OSC chair sees new fund rules this year

The head of the Ontario Securities Commission has called on his counterparts to pull together and improve corporate governance in Canada and has warned that new rules are already being drawn up for the mutual fund industry.

In a speech to The Canadian Club of Montreal in Montreal on Monday, OSC chair David Wilson declined to address the issue of regulatory convergence, however, opting to point out the areas where the various provincial regulators were already working together through the Canadian Securities Administrators.

“While we cannot expect unanimity on every issue, we do approach these issues in a spirit of goodwill and collegiality,” he said of the CSA. “That’s the only way to effectively represent our common stakeholders.”

Wilson said the CSA was also examining the issue of governance of mutual funds and other similar pooled fund vehicles.

“We expect to publish a rule this year to establish a minimum, consistent standard of governance for all publicly offered investment funds,” he said. “It would put in place an Independent Review Committee for investment funds — providing increased protection for investors when their interests come into conflict with the interests of the fund managers.”

Wilson pointed to closely controlled companies and executive compensation as areas for concern.

“[Closely-controlled companies] represent a big share of Canada’s capital markets,” Wilson said. “If a 20% ownership or voting threshold represents a significant degree of control, then almost two-thirds of the companies listed on the TSX are closely-controlled. In the U.S., only about one-fifth of companies listed on the S&P 500 fall into this category.”

He suggested that such companies may warrant “a customized governance regime” and questioned whether controlling shareholders necessarily share the same interests as other shareholders.

“There are clear temptations when shareholders wield voting power that’s sharply disproportionate with their equity exposure,” he said. “There’s the risk that one might extract private benefit from the situation.”

Wilson admitted that such companies can benefit from close control, however, as it can insulate business operations from short-term thinking that can harm the company in the longer term.

Another potential governance problem in Canada is executive compensation, he said, which remains shrouded from investors.

“Executive compensation is getting tougher for investors to understand. It seems like no-one is just paid a straight salary anymore,” he said “And shareholders have a right to know whether — and how — directors have rigorously linked rewards for senior executives to overall corporate performance. Does compensation reflect how the company is actually performing?”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com