 
Letter to Gerry Phillips
concerning report on the operations of the
Ontario Securities Commission (OSC)
29 October 2004
Mr. Gerry Phillips,
Chair, Management Board of Cabinet,
Queen's Park, Management Board Secretariat,
77 Wellesley St W, 12th Floor, Ferguson Block,
Toronto Ontario, M7A 1N3
Telephone: 416-327-2333
FAX: 416-327-3790
E-mail: gphillips.mpp@liberal.ola.org
October 29, 2004
Dear Mr. Phillips,
I am writing to convey our endorsement of the recommendations made
by the Standing Committee on Finance and Economic Affairs (SCFEA)
in its 5 Year Review Report.
I will give you some background information on our organization,
and then discuss our main interests in the report’s recommendations.
KAIROS: Canadian Ecumenical Justice Initiatives
Our organization, KAIROS, unites churches and religious organizations
to deliberate on issues of common concern, advocate for social change
and join with people of faith and goodwill in action for social
transformation.
KAIROS members include the following national churches and faith-based
institutions:
- Anglican Church of Canada
- Canadian Catholic Organization for Development and Peace
- Canadian Conference of Catholic Bishops
- Canadian Religious Conference
- Christian Reformed Church in North America
- Evangelical Lutheran Church in Canada
- Mennonite Central Committee of Canada
- Presbyterian Church in Canada
- Primate’s World Relief and Development Fund
- Religious Society of Friends (Quakers)
- United Church of Canada
Collectively these members maintain significant investments in
Canadian corporations and mutual funds, and it is on their behalf
as institutional investors that we would like to comment on the
regulatory changes recommended by the SCFEA.
KAIROS, through its Corporate Social Responsibility Program, continues
to engage with civic, corporate and government leaders to increase
public awareness and participation in socially responsible shareholdership.
Comments on Report Recommendations
Though we are supportive of all the committee’s recommendations,
we would like to particularly endorse and comment on five of them.
1. The need for a single national securities regulator
The country has a hodge-podge of provincial securities regulators,
making it cumbersome and expensive for companies and asset managers
to operate across jurisdictions. More than this, however, is the
resulting difficulty that investors face when trying to promote
greater accountability and disclosure. A single national regulator
would not only simplify matters, but would make it easier to make
Canadian regulatory practices harmonize with those of other nations.
2. The need for improved oversight of the Commission by the Ontario
Legislature
The trend toward electronic information flow, globalization and
corporate concentration, and an increasing reliance on the stock
market as a way to manage money has meant that securities regulation
must adapt itself more readily to changing circumstances. Sometimes
the regulators fall short of expectations and require greater direction
from a party that has a wider social interest beyond the securities
industry itself. We feel that more accountability to the people
of Ontario in general would be helpful in this regard. Therefore
we advise that the Ontario Legislature take on a greater oversight
role of the OSC.
3. The need to separate the adjudicative function of the OSC from
its other functions
It seems to us that it can be problematic for an agency charged
with the function of prosecuting cases of wrongdoing within its
purview to also be charged with issuing judgments on those cases.
Though expertise may be an important factor, and current adjudicator
bias may be minimal, we feel that the public perception of the fairness
of the system is ultimately key in determining how that system should
be structured. A separated functionality would definitely improve
public perceptions of how well the regulators are serving the public
interest in their role as industry watchdogs.
4. The need to grant the OSC greater rulemaking authority over
corporate governance matters
Corporations are sometimes considered as mere tools for performing
particular social functions. Economics provides the basis for their
decisions, a science deemed to be both apolitical and amoral. But
we believe that the impact of corporations on the political and
moral affairs of society is substantial and that they must provide
a greater accountability for those impacts. Voluntary codes of conduct
have become more prevalent in recent years, but these have been
adopted by relatively few corporations and suffer from wide variations
in quality. We feel that to create a more level playing field for
all companies, and to provide both society and the investing community
with an enhanced degree of corporate accountability, the OSC should
be given increased rulemaking authority over corporate governance
matters.
5. The need to amend the OBCA to bring it into accord with the
CBCA regarding proxy solicitation rules
Shareholders these days are no longer merely passive parties to
corporate decision-making. Increasingly institutional investors
are submitting shareholder resolutions on matters of corporate governance
and social and environmental concerns. Research has shown that this
is beneficial to the long-term well being of both the companies
involved and society as a whole. In order to facilitate this positive
growth of shareholder democracy, investors must be able to communicate
effectively. Changing the Ontario Business Corporations Act to bring
it into accord with the Canada Business Corporations Act regarding
proxy solicitation rules would help bring this about.
Aside from these endorsements, we would like to point out a deficiency
in the Report - the absence of any mention of social and environmental
factors in corporate disclosures. It is rapidly becoming apparent
that corporations must assume a greater degree of responsibility
for their role in creating pervasive social and environmental problems.
Part of that push for greater corporate responsibility entails the
disclosure of social and environmental risks associated with a company’s
current or planned operations. As experienced investors know, the
decision to invest or not depends on the amount and quality of information
on potential risks. Increasingly, any social and environmental consequences
must be adequately assessed and disclosed to investors to avoid
potential future litigation, as evidenced convincingly by the tobacco
industry. Securities regulations should require that companies assess
social and environmental risks associated with their operations
and disclose the results of those assessments to investors. Public
governance as well as corporate governance would benefit from such
disclosure.
The Standing Committee has made a fine start in reforming the way
securities are regulated in this province. We hope that you and
this government will do what you can to finish the task and make
the Ontario Securities Commission an institution respected and admired
by the people of Canada and the rest of the world.
Yours truly,
Rory O’Brien
Coordinator, Corporate Social Responsibility Program
KAIROS
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