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. Sound corporate governance is essential to the well-being of the Corporation and its shareholders.
Great-West Lifeco is an international financial services holding company, with interests in life insurance, health insurance, retirement and investment services, asset management and reinsurance businesses. Great-West Lifeco has operations in Canada, the United States and Europe through Canada Life, Empower, Putnam, Canada Life Limited and Irish Life.
All of the Directors are also directors of Canada Life, and most of the directors of Empower and Putnam are also Directors of Great-West Lifeco. Each of Canada Life and Empower has adopted similar Board and Board Committee mandates, and governance structures and practices as Great-West Lifeco, which the Board monitors.
The Canadian Securities Administrators (the "CSA") have adopted National Policy 58-201 - Corporate Governance Guidelines (the "Policy"), which establishes guidelines on corporate governance practices (the "CSA Guidelines"). The Policy encourages issuers 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 appropriate structures and procedures in place 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
Under the CSA Guidelines, 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 Board agrees with this approach to assessing director independence. However, the CSA Guidelines go on to provide that a director has a direct or indirect relationship with an issuer (and is not 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 that 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 Great-West Lifeco, 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 its 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 Great-West Lifeco. They have no other relationship with Great-West Lifeco other than as directors and shareholders.
The effect of the CSA’s approach regarding director independence, if followed, would be to deny Great-West Lifeco and all of its shareholders the benefit of this governance model and to prevent the controlling shareholder from participating fully in overseeing the Corporation.
In a controlled company, and concerns which may exist 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 Great-West Lifeco governance model includes such a committee, the Conduct Review Committee, which is discussed below in the section entitled ‘Resolution of Conflicts’.
The CSA acknowledged the concerns expressed by some reporting issuers and other commentators as to whether the CSA’s view of director independence is appropriate to companies which, like Lifeco, have a majority shareholder. Great-West Lifeco is disappointed that the CSA nevertheless concluded in 2018, following publication of Consultation Paper 52-404 Approach to Director and Audit Committee Member Independence, that the current regulatory approach should be maintained.
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 (PDF)Opens in a new window.
Resolution of conflicts
The Board oversees the management of the business and affairs of Great-West Lifeco for the benefit of all shareholders. In discharging this duty, the Board identifies and resolves any conflicts that might arise between the interests of Great-West Lifeco and the interests of Power Financial and its affiliates.
It has been a long-standing policy of Great-West Lifeco to have transactions between Great-West Lifeco and Power Financial (or its affiliates) reviewed by Directors who are neither officers nor employees of Power Financial or any of its affiliates. Great-West Lifeco is a holding company, and to the extent that transactions that may present a conflict arise they are more likely to arise at Canada Life or Empower.
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 related party transactions. In accordance with these procedures, the conduct review committees review proposed related party transactions to ensure that any such transaction is 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 Canada Life and who are neither officers nor employees of Power Financial or any of its affiliates.
Great-West Lifeco and Empower have 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. As required by the relevant related party procedures, the conduct review committees review proposed transactions with related parties and approve only those transactions that they deem appropriate.