Request for Comment

A.1

General Support

Eleven commenters believed that issuers would benefit from a uniform approach to corporate governance adopted and applied by all jurisdictions across Canada.

The Proposed Policy and the Proposed Instrument are the initiative of every securities regulatory authority in Canada. The proposals reflect elements of, and the comments received on, both the January Proposal and the April Proposal. In particular,

Six commenters expressly agreed with the "comply or explain" approach.

Five commenters suggested that the Proposed Policy be clarified with respect to the freedom of issuers to adopt their own practices that differ from "best practices".

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the Proposed Policy clarifies that issuers are not required to adopt the guidelines; instead, issuers should consider each of the guidelines in developing their own corporate governance practices;

One commenter suggested that issuers need flexibility to adopt appropriate requirements as opposed to comparing themselves to "best practices". Another commenter suggested that MP 58-201 and MI 58-101 be less prescriptive and more flexible for small cap and closely-held companies and noted that the guidelines should, in general, allow companies the flexibility to achieve good corporate governance in a way that meets each issuer's needs and circumstances.

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the Proposed Instrument requires issuers, other than venture issuers, to provide disclosure not only with respect to specific guidelines, but about their corporate governance practices, generally; and

Three commenters supported the approach proposed in MI 51-104 for all of the specific areas outlined in the request for comments. One of these commenters noted that MI 51-104 provided sufficient flexibility to accommodate the needs of different industries. Another commenter endorsed the starting point that MI 51-104 applies to all reporting issuers.

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the Proposed Instrument requires venture issuers to provide disclosure only about their corporate governance practices, in the manner contemplated by the April Proposal.

Three commenters believed that the guidelines in MP 58-201 should be made mandatory.

We believe that making the guidelines mandatory would detract from the flexibility which, in our view, must be afforded Canadian issuers given their diversity, particularly small issuers and closely held companies.

One commenter suggested that corporate governance guidelines and the related disclosure instrument remain with the Toronto Stock Exchange, since, as a single body, it could adapt to change more quickly, and would regulate more consistently, than 13 separate regulators. Also, the commenter noted that an "exchange-based" approach would be more consistent with the U.S. and Australia.

We disagree. In our view, it is more appropriate that corporate governance guidelines and the related disclosure instrument remain with the CSA for two reasons. First and foremost, this regulation is inconsistent with the business model of the Toronto Stock Exchange. Second, the CSA have a broader array of sanctions at their disposal to enforce the related disclosure requirements. We also note that international practice in this area is mixed. For example, in the UK, the authority for corporate governance resides with the Financial Services Authority.

General Comments

B.1

Application of MI 58-101

Four commenters suggested there be an exemption for a subsidiary issuer that is a reporting issuer if it has no equity securities trading on a marketplace and its parent company complies with MI 58-101 or the comparable U.S. rules. This exemption would parallel an existing exemption in paragraph 1.2(e) of Multilateral Instrument 52-110 Audit Committees (MI 52-110).

We agree. We have included this exemption in the Proposed Instrument.

B.2

Application to Non-Corporate Entities

One commenter suggested that additional guidance be provided regarding application of the principles to non-corporate issuers.

Although the Proposed Policy and the Proposed Instrument have been drafted in contemplation of a corporate issuer, we expect that non-corporate issuers will apply the guidelines and disclosure requirements flexibly.

Two commenters suggested that, with respect to income trusts, disclosure be made in respect of the underlying business as opposed to the reporting issuer which is separate from the underlying business.

We have provided additional guidance with respect to the application of the Proposed Policy and the Proposed Instrument to income trusts. Specifically, income trust issuers should apply the guidelines and disclosure requirements in a manner which recognizes that certain functions of a corporate issuer, its board and its management may be performed by any or all of the trustees, the board and management of a subsidiary of the trust, or the board, management or employees of a management company. For the purposes of the Proposed Policy and Proposed Instrument, references to "the issuer" include not only the trust but also any underlying entities, including the operating entity.

B.3

Location of Disclosure

Several commenters suggested that the disclosure required by proposed Form 58-101F1 be included in either the issuer's proxy circular or annual report, rather than its AIF. Another commenter suggested that the disclosure be included in an issuer's proxy circular or posted on its website with a notice in its annual report or proxy circular.

The Proposed Instrument now requires issuers to provide the disclosure primarily in their management information circulars.

