Audit, Compliance and Risk Blog

Ontario Courts Reaffirm the Weave of the Corporate Veil

Posted by Jon Elliott on Fri, Feb 07, 2020

One of the enduring benefits of the corporate form is the treatment of corporations as separate “people,” distinct from their owners when questions of legal rights, responsibilities and liabilities arise. This separation extends not just to individual investors and shareholders, but in most circumstances to the corporate directors and officers who decide what their corporation does. Common law courts and federal and provincial corporation statutes define the exceptions – usually based on what are called “piercing the corporate veil” between the company and its controlling minds, or by deciding that those controllers run the corporation as an “alter ego” rather than as a distinct legal person. In recent months, two cases in Ontario have given courts the opportunities to review and reaffirm these traditional approaches.

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Tags: Corporate Governance, Business & Legal, International, Canadian, directors, directors & officers

The Court of Appeal Has Spoken: Safety Must Come First at the Port of Montréal’s Terminals

Posted by Justine B. Laurier on Tue, Jan 21, 2020

On September 12, 2019, the Québec Court of Appeal rendered its ruling in the case of Singh c. Montreal Gateway Terminals Partnerships1, upholding the decision rendered in first instance by the Honourable Justice André Prévost of the Superior Court. This case opposed the right to freedom of religion and the requirements of health and safety in locations like marine terminals, where safety is a major issue.

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Tags: Business & Legal, Canadian, directors, directors & officers

Recent Confirmation That Canadian Directors Can Consider Non-Shareholder Interests

Posted by Jon Elliott on Tue, Dec 03, 2019

The most basic principle of corporate directorships is that the directors have a fiduciary duty to act in the best interests of their corporation. It has followed closely that directors should serve the best interests of the shareholders – in most circumstances this means all the shareholders, not the majority or some faction to which a director might owe allegiance. Although it’s not so clear how expansively directors should interpret those corporate interests, the trend is toward consideration of more groups of “stakeholders.” The past year has seen important reinforcements for that trend.

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Tags: Corporate Governance, Business & Legal, Canadian, corporate social responsibility, directors, directors & officers

Business Roundtable (Re)states Position for Broad Corporate “Purpose”

Posted by Jon Elliott on Tue, Oct 08, 2019

The Business Roundtable has just offered its answer to the question “what’s the purpose for a corporation”? There are various ways to ask that question – existentially, legally, and/or operationally. Because the Roundtable is an association of chief executive officers of (CEOs) of many of America’s leading companies, its formal statements reflect the views of forward-looking Big Business. The Roundtable is most focused on the operational version, although press reports are pushing in all directions. The remainder of this note looks at what the Roundtable actually said, and provides some context to the multi-faceted question.

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Tags: Corporate Governance, Business & Legal, directors, directors & officers

Reevaluating Your D&O Coverage

Posted by Joy A Schwartzman on Thu, Apr 11, 2019

Especially at public companies, many corporate boards are facing increased risk and liability exposure from a volatile past few years. Case in point: After Marriott announced its data breach on Nov. 30, it took plaintiff’s attorneys only one day to file a securities class action lawsuit against the corporation. In fact, cyber exposure and the subsequent reputation damage are the top concerns cited by corporate boards in a recent study by Akin Gump Strauss Hauer & Feld LLP.

But there are many other potential risks that could result in lawsuits against corporate directors and officers (D&O). These include an ensuing drop in stock price after an incident, mishandling of personal information, effects of the opioid crisis, sexual harassment allegations, and pollution risk created by the use and disposal of dangerous chemicals used in manufacturing. Even liability suits for mass shootings in the workplace can find their way to directors and officers.

Insurance designed to protect corporate directors and officers has been on the market for almost a century, but it was not until the scandals of Enron and WorldCom in the early 2000s that many executives became more aware of the need for liability protection. While we all remember those two bankruptcies, many may not recall that directors of WorldCom had to contribute their personal assets to settle the D&O claims that ensued.

Today, the risk factors motivating the purchase of additional D&O insurance are compelling, but the type of coverage purchased has a material impact on the limits available to protect directors from liability. As corporate officers reevaluate their current D&O coverage, it is important to thoroughly understand the type of coverage purchased and to quantify a board’s potential risk or “claim severity.”

