Canadian securities regulators are rethinking their approach to director independence, suggests a consultation paper published Thursday by the Canadian Securities Administrators (CSA).
The consultation paper aims to weigh the costs and benefits of different approaches, and to “facilitate a broad discussion on the appropriateness of our approach to determining director and audit committee member independence,” the CSA says in an announcement.
In particular, the paper aims to solicit feedback on whether the regulators should make changes to their approach or not.
According to the CSA, some players in the market worry that the regulators’ approach to determining whether a director is considered independent is too restrictive, which results in qualified directors being excluded, or prevents them from serving on audit committees.
“The definition of independence is a central component of our corporate governance regime,” the consultation paper says, and it’s also relevant in terms of determining the composition of board committees, particularly audit committees.
Regimes in the United States, Australia, and Sweden, have been suggested as possible alternative approaches to assessing independence, the paper notes. While these markets use similar definitions, they rely more of guidance and less on “bright-line” tests for determining independence, the paper indicates.
The CSA points out that some players believe that the Canadian market has already adapted to the CSA’s approach to assessing independence, and that the costs of changing could be high.
“The exercise of independent judgement by boards and board committees is a fundamental element of corporate governance,” says Louis Morisset, chairman of the CSA and president and CEO of the Autorité des marchés financiers, in a statement.
“The purpose of this consultation is to solicit views on the appropriateness of our approach to determining independence for all issuers in the Canadian market.”
The paper is out for comment until Jan. 25.