Governance, Communications, Human Resources and Compensation Committee (GCHRCC) Interim General Counsel and Corporate Secretary

Transcription

1 Page 1 of 7 Amended Subsidiary and Joint Venture Governance Framework Item 9 February 9, 2016 Governance, Communications, Human Resources and Compensation Committee Report: To: From: GCHRCC: Governance, Communications, Human Resources and Compensation Committee (GCHRCC) Interim General Counsel and Corporate Secretary Date: January 28, 2016 Strategic Plan Priority: Service Excellence: Demonstrate Value for Money and Public Accountability RECOMMENDATIONS: It is recommended that the GCHRCC adopt the recommendations in this report and forward to the Board of Directors to: (1) approve the Amended Subsidiary and Joint Venture Governance Framework attached as Appendix 1 to this report; and (2) forward the Amended Subsidiary and Joint Venture Governance Framework to the City Manager s Office as recommended by the City of Toronto s Auditor General. REASONS FOR RECOMMENDATIONS: On February 23, 2012, the City of Toronto s Auditor General ( AG ) delivered three reports to the Board of Directors of Toronto Community Housing Corporation ( TCHC ) including the following report: TCHC The City and Toronto Community Housing Corporation Needs to Strengthen its Oversight of Subsidiaries and Other Business Interests.

2 Page 2 of 7 The following are 3 outstanding recommendations from the AG report: 1. The Chief Executive Officer review, and update as necessary, the original Framework for the Establishment of Subsidiary Corporations with a view to briefing the new Board of Directors and reporting publicly to the Shareholder regarding this Framework. 2. The Chief Executive Officer, in consultation with the City Manager, review the current Shareholder Direction in order to ensure that all provisions contained in the Shareholder Direction are complied with. 5. The Chair of the Toronto Community Housing Corporation Board of Directors, as well as the Chairs of the subsidiary Board of Directors, in consultation with Legal Counsel, implement a confidential reporting protocol with a view to reporting in public to the greatest extent possible. The AG was provided information with respect to the TCHC Subsidiary Review Task Force ( Task Force ) formed by the TCHC board in January 2010 to review the current subsidiary structure in light of best practices and deliver recommendations on aspects governing subsidiary oversight. While the AG agreed with the Task Force on the need to strike the balance between parental oversight and subsidiary independence, the extent of current TCHC and City oversight is limited particularly in regards to the reporting of financial information of the subsidiary companies, joint ventures and other business interests to the City. The AG noted that quarterly reports together with annual financial reports presented at the subsidiaries Annual General Meetings, serve as the primary accountability mechanisms to assure the TCHC Board that is subsidiaries are operating in an efficient manner in line with the key objectives and that intended outcomes are being met TCHC Board Report (TCHC:200398): Framework for the Establishment of TCHC Subsidiary Corporations. TCHC s Board of Directors set out a Framework for Establishing Subsidiary Corporations in The Framework recommended that comprehensive assessments of each subsidiary relationship be periodically performed. The purpose of these reviews would be to ensure that the corporate structure remains sound, continues to be appropriate, and beneficial. Such reviews would confirm whether the goals and benefits of maintaining separate subsidiary relationships are being achieved. The Framework included the following: 1. Rationale for establishing a subsidiary corporation (mandate).

3 Page 3 of 7 2. Principles for establishing a subsidiary corporation (accountability will be maintained through TCHC participation on the Boards of subsidiaries and through specific shareholder directions). 3. Process in establishing a subsidiary corporation (business case to be submitted to TCHC Board for approval to include the following factors: rationale, risk analysis/mitigation, financial analysis, stakeholder impact, and organizational impact). 4. Governance structures for subsidiary corporations (the main components of the governance structure to be set by the TCHC Board in the creation of the subsidiary include the following: board composition, recruitment and selection process, director remuneration, and director terms of office). 5. Staffing of Subsidiaries 6. Accountability Framework (representation from TCHC Board and/or senior management on the subsidiary board and a shareholder direction outlining operating principles, objectives and performance outcomes). 7. Review Cycle 2010 TCHC Board Report (TCHC: ): Subsidiary Review Task Force Report In January 2010, the Board formed the Subsidiary Review Task Force to review the current subsidiary structure in light of best practices and deliver recommendations on aspects governing subsidiary oversight. The Task Force made the following recommendations: 1. Revamped Subsidiary Board/Officers Structure (appointment of CEO, CFO and Board nominee(s) to subsidiary Boards with senior management staff designated as the subsidiary officers). 2. Key Matters Require Parent Board Approval (business objectives and strategic goals, annual business plan and financial budgets) 3. Annual and Quarterly Reporting (business plan and financial budget performance, key performance indicators, enterprise risk mitigation strategy, and annual financial statements in audited form if required by TCHC) 4. New Shareholder Direction (template adopted and CEO authorized to enter into new shareholder directions with the subsidiaries). Amended Subsidiary and Joint Venture Governance Framework (Amended Framework) Attachment 1 to this report is a comprehensive amended governance framework for a subsidiary or joint venture investment, which includes changes in the Amended and Restated Shareholder Direction and incorporates prior Board approved subsidiary frameworks. It is anticipated that the Amended Framework also addresses the outstanding AG recommendations.

