Canada’s government has set up essentially three corporate governance structures. Corporations are either for-profit or not-for-profit; otherwise, they’re run by the state. The for-profit corporate governance structure is a principles-based governance framework.
Each structure has a board that’s responsible for setting goals and managers who are responsible for achieving them.
Canada has strong examples of governance structures in all three categories. The Canadian government encourages all types of governance structures to follow best practices for corporate governance. All three governance structure types should consider the benefits of using a board management software system to ensure compliance with security regulations and Canadian laws.
Three Types of Corporate Governance Structures
State-Run Corporate Governance Structure
The Canadian government has three levels of government — the federal government, provincial governments and municipal governments. The stakeholders in government corporate structures are its citizens.
The Canadian Museum of History, Canada Infrastructure Bank and Canada Air Transport Security Authority all have state-run corporate governance structures.
Not-for-Profit Corporate Governance Structure
A not-for-profit organization has stakeholders that include its members, those the not-for-profit corporation serves, the community, donors and employees. Not-for-profit organizations fill the gaps in social services that the Canadian government doesn’t provide, such as healthcare, welfare, alleviating poverty and helping new Canadians.
Not-for-profit organizations are clubs, societies or associations that work to improve social welfare, civic issues, pleasure or recreation, or any other nonprofit purpose. Most not-for-profit organizations have community-based purposes (e.g., hospitals, trade associations, symphonies, non-governmental regulatory bodies and universities). Not-for-profit entities may function much like private corporations; however, they have philanthropic missions.
Social enterprises aren’t considered not-for-profit entities. These organizations are allowed to make a profit, but they must recycle their profits back into products and services that serve the organization.
Examples of not-for-profit corporate governance structures are Alberta Health Services, Vancouver Coastal Health Authority, Toronto District School Board and Fraser Health Authority.
Examples of social enterprises are Vancity Community Foundation, Trico Charitable Foundation and Social Enterprise Manitoba.
For-profit corporations exist to make and distribute profits to their shareholders. Share capital corporations’ stakeholders include shareholders, employees, suppliers, regulatory authorities, customers, financial supporters and the local community.
For-profit corporations may be public or private entities. Public corporations trade their shares publicly. Private corporations don’t trade their shares publicly. Smaller, family-owned companies don’t typically trade their shares publicly; however, large or dominant corporations in Canada may, and often do, trade their shares publicly.
Three Canadian for-profit corporations stand out as having excellent corporate governance structures.
Alacer Gold Corporation is a leading low-cost gold producer. This company developed a detailed policy with plans to increase the number of women working as senior managers. Alacer Gold also added a plan for setting and measuring future goals.
The Royal Bank of Canada publishes charts in their annual proxy circulars to show the difference between their allotment for board director compensation and how much these directors actually received.
Canadian Western Bank has been responding to shareholder activism with promotional materials about its board of directors. The bank’s shareholders have taken an interest in such issues as board refreshment, term limits and board biographies, with an eye on best practices for good governance.
Canada Follows a Principles-Based Governance Structure
The Canadian corporate governance structure follows a principles-based governance structure related to for-profit companies. Similar examples of principles-based governance structures in other parts of the world can be found in the United Kingdom, Europe and Australia.
For-profit corporations in Canada have much more flexibility than those in countries where the government is more intrinsically involved. A principles-based governance structure suggests, rather than mandates, expected governance principles. Canadian law mandates rules for complying with having audit committees. Beyond that, Canadian corporations are required to comply with the government’s suggested governance principles and, if they don’t or won’t, they have to disclose their reasons.
For example, Canadian corporations don’t need to have a majority of the directors be independent. Companies that don’t choose to have independent directors have to disclose to the authorities why they have a minority of independent directors.
Canadian corporate boards tend to meet less frequently than corporate boards in the United States. Canadian boards also tend to have lower numbers of board members than their southern neighbor and they tend to have fewer independent directors than the United States does. The principles-based governance system also differs in that board chairs in Canada are less likely to serve the dual role of board chair and CEO.
Best practices for corporate governance suggest that boards should set limits on how many boards their directors may serve on at any one time. Canadian board directors have a tendency to sit on more boards than US board members.
The Canadian governance structure recommends that corporations have exclusively independent directors serving on its committees. At the current time, this is more a recommendation than a reality. Unlike other types of governance structures, Canadian corporations aren’t likely to set up nominating and governance committees or audit committees, which appears to be connected with their principles-based structure.
Canadian governance has largely been influenced by United States laws. The passage of the Sarbanes-Oxley Act (SOX) in 2002 prompted the Canadian government to review their country’s standard of governance and make changes accordingly. The Toronto Stock Exchange (TSX) set up new guidelines and governance requirements for companies listed on its exchange. The Canadian federal government also passed some new laws in 2004, including 1) the National Instrument 58-101, Disclosure of Corporate Governance Practices, National Policy 58-201 – Corporate Governance Guidelines, and 2) Multilateral Instrument 52-110 – Audit Committees. The Canadian government also requires boards to have audit committee members who are financially literate – or who will become so within a reasonable time frame after they’re appointed.
Board Management Software Solutions Support All Corporate Governance Structures
Regardless of the types of corporate governance structures, corporations around the world are relying on board management software solutions to ward off cyber risks and support good governance. Board portals streamline communication and collaboration. They save the cost of preparing and distributing board books. Creating updates happens in a snap. Most importantly, Diligent’s Governance Cloud offers a suite of fully integrated board solutions to manage every aspect of important board business.