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Canada's Corporate Governance Disclosure Rule Finalized.

Article Excerpt
Canadian securities regulators recently finalized their (a) policy setting out corporate governance guidelines that reflect best practices, and (b) disclosure rule requiring public companies to describe specific aspects of their governance practices. The disclosure rule will apply to financial years ending on and after June 30, 2005.

The governance guidelines are very similar in substance to the listing standards of the New York Stock Exchange and reflect current North American best practices in governance, which public companies will want to consider. These guidelines are not dramatically different from the 14 corporate governance guidelines adopted by the Toronto Stock Exchange in 1995. (Under "Governance Guidelines" below, we indicate changes from the TSX guidelines with "[new]".)

The governance guidelines are not mandatory. Public companies are simply encouraged to consider them when formulating their own governance practices, thus continuing the approach favoured by the TSX. And it is this feature-voluntary compliance coupled with a disclosure requirement-that distinguishes the Canadian approach from the mandatory listing standards adopted by the U.S. stock exchanges.1

It remains to be seen whether Industry Canada will continue pursuing proposed amendments to the Canada Business Corporations Act that would entrench many of the best practices in corporate governance in that statute.

Compliance with Disclosure Rule Is a TSX Listing Standard

If a TSX-listed company is required to comply with the new disclosure rule, such compliance is a continued listing requirement that replaces the TSX's current corporate governance guidelines and disclosure requirement. The TSX will monitor corporate governance disclosure, and any listed company with deficient disclosure may be required to publish amended disclosure in its next quarterly report. Continuing non-compliance could result in suspension or delisting.

Securities Regulators Will Police Governance Disclosure

Disclosure will be required about each of the major...