Canadian corporate governance practices compare favorably to those in the United States, according to Ken Bertsch, senior vice president and director of Corporate Governance at Moody’s Investors Service.

“We believe corporate governance improvements in the wake of post-Enron reforms have been significant in both the United States and Canada,” Bertsch said in comments at Moody’s Annual Corporate Finance Conference held in Toronto earlier today.

Moody’s began assessing the corporate governance of the largest North American issuers in 2003. The ratings agency says that it has seen improved board processes over the past two years, including enhanced board and committee independence and an increased sense of responsibility among company directors. Moody’s has also seen better governance disclosure and clearer lines of the accountability of independent auditors to audit committees, as well as strengthened audit committees with greater financial expertise.

Bertsch noted that Canada’s regulatory system, which requires companies to comply with regulations or to disclose why they have not complied, is particularly attractive. “This is a flexible and transparent system that provides a measure of reasonable pressure on issuers – including those that are controlled and would be exempt from certain U.S. stock market listing standards. Moreover, this structure may increase the probability that directors will be able to defend their positions instead of merely ticking the boxes when it comes time to vote,” Bertsch said.

Notwithstanding the generally good state of governance, it is still possible that some boards may be too cozy, Bertsch added. In a situation where directors appear to be too close to each other and to senior management, questions can be raised about whether the board will provide tough oversight of management, he suggested. The closeness of directors on some Canadian boards reflects, in part, the size of the market, in comparison with the U.S., although Moody’s also views some large U.S. company boards has having strong regional ties that may raise questions regarding whether they have sufficient diversity of perspective.

Finally, he suggested that the leading Canadian pension funds may have greater influence over good governance practices than do U.S. funds, due to the greater concentration of investment capital in Canada. These positive dynamics are reflected in independent chairpersons, opposition to the use of stock options for outside directors, and greater shareholder voice on takeover defenses. “This seems to be more positive than negative from a creditor standpoint, particularly given the long-term nature of pension fund thinking,” Bertsch said.