One commenter suggested that disclosure be required on a guideline by guideline basis, perhaps in tabular format.

We do not believe it is necessary to prescribe the format of the disclosure.

B.4

Venture Issuers

One commenter was of the view that venture issuers should have an open-ended approach to disclosure rather than a "comply or explain" approach. The commenter supported the exemption for venture issuers from many of the disclosure requirements in MI 58-101. Another commenter suggested that guidelines be more explicit regarding the unique challenges facing smaller issuers.

We recognize that it may not be productive to require venture issuers to comply with the same disclosure requirements applicable to larger issuers. The venture issuer disclosure requirements in the Proposed Instrument have therefore been modelled on those in the April Proposal, which require disclosure of an issuer's corporate governance practices, generally, rather than against specific guidelines.

Two commenters suggested that there be no modified disclosure for venture issuers.

B.5

Meaning of Independence

A number of commenters made suggestions regarding the definition of independence.

We have published, concurrently with the publication of this Notice, amendments to the definition of independence in MI 52-110. These amendments were designed

Four commenters suggested that the definition of independence appear in either MI 58-101 or MP 58-201, rather than being cross-referenced to MI 52-110. One commenter also suggested that more explanation be provided for having different measures of independence for the audit committee and for the board.

(i)

to make the cross-reference in the Proposed Instrument to the definition of independence in MI 52-110 easier to follow; and

(ii)

to more closely harmonize our definition of independence with corresponding requirements in the United States.

For more details relating to these changes, see the notice accompanying the proposed amendments to MI 52-110 (the Audit Committee Amendment Notice).

B.6

Controlled Companies

Two commenters suggested that it would be helpful to provide guidance on how shareholding impacts independence. Two other commenters suggested that MP 58-201 clearly state that independence means independence from management. A fifth commenter suggested that guidelines be more explicit regarding the unique challenges facing controlled companies.

Although shareholding alone may not interfere with the exercise of a director's independent judgement, we believe that other relationships between an issuer and a shareholder may constitute material relationships with the issuer, and should be considered by the board when determining a director's independence.

One commenter also suggested that MP 58-201 state that controlled companies need not have either a majority of independent directors or a chair/lead director who is independent from the controlling shareholder. Another commenter recommended that the exemptions regarding audit committees found in sections 3.2 through 3.6 of MI 52-110 also apply to other board committees.

In our view, these proposed revisions are unnecessary. Unlike MI 52-110, which generally requires issuers to have an independent audit committee, the guidelines are not mandatory, and so issuers are free to adopt those corporate governance practices that they determine to be appropriate for their particular circumstances. Issuers are only required to disclose the corporate governance practices that they have adopted. Furthermore, we note that many of the exemptions from the independence requirements of MI 52-110 referred to by the one commenter also require an issuer to disclose that they are relying on such exemptions.

Comments on Specific Guidelines and Disclosure Requirements

B.7

Majority of Independent Directors -- Guideline and Disclosure Requirement

One commenter suggested that each issuer's board be required to have a majority of independent directors.

We believe that these recommendations would be inconsistent with the objective of flexibility afforded by the "comply or explain" approach which underlies the Proposed Policy and the Proposed Instrument. We have therefore not adopted these suggestions.

Another commenter suggested that the guidelines recommend that two-thirds of the directors on each board be independent.

We believe that recommending two-thirds of the directors on a board be independent would be inappropriate and out-of-step with international standards.

Three commenters suggested that issuers identify independent directors and explain why each one is independent. Another commenter suggested that issuers disclose which directors are not independent, together of an explanation as to why they are not.

We agree that issuers should identify both independent and non-independent directors. We also agree that issuers should disclose their basis for determining that a director is not independent. However, we believe that requiring issuers to disclose the basis for determining that a director is independent would be impractical. We have revised the Proposed Instrument accordingly.

Three commenters suggested that issuers publish a list of boards on which directors serve. One commenter also suggested that there should be disclosure of director attendance at board and committee meetings.

We agree that issuers should publish a list of boards on which directors serve and have included this requirement in the Proposed Instrument. However, in light of the other guidelines and disclosure requirements, we do not believe it to be necessary to require all issuers to disclose directors' attendance.

