Corporate Governance

Statement of Corporate Governance Practices

The Board believes that sound corporate governance practices are essential to the well-being of the Corporation and its Shareholders, and that these practices should be reviewed regularly to ensure that they are appropriate. The Board has reviewed the guidelines for effective corporate governance contained in NP 58-201 issued by the Canadian Securities Administrators and other relevant regulations regarding corporate governance practices. The Canadian Securities Administrators have also adopted NI 58-101 which requires Canadian reporting issuers to annually disclose their corporate governance practices. Regulatory changes to governance practices that have occurred, or will occur, are continually monitored by the Board and the Board has taken, or will take appropriate action as regulatory changes occur. Below is a discussion on the current composition of the Board and the current governance practices of the Corporation.

The Directors have in place appropriate structures to ensure that they can function independently of management. The responsibilities of the Chair of the Board include overseeing that the Directors discharge their responsibilities. The Chair of the Board is the Honourable Gary Filmon, P.C., O.C., O.M.

The CEO of the Corporation is responsible for the overall administration and management of the Corporation and its subsidiaries. All major policy decisions relating to the Corporation and its subsidiaries are made by the Directors or a committee thereof. Each subsidiary of the Corporation has its own management team that is responsible for the day-to-day management of each respective subsidiary. As applied to a Director herein, "independent" has the meaning ascribed to such term in respect of a director of an issuer in NI 58-101 and as may subsequently be in effect from time to time or any successor policy thereto and includes having no direct or indirect material relationship with the Corporation, where a "material relationship" is a relationship which could, in the view of the Directors, reasonably interfere with the exercise of such Director's independent judgment.

Board of Directors

The Board is comprised of a majority of independent directors, which facilitates its exercise of independent supervision over management. The composition of independent and non-independent directors is as follows:

  • Gary Filmon - Chair (independent)
  • Donald Streuber (independent)
  • Gary Buckley (independent)
  • Duncan Jessiman - Executive Vice-Chair (non-independent)
  • Serena Kraayeveld (independent)
  • Michael Pyle (non-independent)
  • Edward Warkentin (independent)
  • Brad Bennett (independent)
  • Alan Davis (independent)

Gary Filmon is the Chair of the Board and is an Independent Director.

The Independent Directors hold regularly scheduled meetings at which the non-Independent Directors are not in attendance. These meetings take place at a minimum at every regularly scheduled meeting of the Board. In the financial year of the Corporation ended December 31, 2016, five such meetings were held.

Other Directorships

For a summary of the Directors who are currently directors or trustees of other reporting issuers, see "Particulars of Matters to be Acted Upon at the Meeting - Election of Directors".

The Board has adopted a policy to limit the number of outside public company directorships that may be held by Directors to two for Directors holding full-time executive positions and to four for other Directors.

There are currently no common memberships on boards of other public companies among the Directors.

Mandate of the Board

The mandate of the Board provides that the Directors must act honestly and in good faith with a view to the best interests of the Corporation and in connection therewith exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. The Corporation is required to have a minimum of one Director and a maximum of 15 Directors.

The Board has adopted the Board Mandate. The full text of the Board Mandate is available in the Corporation's Management Information Circular.

Position Descriptions

The Board has developed written position descriptions for the Chair of the Board as well as for the Chair of the Audit Committee. The duties of the Chairs of the other committees of the Board are set forth in the charters of each of the other committees of the Board. The Board has also developed a written position description for the CEO of the Corporation.

Orientation and Continuing Education

The Board and management of the Corporation have established an informal orientation and education program for new Directors and new committee members regarding the role of the Board, its committees as well as the nature and operation of the Corporation's business. New Directors are provided with sufficient information to enable them to become familiar with the Corporation, its issues, business and operations. Care is taken to ensure that new Directors understand the roles and responsibilities of the Board and its committees, as well as the commitment level that the Corporation expects of the Directors. The Governance Committee is also charged with ensuring that continuing education opportunities are available to all Directors as appropriate. Each year Directors are surveyed to identify their priority topics and the Governance Committee works with management to incorporate these into its planning for the following year. In 2016, Directors participated in a site visit and received presentations by management and external experts on topics of interest. In addition, the Corporation is a member of the Institute of Corporate Directors and all Directors have access to the educational programs and regular updates on current governance issues provided by this organization.

Ethical Business Conduct

The Corporation has adopted a Code of Ethics, an Insider Trading Policy, and a Disclosure and Competition Policy. Every Director, officer and employee of the Corporation and its subsidiaries receives a copy of these documents upon commencement of employment with the Corporation or a subsidiary, as applicable. The Code of Ethics is monitored by the Governance Committee. A copy of the Code of Ethics may be obtained by any person by contacting the Corporate Secretary of the Corporation.

