Canadian companies should think about succession planning for their boards and consider efforts to attract a more diverse slate of directors with international experience and a younger profile, according to a new report on governance.

As Canadian issuers prepare for the 2012 proxy season, they should expect continued focus on the individuals being put forward for election as directors — and those directors should expect heightened demands for accountability from shareholders — according to the report "Davies Governance Insights 2011" from Davies Ward Phillips & Vineberg LLP.

The report looks at governance trends, practices, and board profiles of the 360 Canadian issuers that make up the Standard & Poor’s/Toronto Stock Exchange Composite and S&P/TSX SmallCap indices and the issues that are expected to shape the 2012 proxy season.

The report analyzes the composition of Canadian boards, concluding they are largely homogenous. It found that directors of TSX 60 companies are typically men in their early 60s while directors of smaller companies tend to be slightly younger. And despite the capital markets being global, almost 80 per cent of directors of issuers on the S&P/TSX Composite Index are resident Canadian.

“There’s a good reason these people have achieved success, but in terms of succession planning it is useful to try and draw to a board people who are younger and have a diverse profile,” says Carol Hansell, a senior partner at Davies and the only Canadian who sits on the International Corporate Governance Network.

She says if a company feels its board is a perfect size, it may be an excellent time to bring someone new on to begin succession planning so they can contribute in a meaningful way when the time comes.

“The last thing a board wants to be doing is addressing the skill gap only when someone retires. A board is there to provide oversight and with companies becoming increasingly global in nature someone with international experience may have experience with other issues such as how compensation may be different around the world.”

The report also found that women are making slow progress on many Canadian boards — and even slower progress in assuming leadership positions. Women chaired just seven (three per cent) of the 360 issuers on the combined S&P/TSX Composite and S&P/TSX SmallCap indices in 2011 and only 53 of the more than 1,500 board committees across those same public companies.

“We’re not seeking to criticize existing boards,” says Hansell. “It may be though that some of these boards aren’t drawing the best possible candidates and board turnover is relatively slow.”

The report notes that directors who were being put forward for another term had already been serving on the board for an average of eight years and some have term limits up to 10 to 15 years.

As well, most boards are comprised entirely of directors who are independent of management, with the exception of the CEOs.

“Global challenges present an excellent opportunity to rethink some of the accepted practices that may be preventing boards from moving to the next level of effectiveness,” says Hansell. “Are boards sacrificing industry knowledge by insisting on the highest levels of independence? Would more international experience at the board level support the company’s strategic planning? Are nominating committees considering the best possible candidates from the global talent pool? These are some of the questions boards should be discussing.”

The report also identifies a number of trends for 2012:

• Shareholder engagement on composition of the board, strategic direction, and the alignment of compensation with performance will continue.
• Adoption of majority voting (already strong in 2011) will continue, becoming a generally accepted best practice in the next few years.
• Shareholders will have “say on pay” at more annual general meetings. More than two-thirds of TSX 60 issuers are expected to put say-on-pay resolutions to their shareholders during the 2012 proxy season, up from a little more than half in 2011.
• Companies will continue to receive shareholder proposals on a wide variety of issues, although they are expected to have little influence on governance practices in 2012.
• Concerns with the integrity of the proxy voting system will continue to grow, particularly among institutional investors.

“Investors will continue to focus on compensation, particularly with the growing adoption of say on pay,” notes Davies partner Jason Saltzman. “In addition, we also expect increased focus on director compensation. Directors of some TSX 60 issuers earn well over $150,000 annually, with some chairs receiving in excess of $500,000. Investors will want to know that these directors are devoting the appropriate time to the company’s business. Share-based compensation for directors will also continue to be an issue, particularly the size of equity grants to directors and the form of those grants. Option grants are subject to particular criticism.”

Hansell also says very little change has happened in Canada since 2005 with respect to governance issues. “Other jurisdictions have updated their governance practices. We need a fresh perspective on governance in Canada.

Canada

Public 'in danger' if B.C. court doesn't suspend drunk-driving ruling: lawyer, The Globe and Mail

Judge rules boxer Gatti's fortune belongs to widow, The Globe and Mail

Hearings conclude at B.C. salmon inquiry, The Globe and Mail

United States

Supreme Court to hear Obama healthcare arguments, Reuters

Judge to rule on SC immigration law by year end, Reuters

International

Kenya court refuses to ditch ruling on Sudan's Bashir, Reuters

Philip Morris to fight Australia plain packaging laws, Reuters 

Saskatchewan has a new chief justice of the Court of Queen’s Bench. Court of Queen’s Bench Justice Martel Popescul takes the role once current Chief Justice R.D. Laing becomes a supernumerary judge on Jan. 1. Popescul has been at the court since 2006.

The federal government also appointed five new judges across the country on Friday.

Mary Gleason has been appointed to the Federal Court bench.

