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Corporate Governance in Crown Corporations and Other Public Enterprises - Guidelines


Message from the Minister of Finance and the President of the Treasury Board

In the current climate of change, all levels of government are exploring new alternatives for program delivery. The use of the corporate form as a vehicle of change is gaining increased importance. As well, corporate governance practices, involving the way we oversee the direction and management of public enterprises, have also gained importance.

Crown corporations operate in different sectors of the economy, vary greatly in terms of size and public policy purpose, and place different demands on the Crown for financial support. The government considers an effective board of directors to be a vital element of the corporate governance and accountability regime for Crown corporations.

We would like to express our sincere appreciation to the Advisory Group on Crown Corporations. The Group's membership comprises senior executives with a breadth of experience from both the public and private sectors. They have given generously of their time, and contributed wise and useful counsel. We believe that their work has resulted in Guidelines that will enhance corporate governance in Canada.

This document sets forth a number of ways in which the effectiveness of boards of directors can be strengthened. The Guidelines for Corporate Governance in Crown Corporations and Other Public Enterprises address important aspects of corporate governance — how the responsibilities and powers are divided among the Crown, the board of directors, and management; the board of directors' stewardship responsibilities; developing an appropriate and effective working relationship between the board and management; and ensuring there are mechanisms in place to achieve accountability.

These Guidelines serve as an important benchmark for the corporate governance practices in each Crown corporation. We support the Advisory Group's recommendation that each Crown corporation report on its corporate governance policies and practices in relation to these Guidelines in its annual report.

These Guidelines will also have applicability to other public enterprises. We think they will provide a valuable source of advice and guidance to those charged with the responsibility for corporate governance in Crown corporations, and will strengthen accountability.

We are confident that these Corporate Governance Guidelines will help the chairs, chief executive officers and individual members of boards of directors to appreciate the challenges that must be met by both the shareholder and boards of directors to enable corporations and public enterprises to fulfil their mandates.

Paul Martin
Minister of Finance
Ottawa, June 1996
Marcel Massé
President of the Treasury Board
Ottawa, June 1996

Message from the Advisory Group on Crown Corporations

Our Advisory Group was drawn together to assist the government in its use of Crown corporations and public enterprises to deliver services to Canadians. We welcomed the opportunity to help strengthen these important public institutions.

Crown corporations have a long history in Canada dating back to Confederation. They have acted as engines of industrial development, provided important goods and services, and contributed to developing our national identity. We anticipate that Crown corporations and other public enterprises will continue to be used to achieve national goals and deliver programs and services to its citizens.

These Guidelines reflect our belief that an effective board of directors is key to the functioning of Crown corporations and other public enterprises. Having each Crown corporation report on its corporate governance policies and practices in relation to these guidelines in its annual report will enhance the accountability of the boards.

The Group's members have shared their diverse experiences from both the public and private sector. We trust that these Guidelines will be a valuable source of advice and guidance on corporate governance matters. We anticipate that they will be used by chairs, chief executive officers, and individual board members to enable them to function more effectively in meeting the expectations of the Government of Canada. We are hopeful that the Guidelines will be of use to the other public enterprises including those at the provincial and municipal levels of government in Canada.

We appreciate the review and feedback received from Crown corporation chairs and CEOs, as well as the Privy Council Office and the Office of the Auditor General. Their comments helped to improve the Guidelines.

Our thanks to the Crown Corporations and Privatization Sector, of the Department of Finance and Treasury Board of Canada, who undertook the logistical tasks of organizing our Group and overseeing the production and distribution of the Guidelines. We also acknowledge the support of The Conference Board of Canada in producing the final Guidelines document.

Members of the Advisory Group on Crown Corporations

J. Douglas Barrington
Chair
Deloitte & Touche
Harry G. Rogers
President and CEO
Precarn Associates Inc.
Jean-Pierre Bourbonnais
Chair and Senior Partner
Illsley, Bourbonnais Inc.
The Honourable Mitchell Sharp
Personal Advisor to the Prime Minister
Dr. Gail Cook-Bennett
Vice-Chair
Bennecon Ltd.
Gary Sheehan
Director
Crown Corporations and Privatization Sector
Department of Finance and Treasury
Board Secretariat
Peter J. Dey, Q.C.
Managing Director
Morgan Stanley Canada, Limited
David B. Watters
Assistant Secretary
Crown Corporations and Privatization Sector
Department of Finance and
Treasury Board Secretariat
John L. Manion, O.C. (retired)
former Secretary of the Treasury Board and Founding Principal, Canadian Centre for Management Development
 
Patrick O'Callaghan
Managing Partner
Patrick O'Callaghan & Associates Ltd.
 