The Board Mandate provides that Directors must understand conflict of interest issues and declare all real or perceived conflicts, and disclose contracts or arrangements with the Corporation or any of its subsidiaries in which a Director has an interest. The by-laws of the Corporation provide that each Director must disclose the nature and extent of his interest in a contract or transaction or proposed contract or transaction in which he has an interest in the manner provided by the Canada Business Corporations Act.

Director Term Limits

The Board does not believe that arbitrary term limits for Directors are appropriate nor does it believe that Directors should be required to retire from the Board upon reaching a certain age. The Board believes that imposing term limits on Directors or a mandatory retirement age could result in the loss of the contribution of Directors who have valuable experience and qualifications as Directors and who have developed, over a period of time, insight and perspective into the Corporation and its businesses. Accordingly, the Board has not adopted a policy imposing term limits on Directors or imposing a mandatory retirement age for Directors.

Diversity of Board and Executives

The Board believes in diversity and values the benefits that diversity can bring to its Board. Diversity promotes the inclusion of different perspectives and ideas, mitigates against groupthink and ensures that the Corporation has the opportunity to benefit from all available talent. The promotion of a diverse Board makes prudent business sense and makes for better corporate governance.

The Corporation seeks to maintain a Board comprised of talented and dedicated Directors with a diverse mix of expertise, experience, skills and backgrounds. The skills and backgrounds collectively represented on the Board should reflect the diverse nature of the business environment in which the Corporation operates. For purposes of Board composition, diversity includes, but is not limited to, business experience, geography, age, gender, and ethnicity and aboriginal status. In particular, the Board should include an appropriate number of women Directors.

The Corporation is committed to a merit based system for Board composition within a diverse and inclusive culture which solicits multiple perspectives and views and is free of conscious or unconscious bias and discrimination. When assessing Board composition or identifying suitable candidates for appointment or re-election to the Board, the Corporation will consider candidates on merit against objective criteria having due regard to the benefits of diversity and the needs of the Board.

The Corporation will periodically assess the expertise, experience, skills and backgrounds of its Directors in light of the needs of the Board, including the extent to which the current composition of the Board reflects a diverse mix of knowledge, experience, skills and backgrounds, including an appropriate number of women Directors.

Any search firm engaged to assist the Board or a committee of the Board in identifying candidates for appointment to the Board will be specifically directed to include diverse candidates generally, and multiple women candidates in particular.

Annually, the Board or a committee of the Board will review its Board Diversity policy and assess its effectiveness in promoting a diverse Board which includes an appropriate number of women Directors.

Board Committees

The Board fulfills its role directly and through committees to which it delegates certain responsibilities. The Board and its committees are focused on the continued improvement of governance principles and practices. Maintaining a leadership position in corporate governance requires constant review of these principles and practices to be sure they meet or exceed evolving best practices and regulatory guidance.

Governance Committee

The Governance Committee of the Corporation is responsible for developing on behalf of the Corporation, its corporate governance principles to foster a healthy governance culture at the Corporation and its subsidiaries. The Governance Committee is comprised of Serena Kraayeveld (Chair), Donald Streuber, Duncan Jessiman and Gary Filmon.

The Governance Committee's key charter responsibilities include:

  • the development of, and compliance with, corporate governance policies and procedures
  • through its members who are Independent Directors, recommending candidates for election to the Board and its committees
  • assessing the management, development and effective performance of the Board, its committees, and its mandate and charter, and orientation, education and development of members of the Board; and
  • assisting the Corporation in ensuring that new Directors receive proper education and orientation about the Corporation and its subsidiaries, and that on an ongoing basis, all Directors receive continuing education, including specific education for the members of the various committees of the Board, if required.

The Governance Committee believes that it has fulfilled its responsibilities in the most recently completed financial year in the best interests of the Shareholders. In carrying out these responsibilities, the Governance Committee particularly focused on the following initiatives to further improve the Corporation's governance processes and practices:

  • Board Composition/Nominations: Each year, the Governance Committee carefully examines the composition of the Board, including issues relating to its size, expertise and capabilities and considers factors such as age, geographic, professional, and industry representation. A competency/skills matrix is developed which outlines areas of expertise and experience of each Director. The Independent Directors of the Governance Committee develop a list of potential candidates, typically generated through individual referrals, who possess the skills and experience required to meet the Corporation's business needs.
  • Improving Board and Committee Processes: Each member of the Board and/or its committees assesses the adequacy and timeliness of information provided to the Board or committee, the quality of communication between the members and management of the Corporation and the strategic direction and processes of the Board or committee. A summary report is provided by the Governance Committee to the Board as a whole.
  • Performance of the Board: The Chair of the Board and the Chair of the Governance Committee meet with each Director to discuss his or her views about the effectiveness of the Board and its committees and contributions of individual Directors. Questionnaires relating to the Board, its committees and each individual Director's performance are circulated to each Director and the compiled results are used as a basis for discussion in these meetings.