In British Columbia, Robert Jenkins of Vancouver’s Jenkins Marzban Logan becomes a judge of the Supreme Court of British Columbia. He replaces Justice Austin Cullen, who takes up the post of associate chief justice as of Dec. 31. Cullen will replace Justice A.W. MacKenzie, who joins the B.C. Court of Appeal at the same time.

In Ontario, the government named David Broad and Suzanne Stevenson to the Ontario Superior Court bench. Broad, of Siskinds LLP in London, Ont., will sit in Kitchener. He replaces Justice D.J. Gordon, who moves to Cayuga, Ont., on Jan. 1.

Stevenson, meanwhile, replaces Justice A. Hoy, who moved to the Ontario Court of Appeal on Dec. 1. Stevenson has practised with lawyer Robert Martin since 1993 at what has since become Martin & Hillyer in Burlington, Ont. She’ll sit on the Superior Court bench in Toronto.

In Quebec, Clément Samson of Joli-Coeur Lacasse joins the Quebec Superior Court for the district of Quebec. He has been with the firm since 1988. His main areas of practice were civil litigation as well as commercial and administrative law. He replaces Justice J. Lemelin, who became a supernumerary judge on Nov. 8.

At the Federal Court, Mary Gleason takes the spot of Justice Paul Crampton, who became chief justice on Dec. 15. Gleason had been a lawyer with Norton Rose OR LLP since 1986 with a focus on labour, employment, and human rights law. Crampton, in turn, replaces former chief justice Allan Lutfy, who became a supernumerary judge on Oct. 1.

Canada

Que. man faces murder charges after 2 die in fire. The Gazette

Sask. judge orders demolition of apartment building, CBC News

B.C. judge rejects father's bid to return abducted son to Zimbabwe, The Vancouver Sun

United States

Iraqi admits he tried to kill U.S. troops, Reuters

Rejection of Plan B pill could be challenged by N.Y. lawsuit, Reuters

International

End of road for Saab after owner files for bankruptcy, Reuters

Congo Supreme Court declares Kabila president-elect, Reuters

Earlier this week, the Law Society of British Columbia posted a news release that it had learned of a B.C. law firm that had again fallen victim to the “bad cheque” scam.

The scheme was similar to one described in 2010, notes the LSBC.

“The ‘client’ requested help in collecting money owed by her former spouse pursuant to a collaborative law settlement. She provided a copy of a collaborative law agreement and eventually agreed to a 25 per cent contingency fee. Even before the firm sent a demand, a bank draft in favour of the firm was received from the ex-husband. Assuming the draft was legitimate, the firm wired the funds (less its fee) to a payee identified by the ‘client,’ only to discover later that the draft was counterfeit. The names used by the ‘client’ and ‘former spouse’ were Tammi Mazur and Brian Denman.

“We have also learned of an intellectual property twist that has just surfaced in relation to the phony debt collection scam. In this scam, a purported Dan Nagasakii of CCP Group International asks for help enforcing intellectual property rights in relation to the unauthorized distribution of language software by someone ‘in your locale,’” said the web site.

On the heels of that latest bit of bad news, the LSBC announced its benchers have approved a plan to offer insurance coverage as of Jan. 1 for these cheque scams that are popping up across the province.

The law society says coverage by the Lawyers Insurance Fund, specifically tailored for this risk, “will provide some protection against shortages of client funds as a result of a fake or forged certified cheque, bank draft, money order, or solicitor’s trust cheque, provided the client ID and verification rules are met.”

“Although B.C. lawyers were not clamouring for coverage, a loss to a firm, especially a small one, could be significant. As a result, the benchers took a proactive approach to insurance and decided that some insurance be provided for client trust fund losses,” Su Forbes, the LSBC’s director of insurance, tells Legal Feeds. “Coverage is contingent upon the lawyer meeting the client identification and verification rules, and will not extend to the firm’s own losses by way of overdraft to its bank.

Forbes says the insurer doesn’t know what claims might arise, “but to date there have been very few incidents of B.C. firms being caught in the scam. With shortfall losses partly covered by insurance, the financial consequences of the scam will be directly influenced by the level of due diligence exercised by lawyers.”

The LSBC maintains that awareness and vigilance are lawyers’ most important tools in combatting fraud but benchers realized there are times when practitioners get unwittingly embroiled in these scams and that some insurance coverage is “appropriate.”

“Lawyers can directly influence the cost of the insurance in future through their vigilance and care,” says Forbes. “There is no increase to the insurance fee for 2012 to cover off the risk.”

Wording of the new policies will be posted soon to the LSBC’s web site and a full description of the coverage will be in the Spring 2012 Insurance Issues: Program Report.

Details on cheque and other frauds are also available at the LSBC’s web site.