4 Page 4 of 7 AG Recommendation #5 Board procedures for subsidiaries and joint ventures are set out under Section III, subsection 9 of the Framework (Attachment 1). Consistent with the Amended and Restated Shareholder Direction with respect to TCHC Board meetings, meetings of the Subsidiary Board will be open to the public except where matters may be considered in a closed meeting for the following reasons: (1) Matters involving the security of the property of the Corporation; (2) Personal matters about an identifiable individual, including an employee; (3) A proposed or pending acquisition or disposition of land by the Corporation; (4) Labour relations or employee negotiations; (5) Matters that are or may be the subject of litigation or potential litigation, including matters before administrative tribunals, affecting the Corporation; (6) Legal advice that is subject to solicitor-client privilege including communications necessary for that purpose; (7) Any other matter City Council would be permitted to discuss at a meeting or part of a meeting that is closed to the public under City of Toronto Act, 2006 or any other act; or (8) Matters that are not required to be disclosed under the Municipal Freedom of Information and Protection of Privacy Act, including but not limited to personal matters about identifiable individuals, a proposed or pending transaction with a third party, and recommendations of proposed policy or processes. With respect to Joint Ventures, matters discussed in Management Committee or directors meetings of a Joint Venture shall be considered in closed meeting, subject to compliance with the applicable Joint Venture agreement and legal disclosure requirements. AG Recommendations #1 and 4 The Amended and Restated Shareholder Direction ( Shareholder Direction ) between the City of Toronto and TCHC was considered by Executive Committee on October 30, 2013 and adopted by City Council on November 14, Key amendments include setting out requirements for the governance of subsidiaries and joint ventures (sections 4.2 and 4.3- excerpts below). The Shareholder Direction permits TCHC to create subsidiaries and enter into joint venture interests. In accordance with this Shareholder Direction, the business and affairs of the subsidiaries are to be managed or supervised by their respective Board of Directors. Accountability is maintained through the shareholder directions established between TCHC and each of its subsidiaries.

5 Page 5 of 7 The following are excerpts from the Shareholder Direction that relate to the governance of subsidiaries and joint ventures which have been addressed in the Framework set out in Attachment 1. Definitions: Joint Venture means an investment in: (a) a general or limited partnership; (b) a joint venture; or (c) any other form of business enterprise with third parties, which investment is held for active operating business purposes and not as a passives or portfolio investment. Subsidiary or subsidiaries shall have the meaning ascribed thereto by the OBCA. For ease of reference, these terms refer to any body corporate of which TCHC owns directly or indirectly more than 50% of the outstanding securities of any class carrying exercisable voting rights. Section 2.2 Purposes of this Shareholder Direction (g) to establish the Shareholder s principles, objectives and requirements of governance for TCHC and for TCHC s governance over any Subsidiaries and Joint Ventures. Section 4.2 Subsidiaries TCHC, may from time to time, create one or more Subsidiaries to meet its Mandate. TCHC will consult with the City Manager regarding the business purpose and financing of any proposed subsidiary prior to the creation of any subsidiary Subject to any matters requiring approval of the Shareholder pursuant to this Shareholder Direction, the Business and affairs of the Subsidiaries will be managed or supervised by their respective board of directors TCHC will appoint the Directors of the Subsidiaries from among the directors and officers of TCHC or establish and follow a process for the nomination and appointment of Directors that is approved by the Shareholder Members of the Board or officers of TCHC shall comprise a majority of the Board of Directors of any Subsidiary The Chair and Vice-Chair of the Board of Directors of any Subsidiary shall be a member of the Board of TCHC When a Subsidiary is created, TCHC will so inform the Shareholder at the earliest possible opportunity, and include information related to the purpose, governance structure, board composition, operations, financing and such other information as may be requested by the City Manager Upon the creation of a Subsidiary, TCHC shall establish a Shareholder Direction for that Subsidiary that applies the same business principles and standards of accountability and reporting, with appropriate modification as determined by TCHC, to the Subsidiary as are applied to TCHC by the City through this Shareholder Director.

