The Standing Senate Committee on Banking, Trade and Commerce on Thursday issued its report calling for corporate governance reforms.

The committee, chaired by senator Leo Kolber, is calling for new legislation to help restore investor confidence.

In its report, Navigating through “the perfect storm”: safeguards to restore investor confidence, the committee recommends new legislation that would require the majority of corporate board members to be independent, while recognizing the special circumstances that may be faced by closely held corporations and small and medium-sized businesses.

It also recommends the development of a code of ethics to be followed by the board.

The committee says the federal government should encourage provincial/territorial governments and the private sector to develop specifically tailored education and training for boards in areas that are outside their expertise.

The committee also calls for legislation to require all audit committee members to be independent and financially literate, and says at least one member should be a financial expert.

It recommends that compensation committee members be prohibited from being a member of management and would require them to have a level of expertise in the areas of compensation and human resource management.

Other recommendations include:

  • limits on the non-audit services that auditors can provide to their audit-clients;
  • legislation that would obviate real or perceived conflicts of interest by financial analysts;
  • increased penalties for fraud, insider trading and other offences;
  • establishing whistleblower protection for employees with respect to the reporting of financial irregularities; and
  • splitting the role of CEO and chairman.

The committee invites the federal government to take a leadership role and work with Canadian stakeholders in undertaking discussions with the U.S. Financial Accounting Standards Board, the International Accounting Standards Board and others developing global uniform accounting standards.

It asks the federal government to convene a meeting of all stakeholders to discuss the entity that should have responsibility for setting accounting standards and rules. “The government must take a leadership role in ensuring that the entity to which responsibility is given has the necessary independence, accountability and transparency to safeguard investor confidence,” it says.