B.8

Independent Chair or Lead Director -- Guideline and Disclosure Requirement

One commenter suggested that the guidelines be amended to provide that if the chair is not an independent director, a lead director should be appointed. However, the commenter further suggested that the lead director's role be limited to matters involving independent directors.

The guideline now recommends that where a chair is not independent, an independent director should be appointed to act as a lead director. However, the guideline continues to recommend that the independent lead director act as an effective leader of the board, and ensure that the board's agenda will enable it to successfully carry out its duties. We note that this guidance is consistent with the recommendations set out in the Saucier Report (2001).

Another commenter suggested that MP 58-201 require that the chair be an independent director.

See paragraph 1 of the response to Item B.7, above.

B.9

Meetings of Independent Directors -- Guideline and Disclosure Requirement

Two commenters suggested that the guideline recommending that independent board members hold separate, regularly scheduled meetings be amended to conform to the NYSE listing requirements, which only require these meetings to be held by non-management (rather than independent) directors. In the view of one of these commenters, the failure to make such a change would result in a "two-tier board". In the view of the other commenter, the change would promote cross-border harmonization and further the goal of empowering non-management directors.

We believe that it is appropriate for independent directors to hold regularly scheduled meetings at which members of management are not in attendance. We believe this properly empowers the independent directors. We fail to see how it would will result in a greater risk of developing a "two-tier board".

Two commenters recommended that issuers disclose the number of meetings held by the independent directors. One of these commenters also recommended that issuers be required to disclose attendance records for such meetings.

The Proposed Instrument now requires issuers to disclose the number of meetings held by the independent directors over the preceding 12 month period. However, we do not believe that it is necessary to mandate disclosure of attendance at these meetings. See also paragraph 4 of the response to Item B.7, above.

B.10

Board Mandate -- Guideline and Disclosure Requirement

One commenter recommended that boards be required to draft a written board mandate.

See paragraph 1 of the response to Item B.7, above.

Six commenters suggested that the level of board involvement contemplated was inappropriate (e.g., directors should not be responsible for policing compliance with ethics codes; boards should not be directly responsible for risk identification and management or succession planning). The commenters generally recommended that the guidelines be revised to coincide with directors' obligations under corporate law. However, another commenter noted that while management must have the right to manage on a day-to-day basis, closer supervision by directors should be an objective.

We believe it is fundamental to any system of corporate governance that the board assume explicit responsibility for those areas identified in paragraph 3.4 of the Proposed Policy. We note that subsection 102(1) of the Canada Business Corporations Act provides that, subject to any unanimous shareholder agreement, the directors shall manage, or supervise the management of, the business and affairs of a corporation. In light of this, we fail to see how the level of board involvement contemplated by the guidelines is inconsistent with a director's corporate law obligations. Furthermore, we note that these guidelines are substantially similar to the guidelines adopted by the TSX in 1995.

One commenter suggested that we recognize the right and responsibility of directors to monitor ethical decisions by directors.

The Proposed Policy recommends that the board monitor compliance with its code, including compliance by its own directors. We believe this guideline adequately addresses the concerns raised by the commenter.

Another commenter suggested that the board's mandate include clearly defining the level of accountability of a CEO (including metrics and a time horizon during which to achieve objectives). Another commenter recommended that the board mandate also include ensuring the compensation of the CEO and senior officer is not constructed in such a way as to encourage unethical behaviour.

The guidelines recommend that the board, together with the CEO, develop a clear position description for the CEO and that the board develop or approve the corporate goals and objectives that the CEO is responsible for meeting. The guidelines also recommend that the compensation committee review and approve corporate goals and objectives relevant to CEO compensation, evaluate the CEO's performance in light of those goals and objectives, and determine or make recommendations to the board with respect to CEO compensation based on this evaluation. We believe that these guidelines adequately address the concerns raised by the commenter.

Three commenters recommended that more guidance be provided with respect to the steps used in assessing the integrity of a CEO and senior officers.

We believe that any determination of the steps that should be taken must be made on a case by case basis, and that any statement regarding these steps, even on a generic basis, would likely only foster a "check-list mentality".

Three commenters suggested that more guidance be given with respect to measures for receiving feedback from security holders.

The relevant guideline now provides an example of a measure for receiving feedback from shareholders.

Two commenters disliked the recommendation that the board mandate set out decisions requiring pre-approval by the board. The commenters noted that this could result in extensive disclosure that would be confusing to investors. Furthermore, one commenter suggested that this information could, in some circumstances, also be proprietary.