Understanding and Quantifying D&O Risk

In 2017, 9% of public companies in the United States faced securities class actions—an all-time high. These are highly correlated with ensuing D&O claims, and the risks facing every company continue to grow. A U.S. Supreme Court ruling late last year, for example, now enables litigants to pursue class action suits regarding initial public offerings in state courts, which are commonly perceived to be more sympathetic to plaintiffs. These suits are also generally more expensive to defend because they cannot be consolidated and must be negotiated or litigated case by case.

Despite this increase in risk and liability exposure, the market for D&O insurance continues to be soft, with low premiums relative to the potential exposure. There continues to be ample competition for this business, preventing any meaningful increase in pricing. As such, this is a good time for companies to purchase additional coverage as pricing may be at a low point, especially in the excess layers. That said, not all D&O coverages are alike. An understanding of the coverages and their differences is essential for decision-makers looking to evaluate risk mitigation options.

Differences In D&O Coverage

With the introduction of the Private Securities Litigation Reform Act (PSLRA) in 1995, there followed a change in D&O coverage available in the marketplace. PSLRA is a federal law enacted in response to the perceived increase in frivolous class action suits alleging securities fraud under the Securities Act of 1933 and the Securities Exchange Act of 1934. The key features of PSLRA are:

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Tags: Business & Legal, Workplace violence, corporate social responsibility, directors, directors & officers

If You Want Everyone To Know You’re A Transparent and Sustainable Company, Delaware Can Help

Posted by Jon Elliott on Tue, Feb 19, 2019

When companies claim they’re reducing their environmental impacts, how does anyone distinguish actual improvements from greenwashing? A growing number of national and international nonprofits and industry trade associations offer benchmarks and standards that companies can subscribe to, and third parties offer their services to evaluate and validate claims. Effective October 1, 2018 the state of Delaware has added a governmental layer, which Delaware companies can use to submit information and claims under penalty of perjury in order to gain formal state acknowledgement. The state claims this is the first such law.

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Tags: Business & Legal, Environmental, sustainability, corporate social responsibility, directors, directors & officers

Directors' Liability for Workplace Sexual Harassment in Canada Can Depend on Which Laws are Applied

Posted by Jon Elliott on Tue, Jan 22, 2019

Sexual harassment in Canadian workplaces can trigger a variety of laws and regulations:

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Tags: Business & Legal, Employer Best Practices, Employee Rights, Workplace violence, Canadian, directors, directors & officers

NLRB Proposes New Rule Defining “Joint Employer”

Posted by Jon Elliott on Thu, Jan 10, 2019

When someone receives occupational direction and/or compensation from more than one entity, who’s the boss? Sometimes it’s obviously one or the other, sometimes it’s not clear which one is, and sometimes the answer may be “both.” The answer has important implications, not just for who writes a paycheck but for who is subject to legal requirements and prohibitions under applicable laws.

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Tags: Business & Legal, Employer Best Practices, Employee Rights, NLRB, directors & officers

Employment Contracts and Employee Termination Rights

Posted by Jon Elliott on Tue, Nov 27, 2018

The Canada Labour Code and provincial employment standards acts generally specify a minimum notice period before such terminations (the “statutory notice period”), and generally allow the employer to pay compensation to the employee instead of giving the employee notice. (e.g., CLC ss. 54-67) This compensation is usually called “severance pay”; it replaces advance notice of termination. In general, the severance pay must equal the salary and benefits that the employee would have earned if permitted to work until the end of the notice period. Courts interpret and defend these prohibitions against “contracting out” termination benefits.

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Tags: Business & Legal, Employer Best Practices, Employee Rights, Canadian, directors, directors & officers

Tackling the Gender Pay Gap: Ontario’s Pay Transparency Act, 2018

Posted by Maria Gergin on Tue, Oct 30, 2018

On April 26, 2018, the Ontario government passed the Pay Transparency Act, 2018 (the Act), which created a number of requirements for employers with respect to compensation reporting and disclosure to employees and potential employees, as well as compliance compensation reporting to the government, which the government will then make public.

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Tags: Business & Legal, Employer Best Practices, Employee Rights, Canadian, directors, directors & officers