The Board and its committees continually evaluate and improve the corporate governance policies and procedures of the Corporation.

Audit Committee

The Audit Committee of the Board will carry out the procedures, responsibilities and duties set out below, with an aim of maintaining financial controls in strict adherence to applicable regulatory standards.

The Corporation has adopted a charter for the Audit Committee which sets out the composition of the Audit Committee as well as its responsibilities, duties, principles and procedures. The text of the charter of the Audit Committee is set out as Schedule "A" to the Corporation's annual information form available on SEDAR.

Compensation Committee

The purpose of the Compensation Committee is to assist the Board in fulfilling its responsibilities in relation to setting the compensation of Directors, the Chief Executive Officer and the officers that report directly to the Chief Executive Officer (the "Senior Executives") and overseeing the plans for:

  • compensation, development and retention of employees
  • succession planning for the Chief Executive Officer and the Senior Executives; and
  • general compensation and human resource policies and issues.

The Corporation has adopted a charter for the Compensation Committee which sets out the composition of the Compensation Committee as well as its responsibilities, duties, principles and procedures.

Following review of data and discussion by members of the Compensation Committee, recommendations are made by the Compensation Committee to the Board for their consideration and approval. The Compensation Committee meets at least twice per year to fulfill its mandate.

The Compensation Committee considers the time, commitment, risks and responsibilities of the Directors and senior management and takes into account the types of compensation and the amounts paid to the directors and senior management of comparable publicly traded Canadian issuers.

The Compensation Committee currently consists of Gary Buckley, Brad Bennett, and Edward Warkentin, all of whom are Independent Directors. The Compensation Committee members all bring experience from their own business operations in a variety of industries which are used along with professional consultation services obtained from outside professionals. Three of the Compensation Committee members have multiple years of experience on the Compensation Committee and all have an understanding of the objectives of the Compensation Committee and the direction of the Corporation as acting members of the Board.

Aerospace & Aviation Sector Advisory Committee

The purpose of the Aerospace & Aviation Sector Advisory Committee is to act as a board of advisors to the operating entities in the aerospace & aviation sector of the Corporation. The Aerospace & Aviation Sector Advisory Committee consists of Donald Streuber (Chair), Michael Pyle, Duncan Jessiman, Brad Bennett, Serena Kraayeveld, Jeff Olin, Alex Ouskan (non-Director) and Polly Craik (non-Director). In order to provide additional experience to the Aerospace & Aviation Sector Advisory Committee, two non-Director individuals, namely Alex Ouskan and Polly Craik, have been appointed to the Aerospace & Aviation Sector Advisory Committee.

The members of the Aerospace & Aviation Sector Advisory Committee shall:

  1. demonstrate skills and experience that are complementary to the Aerospace & Aviation Sector Advisory Committee's charter and helpful with the current activities and strategic direction of the management of the Aerospace & Aviation subsidiaries of the Corporation; utilize external relationships and resources in making a contribution and adding value to the management of the aerospace & aviation subsidiaries; effectively apply their knowledge, experience and expertise to issues confronting the aviation subsidiaries; and serve as a helpful resource to the management of the aerospace & aviation subsidiaries, where necessary and appropriate; and
  2. maintain and demonstrate a comprehensive understanding of the strategic direction and annual plans of the management of the aerospace & aviation subsidiaries, including an understanding of the aerospace & aviation subsidiaries' principal risks; contribute and add value to discussions regarding the aerospace & aviation subsidiaries' strategic direction; participate in monitoring and evaluating the executive management's success in achieving established goals set out in the aerospace & aviation subsidiaries' strategic and annual plans; maintain and demonstrate a strong understanding of the aerospace & aviation subsidiaries' business, services/products, markets and operations; and maintain and demonstrate knowledge of important industry trends and the competitive environment.

Manufacturing Sector Advisory Committee

The purpose of the Manufacturing Sector Advisory Committee is to act as a board of advisors to the operating entities in the manufacturing sector of the Corporation. The Manufacturing Sector Advisory Committee consists of Edward Warkentin (Chair), Michael Pyle, Duncan Jessiman, Gary Filmon, Gary Buckley, Brad Bennett, Allan Davis, Ray Moher (non-Director) and William Baines (non-Director). In order to provide additional experience to the Manufacturing Sector Advisory Committee, two non-Director individuals, Ray Moher and William Baines, have been appointed to the Manufacturing Sector Advisory Committee.