We have deleted this recommendation from the Proposed Instrument.

One commenter suggested that, to avoid increased printing costs for an issuer's AIF, the written mandate for the board be disclosed by posting it on the issuer's website or by filing it on SEDAR. Another commenter recommended that, in addition, the mandate also be published in the issuer's circular every three years.

We do not believe that the cost of including the board's mandate in an issuer's AIF or management information circular will be onerous. Consequently, we have not revised the Proposed Instrument.

B.11

Position Descriptions -- Guideline and Disclosure Requirement

Five commenters suggested that it was unnecessary to have a position description for each director because either (i) the director's duties were already imposed by law, or (ii) this information would be contained in the board mandate. One commenter suggested that, as an alternative, the board set out its expectations of its directors, either in the board mandate or in a separate document.

We have deleted the guideline recommending that the board develop a written position description for directors, but have added guidance recommending that the board mandate set out expectations and responsibilities of directors, including basic duties and responsibilities with respect to attendance at board meetings and advance review of meeting materials. This guidance is now substantially similar to the requirements of the NYSE.

Several commenters were concerned that the guidelines suggested each individual director have their own position description tailored to their particular skills and competencies. The commenters believed that this would inappropriately focus attention on individual directors, rather than the board as a whole.

Three commenters suggested that it was not necessary to have a position description for "chairs" of board committees, as the responsibilities of the chairs would be contained in the committee charter.

The charter of a committee may set out an adequate position description for a committee chair. In such a case, we believe that this would be sufficient for an issuer to have satisfied the "position description" guideline.

One commenter suggested that the phrase "delineating management's responsibilities" be clarified in connection with the position description for the CEO.

We believe that the phrase "delineating management's responsibilities" is sufficiently clear. We have not therefore revised this guideline.

B.12

Orientation and Continuing Education -- Guideline and Disclosure Requirement

One commenter recommended that the guideline regarding continuing education be flexible as opposed to prescriptive.

We believe the guideline, as written, is flexible.

One commenter suggested that the guidelines recommend that investor relations form part of director orientation and ongoing board briefings. Two other commenters recommended that director education specifically include a component on ethics.

As currently drafted, the guideline suggests that all new directors should receive a "comprehensive orientation". The guideline goes on to specifically suggest that directors should understand the role of the board, the contribution that individual directors are expected to make, and the nature and operations of the issuer's business. We do not believe it is necessary to specifically recommend other areas that should be included in a director's "comprehensive orientation", as that is best left to the discretion of the board.

Two commenters suggested we clarify what it means for a director to "fully understand" an issuer's business. The commenters believed that it was unrealistic to expect all new directors to fully understand the nature and operations of an issuer's business, at least in the short term.

We agree and have amended the guideline accordingly.

One commenter suggested that more guidance be given on the type of disclosure that is expected regarding director orientation and continuing education.

We believe the additional guidance is unnecessary.

B.13

Code of Business Conduct and Ethics -- Guideline -- General

One commenter recommended that the preamble to MP 58-201 include a reference to the promotion of integrity throughout the organization and not just deterring wrongdoing.

We have amended the guidelines respecting the code of business conduct and ethics (a code) to specifically encourage the promotion of integrity.

A number of commenters suggested that a code be mandatory for issuers.

See paragraph 1 of the response to Item B.7, above.

Three commenters suggested that the provisions relating to codes be bolstered Three commenters suggested that the code include social and environmental aspects. One commenter recommended that the code specifically prohibit corrupt behaviour.

The guidelines relating to the code were drafted to be broadly applicable. However, issuers are not precluded from including additional provisions in their own codes.

One commenter suggested that the board undertake a periodic review of the code to determine its adequacy and effectiveness. Another commenter suggested that a "chief ethics officer" be designated.

While we agree that these measures would be useful in facilitating an ethical corporate culture, we are of the view that these measures would be encompassed in the board's mandate in connection with the creation of a culture of integrity throughout the organization.

B.14

Code of Business Conduct and Ethics -- Guideline -- Monitoring Compliance with the Code

One commenter suggested that issuers be required to report on how they integrate codes into their decision-making (e.g. training). Another commenter recommended that issuers report on their "ethical management structure" and specific ethics and governance tools that are in place. Two commenters recommended that the board be required to disclose the steps or mechanisms used for monitoring the code.

