Securities markets in Canada operate under a system of provincial regulation and supervision, with a total of 13 regulatory authorities. As stated in the International Monetary Fund's 2006 Article IV Consultation report, Canada has undertaken a significant harmonization of corporate governance rules with the United States. Improvements were achieved in the areas of enforcement, accounting and auditing, financial reporting, and corporate governance, as reported in a 2006 study by E. Waitzer. Waitzer further reported that weaknesses remain in the corporate governance regime due to Canada's highly fragmented system and the overall lack of agency accountability and coordination. In 2006, the Toronto Stock Exchange adopted the Corporate Governance Guide to Good Disclosure. Ontario and members of the Crawford Panel - an independent expert panel - are currently discussing a proposal with other provinces to establish a common securities regulator. Nevertheless, there is insufficient information publicly available addressing Canada's compliance with the Organization for Economic Cooperation and Development Principles of Corporate Governance.

General Overview

As stated in the International Monetary Fund's (IMF) 2006 Article IV Consultation report, Canada undertook a significant harmonization of corporate governance rules with the United States. As a response to the U.S. implementation of the Sarbanes-Oxley Act on July 25, 2002, according to a 2006 study by E. Waitzer, Canadian authorities began "to strengthen enforcement, tighten oversight of the accounting and auditing professions, implement improved standards for financial reporting, and adopt new rules for corporate governance" (p. 10). Weaknesses remain in the corporate governance regime, however, due to the highly fragmented system in Canada, and the overall lack of agency accountability and coordination. Despite the information provided above, there is insufficient information publicly available addressing Canada's compliance with the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance.

Securities markets in Canada operate under a system of provincial regulation and supervision with a total of 13 regulatory authorities. The Crawford Panel on a Single Canadian Securities Regulator (Groupe Crawford sur un Organisme Unique de Réglementation des Valeurs Mobilières) was established in May 2005 by the Minister responsible for securities regulation in Ontario. The Panel, which is independent from the government, aims to recommend a model for a common securities regulator. Ontario and members of the Crawford Panel are currently discussing the proposal with the provinces in order to establish a common securities regulator. On December 19, 2003, as noted in a 2004 study by Davies, Ward, Phillips, & Vineberg, the Canadian Securities Administrators (CSA) published National Instrument 51-102 on Continuous Disclosure Obligations. As noted on its website, the CSA is a forum for Canada's 13 securities regulators to coordinate and harmonize regulation of the Canadian capital markets. According to the CSA's 2007 Staff Notice 58-303, the 2005 National Policy 58-201 on Corporate Governance Guidelines provides guidance on corporate governance practices for all reporting issuers, other than investment funds. Issuers listed on the Toronto Stock Exchange (TSX) must comply with the disclosure requirements under the 2005 National Instrument 58-101 on Disclosure of Corporate Governance Practices. Effective March 17, 2008, the "Multilateral" Instrument 52-110 on Audit Committees was renamed as the "National" Instrument 52-110 on Audit Committees.

According to the 2008 U.S. Department of Commerce Country Commercial Guide report, investment in Canada's capital markets presents no problems to investors, as "markets are open, accessible, and without onerous regulatory requirements." The TSX and the TSX Venture Exchange (TSXV), respectively the senior equities market and public venture equity market, are established within the TSX Group. Conversely, the Montreal Exchange (MX) specializes in derivatives. As stated in the IMF's 2008 Financial Sector Assessment Program, the TSX is the 7th largest equity market by market capitalization, amounting to US$1,701 billion as of December 2006. The IMF report further notes that cross listing between the TSX and the U.S. market is important, and concerned about 12 percent of total TSX-listed issuers in 2006. The TSX issued Corporate Governance Guidelines in 2006, known as "the Corporate Governance Guide to Good Disclosure".

As noted in the World Bank's 2008 Doing Business report, investor protection in Canada was significantly higher than the average achieved by member states of the OECD. The Investor Protection Index is a subcomponent of the World Bank's 2008 Doing Business Indicators, and consists of three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index) and shareholders' ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index). The indexes range from 0 and 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection. Canada scores 8 in the disclosure index against an OECD average of 6.4. It scores 9 in the Director Liability Index against an OECD average of 5.1 and 8 in the Shareholder Suits Index against an OECD average of 6.5.

The Principles

Principle I: Ensuring the Basis for an Effective Corporate Governance Framework

II

Securities markets in Canada operate under a system of provincial regulation and supervision with a total of 13 regulatory authorities. The Crawford Panel, which is independent from the government, aims to recommend a model for a common securities regulator. Ontario and members of the Crawford Panel are currently discussing the proposal with the provinces in order to establish a common securities regulator. As stated in the IMF's 2006 Article IV Consultation report, Canada undertook a significant harmonization of corporate governance rules with the United States. Reporting in 2006, E. Waitzer notes that in response to the U.S. implementation of the Sarbanes-Oxley Act on July 25, 2002, Canadian authorities began "to strengthen enforcement, tighten oversight of the accounting and auditing professions, implement improved standards for financial reporting, and adopt new rules for corporate governance" (p. 10). However, weaknesses remain in the corporate governance regime due to the highly fragmented system in Canada and the overall lack of agency accountability and coordination. The information provided above does not directly address Canada's compliance with this principle, however.

