E. Directors and Officers
| Author | M.H. Ogilvie |
| Profession | LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University |
| Pages | 91-103 |
Page 91
The Bank Act vests management and the supervision of the management of the business and affairs of a bank in the directors, subject to the Act.71
As with other business corporations,72ultimate responsibility for the conduct of all of a bank’s affairs rests with the board of directors. The day-to-day conduct of the bank’s business is delegated to of-
Page 92
ficers and employees, and the Bank Act permits the directors to delegate certain functions to the senior officers of a bank. But it remains the case that final responsibility for the proper functioning of a bank rests with the board, not the shareholders or the officers and employees. Both the Act and recent changes in attitudes to directors demonstrate how awesome is this duty of directors.
The Bank Act requires a bank to have at least seven directors73and sets no maximum number; domestic banks typically have twenty to thirty directors, and foreign banks typically have seven to fifteen directors. The formal qualifications are minimal: a director must not be under eighteen, be adjudged of unsound mind, be a bankrupt, be prohibited by the Act74from exercising voting rights attached to shares of the bank; be an officer, director, or employee of certain entities;75or be an employee or Minister of the federal or provincial governments or of a foreign government. Furthermore, a director must be a natural person, not another corporate body.76
A director is not required to own shares of the bank.77
One half of the directors of a foreign bank subsidiary must be resident Canadians, and a majority of the directors of domestic banks must be resident Canadians.78
Not more than two-thirds of the directors may be affiliated with the bank as, for example, officers, employees, significant borrowers, or owners of a significant interest in a class of shares or substantial investment in the bank or an affiliate.79
Not more than 15 percent of the directors may be employees, but up to four persons may be employees if they constitute less than one-half of the directors.80
Taken together, these requirements show that a board must be composed of directors who have legal capacity, are independent of governments, and resident Canadians and that a strong element of independence generally from conflicting interests should characterize the board as a whole. On the other hand, the fact that two-thirds can
Page 93
be drawn from the bank itself also means that considerable knowledge and expertise about the bank and banking generally is considered desirable in a bank board.81
Directors are elected by shareholders at the annual general meeting,82and the Bank Act provides that the minimum and maximum numbers to be elected83and their terms84should be set out in the by-laws. Although the Act provides for one-, two-, or three-year terms, the selection of length and the rollover of directors’ terms is left to the by-laws for each bank to determine.85
There is no statutory limit on the number of terms,86although as a practical matter, renewal on the board is a factor in decisions as to the number of terms served. Although election to a board is by majority,87the Bank Act makes provision for cumulative voting, where the by-laws so provide, to permit minority shareholders to cast all their votes in favour of a single candidate and have an increased chance of securing at least one director to represent them.88
Elections are void for all directors where the directors purportedly elected do not satisfy these statutory requirements unless the directors develop a plan within forty-five days approved by the Superintendent to rectify the situation.89
Where the shareholders fail to elect the minimum number as set out in the Act (seven) or the by-laws, the directors elected may exercise the powers of directors if the number elected amounts to a quorum.90
If the Superintendent does not approve the plan, the board shall consist of those who were incumbent directors prior to the meeting at which the purported election occurred,91and these directors shall call a special meeting of shareholders to elect new directors.92
If they fail to do so, any shareholder may call the meeting.93
Page 94
Directors cease to hold office at the expiry of their term, upon resignation, upon death, upon becoming disqualified, or by removal94by the shareholders95or the Superintendent.96
Shareholders may remove all the directors by a resolution at a special meeting97and may also fill any vacancies created by removal at the same meeting.98
Although the Act does not provide for additional grounds on which shareholders may remove a director beyond those stated (for example, standards of competence or inappropriate conduct), the Act does provide a mechanism for a director who resigns, is removed, or hears of a shareholder meeting called for the purpose of removing him, to comment on the removal. A director may submit to the bank a written statement giving the reasons for the resignation or why the director is opposed to any removal,99and where the resignation is a result of a disagreement with other directors or officers, the director is required to submit a written statement to the bank and to the Superintendent.100
Copies of all statements are to be sent by the bank to each shareholder and to the Superintendent.101
No legal liability is incurred by reason only of circulating a director’s statement.102
By giving shareholders the power to remove bank directors, the Act serves as a reminder that they are the owners of the bank at the end of the day. Exercise of this power is unknown and it is difficult to assert, since incumbent directors typically select new directors for approval at annual meetings, which a tiny minority of shareholders attend or at which they vote by proxy.
The Bank Act permits directors to carry out their duties by meetings of the board or a committee or by resolutions outside board meetings. If decisions are made by resolution, all directors must sign the resolution,103which should be filed with the minutes of the proceedings of
Page 95
the directors,104but resolutions of the audit committee and the conduct review committee cannot be approved by resolution, rather only by meetings.105
The board is required to meet at least four times each financial year at any place for which the by-laws provide.106
Notice of meetings is required, although a director may waive notice.107
A quorum may exercise all the powers of the directors, and for both board meetings and committee meetings, a quorum is a majority of the minimum number of directors required by the Act (seven) or any greater number established by the by-laws.108
In addition, a majority of the directors present shall be resident Canadians, and for foreign bank subsidiaries, at least one-half shall be resident Canadians.109
If the resident Canadian attendance requirement cannot be met for a meeting, the directors may still transact business if a resident Canadian director not present approves the business transacted and the addition of that director fulfills the resident Canadian statutory requirement.110
Finally, at least one of the directors present must be a director who is not affiliated with the bank, although that number can also be made up if an unaffiliated director not present approves the business transacted at the meeting.111
Meetings may take place by telephonic, electronic, or other communications facilities that permit all participants to communicate adequately with each other.112
Directors are deemed to have consented to any resolution unless they request that a dissent be entered in the minutes of the meeting or send a written dissent to the secretary of the meeting before the meeting is adjourned or by registered mail immediately after the meeting is adjourned.113
An absent director is also deemed to have consented unless within seven days after that director becomes aware of the resolution, the director causes a dissent to be placed with the minutes or sends a dissent by registered mail or by delivery to the head office.114
Page 96
The Superintendent may also require a board to meet to consider the matters set out in any notice to the bank, and the Superintendent may attend and be heard at that meeting.115
While the Bank Act vests a general duty to manage on the board, it also expressly stipulates other specific duties of the directors: (i) establish an audit committee; (ii) establish a conduct review committee; (iii) establish procedures to resolve conflicts of interest; (iv) designate a committee to monitor the conflict procedures; (v) establish procedures for disclosing information to customers and dealing with customer complaints required by the Act to be disclosed; (vi) designate a committee to monitor the customer disclosure committee; (vii) establish investment and lending policies;116(viii) make, amend, or repeal bylaws subject to shareholder approval;117(ix) appoint other appropriate board committees;118(x) appoint the chief executive officer;119(xi) designate the offices of the bank and appoint officers;120(xii) establish the remuneration for directors, officers, and employees;121(xiii) propose persons to serve as director to the shareholders;122(xiv) fill an auditor vacancy between annual shareholder meetings;123(xv) notify the audit committee and the auditors of any error or misstatement in any annual or other statement;124(xvi) approve a related party transaction;125and (xvii) declare dividends.126
The audit committee should consist of at least three directors,127 and the majority must be unaffiliated.128
Officers and employees are not eligible to be members.129
The statutory duties of the audit...
To continue reading
Request your trial