We believe that the measures underlying these proposed reporting requirements, together with other measures, would be considered by the board in fulfilling its mandate in connection with the creation of a culture of integrity throughout the organization. In addition, the Proposed Instrument now requires that issuers describe any steps their board takes to encourage and promote a culture of ethical business conduct. In our view, these measures adequately address the commenters concerns.

B.15

Code of Business Conduct and Ethics -- Disclosure -- Filing of Code

One commenter suggested that the voluntary adoption of a code puts issuers who have chosen to adopt a code under greater regulatory scrutiny that those issuers who do not adopt one.

We do not intend to place issuers who adopt a code under greater regulatory scrutiny. However, we acknowledge that issuers who do not adopt a code may be subject to greater market scrutiny.

Five commenters suggested that codes be posted on issuers' websites rather than filed on SEDAR. Two of these commenters also recommended that codes be published in proxy circulars, either annually or every three years.

As not all reporting issuers have websites, the Proposed Instrument requires issuers to file a copy of their code on SEDAR. As the code would always be available on SEDAR, we do not believe that it need also be published in an issuer's proxy circular.

B.16

Code of Business Conduct and Ethics -- Disclosure -- Disclosure of Waivers from Code

Two commenters disagreed in principle with the concept of waivers from the code, as there should be an expectation that deviation from the code is not acceptable. Another commenter believed that boards should only grant waivers if they explain the reasons for their decision.

We believe that, in some circumstances, it may be both necessary and appropriate for a provision of a code to be waived.

One commenter considered that a press release would be appropriate if a waiver of the code was granted. Five commenters suggested that waivers of the code should only be the subject of a press release if the waiver would be material to the issuer. One of these commenters suggested that, if regulators decide that press releases were necessary for every waiver that is granted, issuers should not be required to disclose the name of the individual to whom the waiver was granted. Another of these commenters suggested that waivers be disclosed in quarterly reports, together with the rationale for any waivers.

We recognize that it may be inappropriate for issuers to press release every waiver of a code, and have therefore revised the Proposed Instrument to remove this requirement. We believe that conduct of a director or an executive officer that constitutes a material departure from the code will likely constitute a material change within the meaning of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) We note this guidance is largely consistent with that articulated in Part IV of National Policy 51-201 Disclosure Standards.

Four commenters suggested that only waivers to executive officers should be disclosed (to be consistent with U.S. requirements).

Form 51-102F3 requires every material change report to include a full description of the material change. Where a departure from the code constitutes a material change to the issuer, we expect that the material change report will disclose, among other things:

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the date of the departure

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the party(ies) involved in the departure

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the reasons why the board has or has not sanctioned the departure

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any measures the board has taken to address or remedy the departure

Two commenters noted that there is an inconsistency between the requirement under MI 58-101 to disclose waivers (which includes any granted to directors and officers of an issuer or subsidiary) and the requirement in an AIF which only requires disclosure of waivers granted to directors and officers of an issuer. One of these commenters also noted that there is an inconsistency between MP 58-201, which recommends that any waivers granted to the issuer's directors or senior officers be granted by the board and the disclosure requirement to disclose waivers granted to directors and officers of the issuer or a subsidiary.

Two commenters suggested that the definition of "implicit waiver" should refer to a failure by the issuer as opposed to the board of directors to take action within a reasonable time.

B.17

Nomination of Directors and Nominating Committees -- Guideline and Disclosure Requirement

Two commenters suggested that nominating committees be comprised of a majority of independent directors. Another commenter made this same suggestion, but only until further study is conducted. A fourth commenter suggested that nominating committees be composed entirely of independent directors, while a fifth commenter recommended that a fully independent nominating committee be required. Another commenter submitted that controlled companies should not have to limit nominating committee membership to independent directors.

Because the nomination process is a fundamental element of corporate governance, we believe that nominating committees should be composed entirely of independent directors. As a result, we have not revised the guideline.

With respect to controlled companies, see the response to Item B.6, above.

Five commenters suggested that the two-step nominating process needed to be more flexible. One of these commenters, however, suggested that if greater flexibility is given, issuers should disclose the processes they have used in nomination and recruitment.

