisman. Is that the letter to which you were referring?

Mr. McIninch: Yes, it is.

Senator Angus: It is part of these proceedings by reference, then.

The Chairman: If there are no more questions, I would thank you for your time, your patience and your submissions. We will take time over the summer to consider your submissions. Your testimony will be most helpful when we return to this bill in the fall.

The committee adjourned.

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