How market instability is changing Canadian corporate governance

Greg Peterson of Gowling WLG explains how market trends are changing Canada's corporate structures

What governance structures can corporate clients use to limit their exposure to COVID-related market instability?

As a result of COVID-19, directors have been forced to rethink their governance structures. Particularly, more boards of directors have started analyzing 1) the stakeholder theory of governance, 2) the need to decentralize their governance structure, and 3) the adoption of specific strategies to respond to COVID-19 related problems. 

1.            Stakeholder Theory of Governance

COVID-19 has resulted in a new range of factors that contribute to the perception of what makes a corporation valuable. Traditionally, the theory has been that the board of directors and the executives act as agents of the corporation to maximize shareholder returns.  However, COVID-19 has shifted the focus of the board and executives to all stakeholders, a shift that is described as the "stakeholder theory". This “stakeholder theory” is a theory of organizational management and business ethics that takes into consideration the multitude of constituencies that are impacted by the day to day operations of the company. 

This model incorporates morals and values in the management and organization of corporations, such as corporate social responsibility and social contract theory. While this model may seem to contradict the reasons for setting up corporate governance structures in the past, the stakeholder theory actually takes the core principles of the previously dominate theory and assimilates and broadens them to incorporate the livelihood of the customers, employees, suppliers, and communities into its core values. The addition of these parties to the core values of a corporation is the main reason why enacting a corporate governance structure that embodies the stakeholder theory, post-COVID-19, is important.

2.            Decentralized Structure

In order to limit exposure to COVID-19 related market instability and adopt a stakeholder theory of governance, it is important for corporations to adopt a decentralized corporate governance structure. Decision making in such a structure enables a corporation to make decisions at various levels of the organization, making it easier to measure the performance of the corporation and the individuals within each of the segmented groups.  There are numerous advantages to a decentralized structure, including quick decision-making and response times, better ability to streamline or expand the corporation, an increase in skilled and/or specialized management, increased morale of employees, and better utilization of lower and middle management. COVID-19 has created unpredictable and erratic market instability and now, more than ever, it is important for a board of directors’ decisions be made in a timely manner.

Having the ability to streamline and expand decision-making is important because the market instability caused by COVID-19 will force corporations to constantly adapt their business structures. Whether it is a change in a corporation’s supply chain or a shift towards a different product, having the improved ability to quickly adapt is vitally important. Implementing a system of corporate governance that allows decision-making to be carried out at various levels within the organization, limits the corporation’s exposure to market instability by integrating different groups to collaborate on issues of diversification and adaptation.

Finally, a shift towards a decentralized corporate governance structure has the potential to increase the morale of a corporation's employees and obtain, develop and retain highly skilled and motivated employees. This coincides with the increased importance that the stakeholder focus places on employee satisfaction.

It should be noted that, even though a corporation has adopted a decentralized corporate governance structure, it is still the directors' responsibility to oversee and approve corporate decision-making. In doing so, directors must act quickly and diligently to lead their companies during the Covid-19 crisis and the recovery that follows.

3.            Risk Oversight and Business Continuity Plans

Another primary responsibility of the board is risk oversight.  Boards must still understand and take into consideration the risks that the corporation faces. In doing so, they should ensure that management has implemented a “business continuity plan” with appropriate measures to identify, monitor, and manage risks. 

Due to the impact of COVID-19 on our economy, many companies have modified their pre-pandemic business continuity plans as the pandemic has shifted the ways in which companies interact both internally and externally with their consumers. Companies whose directors have invested in substantial comprehensive business continuity planning and technology before the pandemic are in a more advantageous position amongst the competitors in their respective markets.  It remains an obligation of the board to continuously monitor the effectiveness of their companies’ risk mitigation strategies. This ensures that boards are strategically prepared for a variety of potential future risk events.

Finally, even though corporations currently face a global pandemic, there are certain boardroom activities that cannot be discontinued. Board members must continue to communicate with shareholders during the pandemic and should be prepared to actively pursue opportunities to do so.  Boards must find ways to host their annual general meetings and they must be prepared to overcome hindrances that may obstruct their ability to fulfil these requirements. Further, it is important to continue to understand that shareholders still play a vital role in the decentralized system of corporate governance and, as a result, should be kept up-to-date on business activities. After all, the board has a fiduciary obligation to pursue the best interest of the corporation, and by continuously enhancing their communication and keeping the shareholders involved, they are better able to fulfil this obligation. By following these guidelines corporations can better limit their exposure to COVID-19 related market instability.

