CORPORATE GOVERNANCE

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CORPORATE GOVERNANCE

• Canadian Institute of Mining, Metallurgy and
  Petroleum
• Pitblado Law offices ,Winnipeg Man.
• May 13, 2004
• CANADIAN LISTED COMPANY ASSOCIATION
• Don Gordon
• Executive Director

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What is the CLCA?

• Formed in 1998
• 400 TSX Venture Exchange Issuers are members
• Board of Directors represent BC,AB, ON
• Advocates on behalf of public companies re
  policy and commission issues.
• Provides Educational forums, newsletters
• LCA website www.lcaca.com .

CLCA
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ACTIVITIES OF THE CLCA

• Comment and opinion letters from Issuers
• Plain English newsletter
• Conduct surveys targeted for the public company
  perspective
• Participate in cost benefit studies
• Educational forums.
• www.lcaca.com

CLCA
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CLCA PERSPECTIVE

• Two Tier System TSE (now TSX) grade and TSX
  Venture grade
• Acknowledge Unique Canadian Market
• Achieve appropriate vs. Less regulation
• Cost Effective and Plain English Regulation
• Empirical Cost Benefit analysis

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REGION EXCHANGE
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ROAD TO REFORM
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THE ENRONITIS CURE
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THE BIG PICTURE

• Federal Model Wise Persons Committee
• Passport Model BC,AB,ON,QB
• Uniform Model Same Law Regional Rules
• Status Quo QB
• US PrescriptiveModel OSC
• Principled Approach Model BC

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NEW RULES

• Multilateral Instrument 58-101 Disclosure of
  Corporate Governance Practices
• Multilateral Policy 58-201 Effective Corporate
  Governance
• Multilateral Instrument 52-110 Audit Committees
• Multilateral Instrument 52-109 Certification of
  Disclosure
• National Instrument 52-108 Auditor Oversight
• National Instrument 52-102 Continuous Disclosure

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PRINCIPLE APPROACH

• Recommended Best Practices
• Disclosure-based disclosure must be made whether
  in compliance with certain recommended best
  practices, and if not, why not
• Approach recognizes one size does not fit all
• 18 recommended best practices vs. 14 under
  existing TSX Guidelines

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DISCLOSURE

• Disclosure Requirements
• Corporate Governance Practices must be disclosed
  in AIF in accordance with requirements of Form
  58-101F1
• AIF disclosure must also be cross-referenced (but
  not reproduced) in the issuers Management Proxy
  Circular
• Venture Issuers - disclosure must be made in the
  Management Proxy Circular, unless not required to
  be sent to shareholders, in which case it is to
  be included in AIF or annual MDA

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INDEPENDENCE

• New Rules adopt a two-fold definition of
  Independence
• broad factually-based test, and
• specifically identified situations in which a
  Director will not be independent
• Director is independent if he or she has no
  direct or indirect material relationship with the
  issuer
• A material relationship is one that could, in
  the view of the issuers Board, reasonably
  interfere with the exercise of a Directors
  independent judgment

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FINANCIAL EXPERT

• Important Changes to Draft Rule
• Requirement to disclose whether an "audit
  committee financial expert" is serving on the
  audit committee replaced with rule requiring
  issuers to describe financial education and
  experience of each committee member relevant to
  discharge of the committee's responsibilities

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BEST PRACTICES

• Independent Board Best practice is for
  substantially all directors to be independent
• Independent Chair A critical best practice
• Independent Committee Best practice is for all
  Board committees to be fully independent and to
  include an independent committee assigned
  specific responsibility for supervising the
  corporate governance of the issuer

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SIZE DISTRIBUTION
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COMPANIES BY REVENUE
Trailing 12-month revenue as of August 26, 2003
(after NEX). Source Bloomberg.
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DUTY
What is the Boards Fiduciary Duty? Act
honestly and in good faith with a view to the
best interests of the corporation TSX
Venture Policy 3.1 CBCA
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SIZE MATTERS

• What MUST the size and composition of the Board
  be?
• Minimum of 3 directors, at least 2 of whom are
  not officers, employees, control persons or
  management consultants of the issuer, its
  associates or affiliates or sponsoring member
• TSX Venture Policy 3.1

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TSX QUALIFICATIONS

• At least 1 Director must have expertise in the
  issuers business or proposed business
• At least 1 Director must have satisfactory
  experience in operating and managing a public
  company
• TSX Venture Policy 3.1

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AUDIT COMMITTEE

• Review quarterly financial statements and MDA
• Disclose annually
• Charter
• Audit fee information
• Pre-approve all non-audit service

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LIABILITY

• Over 200 federal and provincial acts contain
  personal liabilities for directors
• Usually a defense if good faith reliance on
  officers and advisors
• Indemnities in by-laws, indemnity agreements and
  DO insurance

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What should you do?
You should set up corporate governance and
disclosure systems
Why?
To minimize the risk of a breach, as well as
provide a defence Its good business marketing
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GRADUATES
13
47
26
81
Compiled by TSX Group Research Services, as of
March 2004
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VENTURE CAPITAL
All figures in CDN Billions
Sources TSX Venture Exchange Macdonald
Associates Compiled by TSX Research Services, as
of December 2003