The Ethical Funds Co. is calling on securities regulators to improve corporate governance in Canada or risk falling behind global trends.

“In a competitive global economy, Canadian standards must equal best international practice,” said Robert Walker, vice president, SRI policy & research at Ethical Funds. “If we fail to meet these standards we risk eroding investor confidence in Canadian companies, Canadian capital markets, and the Canadian economy.”

The call for improved corporate governance practices follows the Canadian Securities Administrators’ request for comments on new corporate governance standards (Proposed Multilateral Policy 58-201 and Proposed Multilateral Instrument 58-101). The CSA proposals are a response to ongoing corporate governance scandals and enhanced corporate governance requirements in the United States.

In Canada, regulators are adopting a “principles-based” approach to corporate governance in which companies are asked to compare their performance to a set of best practices guidelines and to disclose this comparison to shareholders. This contrasts with the “rules-based” approach used in the United States in which companies are required to adopt specific practices in order to list on stock exchanges.

“In general, The Ethical Funds Company supports the ‘comply with best practices or explain’ approach adopted by the CSA,” said Walker.

In its submission, Ethical Funds notes that the principles-based approach necessitates that the larger investment community work with regulators and companies to be part of the compliance mechanism.

To encourage institutional investors to take more responsibility for establishing a progressive governance culture in Canada, Ethical Funds recommends that the CSA require pension funds and mutual funds to disclose their proxy voting policies and voting activity.

“Proxy voting disclosure will reduce the rubberstamping of management’s recommended votes and ensure that institutional investors are voting in favour of best governance practices, ethics, and market integrity,” said Walker.