Corporate Governance

Current Applicable Standards

The CSA Guidelines and National Instrument 52-110 - Audit Committees and National Instrument 58-101 - Disclosure of Corporate Governance Practices (the Instruments) provide that a director is “independent” of an issuer if he or she has no direct or indirect relationship with the issuer which could, in the view of the issuer’s board of directors, be reasonably expected to interfere with the exercise of the director’s independent judgment. The Corporation’s Board of Directors agrees with this approach to assessing director independence.

However, the Instruments go on to provide that a director is deemed to have such a direct or indirect relationship with an issuer (and thus not to be independent) if, among other things, the director is, or has been within the last three years, an executive officer or an employee of the issuer’s parent corporation. In the view of the Board, the determination of director independence should be based upon whether or not the director is independent of the corporation’s management, and whether or not the director has any other relationships with the corporation which could reasonably be expected to interfere with the exercise of the director’s independent judgment. In the Board’s view, that is a question of fact that should be determined by the issuer’s board of directors on a case-by-case basis without reference to any presumptions such as those which are currently contained in the Instruments.

One of the most important functions of a board of directors is to oversee management in the drive to achieve long-term shareholder returns.

A financially strong and long-term oriented controlling shareholder can have a significant positive impact on a corporation’s long-term returns, benefiting all shareholders and the corporation as a whole. The benefits can include the ability to encourage and support management in the pursuit of long-term strategies and the provision of directors who are experienced and knowledgeable about the business of the corporation. In the case of the Corporation, and throughout our corporate group, many of these attributes are provided through a governance model which has been developed over many years, and which includes a group of directors who are also Directors and/or officers of the Corporation or the controlling shareholder. These Directors have no other relationship with the Corporation other than as directors and shareholders and the full-time job of a number of the officers of the controlling shareholder is to focus on and become knowledgeable about the affairs of the controlling shareholder’s subsidiaries, including the Corporation.

The effect of the “deeming provision” regarding director independence, if followed, would be to deny the Corporation, all of its shareholders, and its corporate group the benefit of this governance model and prevent the controlling shareholder from participating fully in the oversight function of the Corporation and its subsidiaries.

Any concerns which may exist in a controlled company situation about conflicts of interest or self-dealing should, in the view of the Board of Directors, be resolved directly through a committee of Directors who are independent of the controlling shareholder. The governance model at the Corporation includes such a committee, the Related Party and Conduct Review Committee, which is discussed in the section entitled “Resolution of Conflicts”.

The CSA has acknowledged the concerns expressed by some reporting issuers as to whether the CSA’s view of director independence is appropriate to companies such as the Corporation and its publicly traded subsidiaries which have a majority shareholder. Thus, the Policy stated at the time of its implementation that the CSA “intend(s), over the next year, to carefully consider these concerns in the context of a study to examine the governance of controlled companies” and that it “will consider whether to change how this Policy…treat(s) controlled companies”. On December 19, 2008, the CSA published “Request for Comment — Proposed Repeal and Replacement of NP 58-201 Corporate Governance Guidelines, NI 58-101 Disclosure of Corporate Governance Practices, and NI 52-110 Audit Committees and Companion Policy 52-110 CP Audit Committees” (the Proposal) which included, among other things, the replacement of the current prescriptive approach to independence, and “deeming” rules, with a more principles-based approach. Although the Board of Directors was encouraged by the new direction proposed by the CSA, the CSA subsequently decided not to proceed with its proposed revisions as then-published. The CSA has indicated that it is still considering potential changes to the corporate governance regime. The Corporation encourages the CSA to continue its review of the “independence” definition as it relates to majority shareholders and to proceed with appropriate revisions at an early opportunity.

(Source: March 2012 Management Proxy Circular)