4.            Strategies to limit COVID-related market instability

The following are concrete strategies that a company can adopt to limit their exposure to COVID-related market instability.

i.              COVID-19 Risk Disclosure

Under Canadian securities laws, reporting issuers are responsible for the periodic disclosure of matters regarding the company. Disclosure is provided in quarterly and annual financial statements, management's discussion and analysis statements, annual information forms and shareholder meeting materials. On May 6, 2020, the Canadian Securities Administrators (CSA) published COVID-19: Continuous Disclosure Obligations and Considerations for Issuers. The CSA's primary guidance for reporting issuers was that there is no "one size fits all" model for issuers to follow when assessing the disclosure implications of COVID-19.  Additionally, the CSA stated that issuers should consider the issues specific to their circumstances in the current economic environment. The CSA provided scenarios where enhanced disclosure with respect to COVID-19 is appropriate.  All reporting issuers should carefully review and follow the disclosure guidelines outlined in the CSA guidance. 

ii.             Adapting Meeting Policies

COVID-19 has resulted in most public gatherings being discouraged, restricted, or prohibited in Canada. Accordingly, many annual general meetings are currently held via video technology platforms, either fully virtually or by providing a hybrid (in-person and virtual) model.

The CSA has issued guidance with respect to holding virtual annual general meetings. If a reporting issuer plans to conduct a virtual or hybrid AGM, the CSA expects the reporting issuer to notify its security holders, the parties involved in the proxy voting infrastructure, and other market participants of such plan.  This needs to be done in a timely manner and reporting issuers needs to disclose clear directions on the logistical details of the virtual or hybrid AGM, including how security holders can remotely access, participate in, and vote at such AGM. Shareholders must be able to participate and vote electronically and communicate adequately with each other during the meeting.

Given the pandemic, the use of an accessible method of shareholder meetings can assist in limiting market instability. The rise of virtual meetings over the past year may set the precedent for shareholder expectations during proxy season. Going forward, it is possible that shareholders will expect that they have the opportunity to participate in meetings and interact in management from the comfort of their home or office. Utilizing technologies for continued and consistent shareholder interaction has the potential for providing a recurring dialogue between an issuer and its shareholders, which may ultimately result in a reduction of volatility or activist situations.

Certain Canadian jurisdictions permit the holding of virtual meetings regardless of what is permissible in the corporation’s constating documents. However, corporations should ensure that its constating documents and by-laws permit the corporation to hold a virtual AGM.

iii.            Proxy Voting Guidelines

While shareholder activism and takeover bids declined from 2019 to 2020, that trend is unlikely to continue. In anticipation of continued share price volatility, it is important that businesses who identify potential activist shareholder or takeover issues ensure that their policies and disclosure comply with the proxy voting guidance of major proxy advisors, namely Institutional Shareholder Services, Glass Lewis, and the Canadian Coalition on Good Governance.


The lasting implications on businesses because of COVID-19 requires corporations to develop new strategies to respond to market unpredictability and instability. Strategies to consider are implementing the stakeholder theory of governance and decentralizing the governance structure.  Boards should also carefully review and follow the disclosure guidelines outlined in the CSA guidance, ensure that their corporate constating documents and by-laws permit the corporation to hold a virtual AGM and ensure that their policies and disclosure comply with the proxy voting guidance of major proxy advisors.


Greg Peterson is a senior partner at Gowling WLG and head of the firm's Corporate Finance, M&A and Private Equity Group in the firm's Calgary office. 

Recognized as a leader in his field by Canadian Legal Lexpert Directory, Chambers Canada and Legal 500, Greg focuses his practice on complex public and private corporate and commercial matters. Over the course of his 30-year career, he has helped clients navigate a range of high-stakes transactions - including mergers, acquisitions, dispositions and reorganizations, plans of arrangement, going private transactions, private placements, and asset and share purchase and sale agreements. 

Greg also has significant executive experience in adjusting both private and public companies at all stages of their development, from initial public offerings to large corporate clients with multi-billion-dollar market capitalizations. He complements this experience with an extensive background in private equity transactions and public financings, including equity, debt and venture capital financings.