While we believe that the two-step process is important, we have modified the guideline to clarify that the two steps need only form part of the nomination process. In addition, the Proposed Instrument now requires issuers to disclose the process by which their boards identify new candidates.

One commenter suggested that nominating committees consider the independence status of nominees. Another commenter suggested that nominating committees look beyond traditional candidates in their searches for directors. A third commenter recommended that the committee focus on integrity and reputation in making its recommendations. A fourth commenter suggested that the guidelines recommend that investor advocates and investment professionals be considered for nomination.

We believe it is sufficient for the guideline to state that a nominating committee consider both the competencies and skills the board requires, and the competencies and skills that candidates will bring to the boardroom. This does not suggest, however, that additional considerations (i.e., independence) should not also form part of the committee's considerations. These additional considerations, however, should be based upon the issuer's own circumstances and needs.

One commenter suggested that the charter of the nominating committee be posted on an issuer's website and disclosed in its proxy circular every three years, with any significant changes to such policy being published in the next proxy circular and posted on the issuer's website.

We have removed the requirement that an issuer disclose the text of its nominating committee charter (if any). Instead, we now propose that issuers disclose in their management information circulars the responsibilities, powers and operation of the nominating committee. We believe that this disclosure requirement will provide sufficient transparency to the marketplace while relieving issuers of the burden to reproduce, on a regular basis, the text of the nominating committee charter.

B.18

Compensation and Compensation Committees -- Guideline and Disclosure Requirement

Two commenters suggested that compensation committees be comprised of a majority of independent directors. Another commenter made this same suggestion, but only until further study was conducted. A fourth commenter suggested that compensation committees be composed entirely of independent directors, while a fifth commenter recommended that a fully independent compensation committee be required. Another commenter submitted that controlled companies should not have to limit compensation committee membership to independent directors.

Because the compensation process is a fundamental element of corporate governance, we believe that compensation committees should be composed entirely of independent directors. Therefore, we have not revised the Proposed Instrument as suggested.

With respect to controlled companies, see the response to Item B.6, above.

Two commenters suggested that the compensation committee be permitted to both determine and approve the CEO's compensation, or to make recommendations to the board regarding such compensation. Another commenter suggested that MP 58-201 should clearly state that the responsibility for determining director compensation falls to the compensation committee.

We have revised the applicable guideline to clarify that the compensation committee may either determine the CEO's compensation or make a recommendation to the board regarding the CEO's compensation.

Three commenters suggested that an issuer's compensation principles and philosophy be disclosed. Two commenters recommended that the compensation committee disclose the metrics it uses to determine compensation.

The Proposed Instrument now requires issuers to describe the process by which their board determines the compensation for their company's directors and officers.

One commenter suggested that all forms of executive compensation be disclosed, including estimates of the present value of pensions for "named executive officers".

We believe that the disclosure of executive compensation has been appropriately dealt with in the context of National Instrument 51-102 Continuous Disclosure Obligations.

One commenter recommended that the provisions of the Proposed Policy relating to compensation include a statement of principle that the design of a compensation plan is more important than the size of total remuneration. Another commenter suggested that MP 58-201 provide more guidance on best practices relating to compensation policies, and that MP 58-201 recommend that the compensation committee select a "defensible peer group" from which to benchmark and establish equitable executive compensation. A further commenter recommended that the committee review the CEO's contribution to a culture of integrity in making its determination regarding recommended compensation.

The guidelines recommend that, in developing a position description for the CEO, the board should develop or approve the corporate goals and objectives that the CEO is responsible for meeting. Further, the guidelines also suggest that, in recommending or determining the CEO's compensation, the compensation committee also review goals and objectives relevant to the CEO's compensation and evaluate the CEO's performance in light of these goals and objectives. We have drafted the guidelines to be flexible and broadly applicable; consequently, we have not revised the guideline to include some of the more specific suggestions provided by the commenters.

One commenter suggested that all disclosure relating to compensation should be centralized, perhaps in Form NI 52-102 F6 Statement of Executive Compensation.

Nothing in the Proposed Instrument requires an issuer to repeat disclosure in more than one location in a document.

One commenter suggested that the charter of the compensation committee be posted on an issuer's website and disclosed in its proxy circular every three years, with any significant changes to such charter being published in the next proxy circular and posted on the issuer's website.