Principle II: The Rights of Shareholders and Key Ownership Function

II

According to a 2008 study by Leslie McCallum, the CSA's objective is "to ensure that securities legislation does not prevent shareholders from exercising rights available to them under corporate law." The goal of the Canadian Coalition for Good Governance on the other hand, as noted in its 2006 Annual Report, is "to represent Canadian institutional shareholders in the promotion of corporate governance practices that best align the interests of boards and management with those of the shareholder." (p. 2). However, the information provided above does not directly address Canada's compliance with this principle.

Principle III: The Equitable Treatment of Shareholders

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In its 2008 Financial Sector Assessment Program (FSAP), the IMF notes that while most issues related to shareholders' rights have not been harmonized through a National Instrument; they are treated in a similar manner in all provinces. Moreover, the frameworks for companies in Ontario and Quebec have explicit provisions dealing with the fair treatment of shareholders. Nevertheless, there is insufficient information publicly available addressing Canada's compliance with this Principle.

Principle IV: The Role of Stakeholders in Corporate Governance

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There is insufficient information publicly available addressing Canada's compliance with this Principle.

Principle V: Disclosure and Transparency

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As stated in the IMF's 2006 Article IV Consultation report, Canada undertook a significant harmonization of corporate governance rules with the United States. Canadian authorities namely focused on "strengthening enforcement, improving financial reporting and disclosure, enhancing the quality of the audit process and strengthening management accountability" (p. 27). In its 2008 FSAP, the IMF notes that "issuers are subject to disclosure requirements at the moment of authorization and on an ongoing basis" (p. 14). Moreover, the frameworks for issuers in Ontario and Quebec have disclosure obligations for "substantial and insider holdings" (p. 33). However, the available sources do not directly address Canada's compliance with this principle.

On December 19, 2003, as noted in a 2004 study by Davies, Ward, Phillips, & Vineberg, the CSA published National Instrument 51-102 on Continuous Disclosure Obligations to "harmonize the continuous disclosure requirements applicable to reporting issuers in Canada, including financial statements, management's discussion and analysis, annual information forms, material change reports and information circulars" (p. 1). According to the CSA's 2007 Staff Notice 58-303, the 2005 National Policy 58-201 on Corporate Governance Guidelines provides guidance on corporate governance practices for all reporting issuers, other than investment funds. Per the same report, TSX-listed issuers must comply with the disclosure requirements under the 2005 National Instrument 58-101 on Disclosure of Corporate Governance Practices. As noted on the Industry Canada (IC) website, amendments to the Canada Business Corporations Act (CBCA) were expected "to enhance the transparency and accountability of corporations toward investors and shareholders." Effective March 17, 2008, the "Multilateral" Instrument 52-110 on Audit Committees was renamed as the "National" Instrument 52-110 on Audit Committees. According to a 2008 study by Leslie McCallum, the CSA is planning to publish revised executive compensation disclosure rules.

As reported by Waitzer in 2006, all regulatory agencies, but one, have adopted new rules governing audit committees and certification. The latter requires CEOs and CFOs to confirm the accuracy of the company's financial statements and other financial information. Waitzer further notes that the audit committee rules only apply to companies listed on the TSX. For the period from April 2006 to March 2009, according to the November 2005 update available from the Deloitte & Touche IAS Plus website, the Auditing and Assurance Standards Board proposed a new standard-setting approach. The proposal aims to integrate the Canadian Auditing and Assurance standards with the International Standards on Auditing (ISAs). As of 2011, per the February 2008 update available from the Deloitte & Touche IAS Plus website, the Canadian Accounting Standards Board will require the use of International Financial Reporting Standards (IFRSs), replacing the Canadian Generally Accepted Accounting Principles, for publicly accountable enterprises, including listed companies and other profit-oriented enterprises. Private companies and not-for-profit organizations will have the permission, but will not be required to adopt IFRSs in 2011. The Chartered Accountants of Canada has launched a new website which provides the latest developments on Canada's transition to IFRSs and ISAs.

Principle VI: The Responsibilities of the Board

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In its 2006 Article IV Consultation report, the IMF noted that Canada undertook a significant harmonization of corporate governance rules with the United States. Canadian authorities namely focused on "strengthening management accountability" (p. 27). As noted on the IC's website, the CBCA does not specify criteria regarding the independence of directors. Amendments to the CBCA are expected to address this shortcoming. However, the information provided above does not directly address Canada's compliance with this principle.