Advisory Group Staff
Joanne Heidgerken
Ann Wesch
 

Introduction

These Guidelines on Corporate Governance in Crown Corporations and Other Public Enterprises aim to assist those involved in overseeing the direction and management of public sector corporations to better appreciate both the nature and the importance of their corporate governance duties. The Guidelines build on the guidelines adopted by the Board of Governors of the Toronto Stock Exchange in 1995.

Corporate governance describes the process and structure for overseeing the direction and management of a Crown corporation so that it effectively fulfils its mandate. Good corporate governance can contribute to the corporation's achievement of both its public policy and commercial objectives. The process and structure defining the division of responsibilities and powers among the Crown, the board of directors, and management also establishes key accountability mechanisms.

The Guidelines present 10 recommendations categorized into three broad areas of responsibility for improving the effectiveness of corporate governance practices in Crown corporations: stewardship of the corporation; working with management; and the functioning of the board. They are recommended for application in all federal Crown corporations. As a source of advice and guidance on corporate governance matters to the chairs, chief executive officers and individual members of the boards of directors, they will help them meet the expectations of the Government of Canada in overseeing the businesses and affairs of Crown corporations. It should be recognized that these are guidelines. There may be circumstances, especially in corporations with quasi-judicial regulatory responsibilities, where the board may decide it is appropriate to tailor the Guidelines. The Guidelines are not intended to modify the legal requirements and framework within which boards of directors are required to carry out their responsibilities.

Each Crown corporation should include a description and assessment of its corporate governance policies and practices in its annual report.

These Guidelines benefited from a review by a selection of Crown corporation chairs and CEOs, as well as the Privy Council Office and the Office of the Auditor General.

The Crown Corporation Perspective

Canada has a long history dating back to Confederation of using Crown corporations to manage important public programs. Other levels of government in Canada have also used public enterprises in their pursuit of public interests.

The federal government's current portfolio of Crown corporations is highly diversified with corporations operating in many sectors of the Canadian economy. The corporations vary widely in size and differ in their demands on the government for financial support. The President of the Treasury Board's Annual Report to Parliament on Crown Corporations and Other Corporate Interests of Canada provides a consolidated report on the businesses and activities of all parent Crown corporations and other corporate interests of the Government of Canada.

Each Crown corporation's enabling legislation sets out in broad terms the Crown corporation's mandate. In serving the public interest, Crown corporations have greater managerial autonomy than the rest of government in order that they may operate in a commercial manner. The legislated control and accountability regime aims to balance the corporation's autonomy with accountability to both government and to Parliament. Part X of the Financial Administration Act (FAA) outlines the control and accountability framework for Crown corporations.

Crown corporations are distinct legal entities wholly-owned by the Crown. Boards of directors of Crown corporations oversee the management of their corporation and hold management accountable for the company's performance. The board of directors, through the chair, is accountable to the responsible minister. The responsible minister functions as the link between the corporation and both the Cabinet and Parliament.

Annually, the Governor in Council, on recommendation of the Treasury Board and, in some cases, the Minister of Finance, approves the corporate plan of each Crown corporation. Approval of the corporate plan by the board of directors and the government authorizes proposed actions and budgets for the upcoming year. The corporate plan describes the corporation's planned directions and actions over a five-year planning horizon and provides the framework for decisions and evaluation.

Crown corporations regularly provide Parliament with comprehensive and timely information on their plans and their actual performance. Each year Parliament receives a summary of the corporate plan, capital and operating budgets and an annual report.

More detailed information on the Crown corporation accountability regime is available in the publication Directors of Crown Corporations: An Introductory Guide to Their Roles and Responsibilities.



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