The Proposed Instrument no longer requires the text of the charter of the compensation committee to be disclosed. Instead, we are now proposing that issuers disclose the responsibilities, powers and operation of the compensation committee. We believe this disclosure requirement will provide sufficient transparency to the marketplace while relieving issuers of the burden to reproduce, on a regular basis, the text of the compensation committee charter.

B.19

Regular Board Assessments -- Guideline and Disclosure Requirement

One commenter suggested that the board be assessed as a whole and that it was not necessary to assess individual directors.

We disagree. We believe that the performance of individual directors is integral to the effective functioning of the board.

Another commenter suggested that the board should implement a process to carry out assessments but that the nominating or other appropriate committee should then carry out the process. A further commenter suggested that individual committees conduct performance assessments of the chairs of committees.

The Proposed Policy now permits flexibility regarding who conducts the assessment.

One commenter suggested that the assessment process used by issuers be flexible and disclosed annually. Another commenter suggested that the assessment process be disclosed with sufficiently high level of detail to assure investors that a strong and viable program was in place.

The Proposed Instrument requires issuers to disclose whether or not the board, its committees and directors are regularly assessed. If assessments are regularly conducted, issuers are required to disclose the process used for the assessments. We expect that issuers will provide a sufficiently high level of detail in their disclosure to permit a reader to understand the issuer's assessment process.

One commenter suggested that issuers perform board, committee and individual assessments on an annual basis and include summaries in the proxy circular.

We do not believe it necessary to mandate this disclosure for all issuers.

Miscellaneous Comments

B.20

Miscellaneous Comments -- Other Corporate Offices

One commenter noted that neither MP 58-201 nor MI 58-101 addressed who should have the principal responsibility for corporate governance matters. One commenter suggested that an issuer's internal auditors be responsible for monitoring compliance with the best practices outlined in MP 58-201. Two other commenters suggested that issuers appoint corporate governance officers. One of these commenters recommended that such role be played by the corporate secretary.

We believe that the responsibility for developing an issuer's approach to corporate governance lies with the board. Where appropriate, the board may appoint a corporate governance committee to specifically consider corporate governance issues.

Two commenters recommended that issuers have a corporate governance committee comprised of independent directors (or a majority of independent directors and an independent chair). One of these commenters also recommended that similar disclosure standards apply to this committee as apply to the nominating and compensation committees.

One commenter suggested that MP 58-201 require reporting to shareholders on an issuer's corporate governance standards and practices and its evaluation of the effectiveness of such standards and practices.

We believe the disclosure obligations contained in the Proposed Instrument will provide sufficient transparency to shareholders. We do not believe that a requirement for a separate report to the shareholders is therefore justified.

B.21

Miscellaneous Comments -- Fiduciary Duties, Etc.

One commenter noted that the January Proposal did not discuss the alignment of interests between board members and shareholders or the fiduciary duty of board members to shareholders. Further, the commenter noted that there were no specific guidelines on takeover protection or shareholder rights.

In our view, other legislation and policy (such as the Canada Business Corporations Act and OSC Rule 61-501 Insider Bids, Issuer Bids, Going Private Transactions and Related Party Transactions) provide appropriate guidance and discussion regarding these topics. Consequently, we have not revised the Proposed Policy to reflect these concerns.

B.22

Miscellaneous Comments -- Compliance

Two commenters noted that MP 58-201 did not identify how the guidelines would be monitored or how compliance would be assessed. Three commenters suggested that the enforcement mechanisms which the regulators propose to use be set out in the Instrument.

We do not believe that this disclosure is necessary or appropriate.

B.23

Miscellaneous Comments -- Other

One commenter recommended that the auditor's engagement letter be published in the issuer's management discussion and analysis.

We believe that this requirement goes beyond the scope of the Proposed Instrument and the Proposed Policy. Consequently, we have not addressed this issue here.

One commenter recommended permitting votes FOR or AGAINST individual directors, as in the case in the United Kingdom proxy ballots. The commenter noted that this would require a change from WITHOLD to AGAINST and a requirement to vote each director separately rather than slates. The commenter also was in favour of not allowing custodians that hold shares for investors to vote for incumbent directors without the permission of the actual owners.

Because these comments touch on matters of corporate law, we have not addressed this issue here.

Another commenter suggested that consideration be made of dual-level board structures, as seen in Germany and Ireland.

See above.