Photo: Denise Kappa/Dreamstime.com

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Canada

3 youths charged in Sask. robbery, stand-off, CBC News

Crown seeks to broadcast B.C. riot proceedings, The Vancouver Sun

Court rules government's prisoner refusal unreasonable, The Gazette

United States

SEC appeals rejection of Citigroup settlement, Reuters

'Barefoot Bandit' faces sentencing for 33 charges, Reuters

International

Chinese human rights lawyer sent back to jail, Reuters

Sudanese officials continue to commit genocide: ICC, Reuters

In another case involving a dispute over employees’ vacation entitlement, the Supreme Court of Canada has once again ruled in favour of the arbitrator.

In Newfoundland and Labrador Nurses’ Union v. R., the Supreme Court dismissed the union’s appeal of an arbitrator’s decision not to include the time served as a casual employee when calculating vacation benefits. The arbitrator concluded that according to their collective agreement, the nurses could not count their time as casual employees in determining vacation time once they became permanent employees.

Upon judicial review, the arbitrator’s reasons were deemed insufficient and therefore unreasonable, and so the decision was set aside. The Court of Appeal overturned that decision, stating that the arbitrator had met the test of reasonableness. It was then taken to the Supreme Court to determine the reasonableness of the arbitrator’s decision.

In the Dec. 15 decision, Justice Rosalie Abella referenced the SCC’s 2008 ruling in Dunsmuir v. New Brunswick, which stated that in order to determine the reasonableness of a decision, the judicial review needs to assess “justification, transparency and intelligibility.”

Abella agreed with the arbitrator’s interpretation of the nurses’ collective agreement. “The arbitrator in this case was called upon to engage in a simple interpretive exercise: Were casual employees entitled, under the collective agreement, to accumulate time towards vacation entitlements?” Abella wrote. “This is classic fare for labour arbitrators. They are not writing for the courts, they are writing for the parties who have to live together for the duration of the agreement. Though not always easily realizable, the goal is to be as expeditious as possible.”

She added that it would be detrimental for arbitrators to address every argument. “Arbitration allows the parties to the agreement to resolve disputes as quickly as possible knowing that there is the relieving prospect not of judicial review, but of negotiating a new collective agreement with different terms at the end of two or three years,” she wrote. “This process would be paralyzed if arbitrators were expected to respond to every argument or line of possible analysis.”

“In this case, the reasons showed that the arbitrator was alive to the question at issue and came to a result well within the range of reasonable outcomes,” Abella concluded.

On Dec. 2, the Supreme Court also supported the arbitrator’s decision in Nor-Man Regional Health Authority Inc. v. Manitoba Association of Health Care Professionals, which also involved a dispute over vacation time for casual employees.

Canada

B.C. men found guilty of animal cruelty for hanging horse, The Vancouver Sun

Alta. man convicted of murder after ramming truck at crowd, CBC News

N.B. judge recuses himself due to connection with accused's family, The Daily Gleaner

United States

Occupy Wall Street protesters appear in court, Reuters

Investor loses appeal of FCPA conviction over oil deal, Reuters

International

Thai activist jailed for 15 years for insulting monarchy, Reuters

Sentence reduced for ex-colonel convicted in Rwandan genocide, Reuters

An Ontario lawyer has been ordered to personally pay $45,000 for the “irresponsible” issuance of a meritless third-party claim in a New Brunswick fraud case.

Sandra Dawe, the managing partner at Toronto and Windsor, Ont. firm Shibley Righton LLP, has until noon on Dec. 15 to pay the cash or risk enforcement proceedings.

Dawe is representing auditors being sued by Deer Island Credit Union in New Brunswick. The credit union alleges the auditors were negligent for failing to notice that a former employee at Deer Island had embezzled more than $1.8 million between 1995 and 2007.

The auditors denied the allegations, and in May 2011, issued a third-party claim against 16 directors of the credit union, arguing their negligence contributed to the loss.

On Oct. 7, New Brunswick Court of Queen’s Bench Justice Hugh McLellan struck out the third party claim, calling it “irresponsible and an abuse of the process of the court.” He said Dawe should have known about an Ontario Court of Appeal case, Piedra v. Copper Mesa Mining Corp., which sets a very high bar for actions against directors, and ordered a hearing on costs to send a message that the courts will protect directors from ill-founded litigation.

In his Nov. 30 decision on costs, McLellan said he could not accept Dawe’s claim that she had “acted in honest belief that the auditors claim against the directors had merit.”

He said the claim, which cost the directors $77,000 in legal fees to respond to, had delayed the main action by six months and that it was his duty to rule that Dawe had “acted in disregard of the interests of justice,” and “caused costs to be wasted or incurred improperly.”

Dawe must pay $40,000 to the law firm representing the directors, plus another $5,000 for HST by noon Dec. 15. If she fails, McLellan said he would hear counsel about enforcing the order the following day. If that hearing is needed, he ordered Dawe to attend in person before him in St. John, N.B.