The members of the Manufacturing Sector Advisory Committee shall:

  1. demonstrate skills and experience that are complementary to the Manufacturing Sector Advisory Committee's charter and helpful with the current activities and strategic direction of the management of the manufacturing subsidiaries; utilize external relationships and resources in making a contribution and adding value to the management of the manufacturing subsidiaries; effectively apply their knowledge, experience and expertise to issues confronting the manufacturing subsidiaries; and serve as a helpful resource to the management of the manufacturing subsidiaries, where necessary and appropriate; and
  2. maintain and demonstrate a comprehensive understanding of the strategic direction and annual plans of the management of the manufacturing subsidiaries, including an understanding of the manufacturing subsidiaries' principal risks; contribute and add value to discussions regarding the manufacturing subsidiaries' strategic direction; participate in monitoring and evaluating the executive management's success in achieving established goals set out in the manufacturing subsidiaries' strategic and annual plans; maintain and demonstrate a strong understanding of the manufacturing subsidiaries' business, services/products, markets and operations; and maintain and demonstrate knowledge of important industry trends and the competitive environment.

Disclosure and Competition Committee

The Disclosure and Competition Committee is currently comprised of: Michael Pyle, Duncan Jessiman and Adam Terwin (Chief Corporate Development Officer of the Corporation, not a Director). The composition of the Disclosure and Competition Committee is determined on an annual basis by the CEO of the Corporation.

The Corporation has adopted a Disclosure and Competition Policy designed to ensure:

  1. timely, accurate and balanced public dissemination of material information about the Corporation and its subsidiaries in accordance with all applicable legal, regulatory and stock exchange requirements
  2. protection of the Corporation's confidential information;
  3. that all personnel of the Corporation and its subsidiaries are aware of the legal requirements to comply with competition law; and
  4. that the Corporation and each of its subsidiaries are in compliance with the Disclosure and Competition Policy.

The purpose of the Disclosure and Competition Committee is to establish controls and procedures to ensure that the Disclosure and Competition Policy of the Corporation is being followed throughout the organization.

The Disclosure and Competition Committee meets on a quarterly basis with the responsible person in each of its subsidiaries to review matters pursuant to the Corporation's disclosure and competition controls and procedures.

Board Information

The information which management provides to the Board is critical. The Board must have confidence in the data gathering, analysis and reporting functions of management. The Directors believe that they are provided with all necessary information and with a sufficient amount of information to facilitate effective decision making. The Board continually monitors the nature of the information requested by and provided to it in order to enable it to determine whether it can be more effective in identifying problems and opportunities for the Corporation and its Subsidiaries.

Insider Trading Policy

The Company has adopted an Insider Trading Policy that applies to all employees, Directors and officers of the Company, including the Company's operating subsidiaries. The Insider Trading Policy aims to educate members of the organization on the legal obligations associated with being deemed an "insider" for the purposes of securities legislation. The policy goes further and establishes rules that help members of the organization avoid a situation where insider trading laws are inadvertently violated. These include rules regarding the disclosure of confidential information to outsiders, the imposition of regular and special trading blackouts around the time of the release of financial information and a general prohibition against speculative trading of the Company's shares.

Anti-Bribery and Anti-Corruption Policy

The Company has adopted an Anti-Bribery and Anti-Corruption Policy that applies to all employees, Directors and officers of the Company, including the Company's operating subsidiaries. The Anti-Bribery and Anti-Corruption Policy provides guidance aimed to ensure the Company and the Representatives conduct business in an honest and ethical manner, reflecting the highest standards of integrity and compliance with all applicable laws, rules and regulations, including Canada's Corruption of Foreign Public Officials Act (the "CFPOA"), the U.S. Foreign Corrupt Practices Act (the "FCPA"), and any foreign anti-bribery or anti-corruption laws that may be applicable. The policy provides examples of incidents to be reported, the protocol for reporting such incidents, and a disciplinary position in the event that the policy is violated.

Whistleblower Policy

Securities Regulators in Canada have established rules requiring that the audit committees of public companies develop procedures to receive and address complaints regarding accounting, internal accounting controls or auditing matters, and for a confidential, anonymous submission procedure for employees who have concerns regarding questionable accounting or auditing matters. This policy has been developed to meet these requirements, as well as to discourage illegal activity and unethical business conduct and to promote a climate of accountability within Exchange Income Corporation and its subsidiaries. The policy provides examples of matters to be reported, reporting procedure, and the handling of reports.