Corporate governance practices
Great-West Lifeco believes in the importance of good corporate governance and the central role played by Directors in the governance process. Great-West Lifeco believes that sound corporate governance is essential to the well-being of the Corporation and its shareholders.
The Corporation is an international financial services holding company, with interests in life insurance, health insurance, asset management, investment and retirement savings, and reinsurance businesses. The Corporation has operations in Canada, the United States and Europe through Great-West Life, London Life, Canada Life, Great-West Financial, Putnam, Canada Life Limited and Irish Life.
All of the Directors are also directors of Great-West Life, London Life and Canada Life, and most of the directors of Great-West Financial and Putnam are also Directors of the Corporation. Each of Great-West Life, London Life, Canada Life and Great-West Financial has adopted essentially the same Board and Board Committee mandates and other governance structures, processes and practices as the Corporation, and the Board monitors whether the mandates and other governance structures, processes and practices have been implemented and/or followed by these subsidiaries.
In 2005, the Canadian Securities Administrators (the "CSA") adopted National Policy 58-201 - Corporate Governance Guidelines (the "Policy") which sets forth a number of suggested guidelines on corporate governance practices (the "CSA Guidelines"). Under the Policy, issuers are encouraged to consider the CSA Guidelines in developing their own corporate governance practices.
In the Board’s view, no single corporate governance model is superior or appropriate in all respects. The Board believes that the Corporation’s governance system is effective and is appropriate to its circumstances, and that there are in place appropriate structures and procedures to ensure the Board’s independence from management and to ensure that actual or potential conflicts of interest between the Corporation and any of its affiliates are dealt with appropriately. Furthermore, any review of governance practices should include consideration of long-term returns to shareholders, as the Board believes this to be an important indicator of the effectiveness of a governance system.
Independence of directors
The CSA Guidelines provide that a director is "independent" of an issuer if he or she has no direct or indirect relationship with the issuer which could, in the view of the issuer’s board of directors, be reasonably expected to interfere with the exercise of the director’s independent judgment. The Corporation’s Board agrees with this approach to assessing director independence. However, the CSA Guidelines go on to provide that a director is considered to have such a direct or indirect relationship with an issuer (and thus not to be independent) if, among other things, the director is, or has been within the last three years, an executive officer or an employee of the issuer’s parent corporation. In the view of the Board, the determination of director independence should be based upon whether or not the director is independent of the issuer’s management, and whether or not the director has any other relationships with the issuer which could reasonably be expected to interfere with the exercise of the director’s independent judgment. In the Board’s view, that is a question of fact that should be determined by the issuer's board of directors on a case-by-case basis without reference to any presumptions such as those currently contained in the CSA Guidelines.
The most important function of a board of directors is to oversee management in the drive to achieve long-term shareholder returns. A financially strong and long-term oriented controlling shareholder is aligned with the interests of other shareholders in this respect and can have a significant positive impact on a corporation’s long-term returns, benefiting all shareholders and the corporation as a whole. The benefits can include the ability to encourage and support management in the pursuit of long-term strategies and the provision of directors who are experienced and knowledgeable about the business of the corporation. In the case of the Corporation, many of these attributes are provided through a governance model which has been developed over many years, and which includes a group of directors who are also officers of the controlling shareholder. The full-time job of a number of these directors is to focus on and become knowledgeable about the affairs of the controlling shareholder’s subsidiaries, such as the Corporation. They have no other relationship with the Corporation other than as directors and shareholders.
The effect of the CSA’s approach regarding director independence, if followed, would be to deny the Corporation and all of its shareholders the benefit of this governance model and to prevent the controlling shareholder from participating fully in the oversight of the Corporation.
Any concerns which may exist in a controlled company situation about conflicts of interest or self-dealing should, in the view of the Board, be resolved directly through a committee of directors who are independent of the controlling shareholder. The governance model at the Corporation includes such a committee, the Conduct Review Committee, which is discussed both earlier and below in the section entitled ‘Resolution of Conflicts’.
The CSA has acknowledged the concerns expressed by some reporting issuers, including the Corporation, as to whether the CSA’s view of director independence is appropriate to companies such as the Corporation which have a majority shareholder. Previously, the CSA published for comment a revised version of the Policy which included, among other things, the replacement of the current prescriptive approach to independence with a more principles-based approach. Although the Board was encouraged by the new direction proposed by the CSA, the CSA did not proceed with its proposed revisions. However, on October 26, 2017, the CSA released a consultation paper (the “Consultation Paper”) in which it solicited views on the appropriateness of its approach to determining director and audit committee member independence. Among other things, the CSA sought views as to whether it should make any changes to the “bright line test” that deems directors of an issuer who are also executive officers of the parent company of the issuer to be considered to be non-independent. In responding to the Consultation Paper, the Corporation encouraged the CSA to take a more principles-based approach to director independence as more particularly described above in this section.
Additional information on the Corporation’s corporate governance practices can be found in the section entitled “Corporate Governance” in the Corporation’s most recent Management Proxy Circular Opens in a new window.
Resolution of conflicts
It is the duty of the Board to supervise the management of the business and affairs of the Corporation for the benefit of all shareholders. In discharging this duty, the Board identifies and resolves any conflicts that might arise between the interests of the Corporation and the interests of Power Financial and its affiliates.
It has been a long-standing policy of the Corporation to have transactions between the Corporation and Power Financial (or its affiliates) reviewed by Directors who are neither officers nor employees of Power Financial or any of its affiliates. The Corporation is a holding company, and to the extent that transactions that may present a conflict arise they are more likely to arise at Great-West Life, London Life, Canada Life or Great-West Financial.
Each of Great-West Life, London Life and Canada Life is a regulated financial institution that is required by law to have a conduct review committee that must require management to establish procedures for the review of proposed related party transactions to ensure that any such transactions are on terms and conditions at least as favourable to those companies as market terms and conditions. These conduct review committees are composed of directors who are independent of the management of Great-West Life, London Life and Canada Life and who are neither officers nor employees of Power Financial or any of its affiliates.
The Corporation and Great-West Financial have also established their own conduct review committees composed entirely of directors who are independent of management and who are neither officers nor employees of Power Financial or any of its affiliates. The Corporation’s and Great-West Financial’s Conduct Review Committees review proposed transactions with related parties and approve only those transactions that they deem appropriate.