6 Page 6 of TCHC will not permit a Subsidiary to incur or create any indebtedness or interest or issue any security which impairs the ability of TCHC to comply with provisions of Section 6.4 (should refer to Section 7.4) TCHC shall ensure that the directors and officers of the Subsidiaries will strictly abide by the requirements of the OBCA and the HAS. TCHC shall adopt and apply a policy, consistent with that of the City, regarding conflicts of interest, including requirements concerning disclosure and abstention from voting The Directors and officers of the Subsidiaries will ensure that no confidential information of the Subsidiaries is disclosed or otherwise made available to any Person, except to the extent that: (a) disclosure to the Shareholder s or Subsidiary s employees or agents is necessary for the performance of any of their duties and obligations under this Shareholder Director; and (b) disclosure is required in the course of judicial proceedings or pursuant to law; or the confidential information becomes part of the public domain (other than through unauthorized disclosure by any party) If a member of the Board of Directors of any Subsidiary ceases to be a director for any reason, TCHC will cause the vacancy to be filled by another director of TCHC as soon as reasonably possible. Section 4.3 Joint Ventures TCHC, may from time to time, invest in or more Joint Ventures to meet its goals. TCHC will consult with the City Manager regarding the business purpose, financing, governance structure and reporting requirements of any proposed Joint Venture prior to its creation Each Joint Venture will provide TCHC with such reporting as TCHC considers appropriate but at a minimum includes the Joint Venture s annual Financial Statements, the achievement of financial and service targets or other performance indicators and such explanations, notes and information as is required to explain and account for any variance between actual results from operations and the targets set out in its annual business plan or budget When a Joint Venture is created, TCHC will so inform the City Manager at the earliest possible opportunity, and include information related to the purpose, governance structure, board composition, operations, financing and such other information as may be requested by the City Manager TCHC will not invest in a Joint Venture that will undertake actions that TCHC would otherwise be prohibited from doing by the terms of this Shareholder Direction TCHC shall ensure that no Joint Venture shall incur or create any indebtedness or interest or issue any security which impairs the ability of TCHC to comply with provisions of Section 6.4 (should refer to Section 7.4) If a member nominated by or representing the interests of TCHC on any Board of Directors or other governing body of any Joint Ventures ceases to be a member for any reason, TCHC will cause the vacancy to be filled by another director or officer of TCHC as soon as reasonably possible.

7 Page 7 of 7 IMPLICATIONS AND RISKS: Realignment of the subsidiary governance framework has a significant impact on a robust corporate governance framework. The use of subsidiaries and joint ventures will assist TCHC to achieve its corporate goals as set out in the Shareholder Direction. However, subsidiaries and joint venture investments also need to be managed effectively to mitigate risks and be cost effective for the parent company. The Amended Framework sets out a structure to provide effective oversight of subsidiary operations and joint venture investments. The Framework incorporates principles in the Shareholder Direction applicable to subsidiaries and joint ventures. In addition, approval of the Amended Framework will address the outstanding AG recommendations. The Amended Framework has been drafted with the assistance of external legal counsel. The Amended Framework is a comprehensive framework that incorporates and complies with applicable provisions in the recently amended Shareholder Direction between the City of Toronto and TCHC with respect to subsidiaries and joint ventures. The Amended Framework also ensures compliance with the Ontario Business Corporations Act, TCHC s constating documents, and corporate governance best practices. The Amended Framework will be applied to newly created subsidiaries and joint ventures. In 2016, Management will review the existing subsidiaries and joint ventures with a view to bringing them into compliance with the Amended Framework. Additional resources may be required to implement the Amended Framework with the existing and newly created subsidiaries and joint ventures. SIGNATURE: Ismail Ibrahim Ismail Ibrahim Interim General Counsel and Corporate Secretary ATTACHMENT: 1. Amended Subsidiary and Joint Venture Governance Framework STAFF CONTACT: Marta Asturi, Legal Counsel and Assistant Corporate Secretary marta.astur@torontohousing.ca