The Office of the Superintendant of Financial Institutions has issued draft corporate governance guidelines for comment. When finalized, the guidelines will be used by OSFI supervisors in their assessments as part of its supervision process.

“The manner in which an institution chooses to ensure effectiveness is a choice for the institution. The reference document lays down several principles which reflect OSFI’s expectations, but the manner in which the principle is adhered to remains at the discretion of the institution,” says OSFI superintendant, John Palmer in an accompanying letter to financial institutions.

Palmer says that in OSFIÕs assessment of governance practices, the size, complexity, nature and risk of the significant activities will be taken into account.

“Supervisors should look for indications that the board’s consideration of policy matters is thorough and thoughtful, and that the board acts independently of management. With respect to senior management, they should look for
indications that senior management1s policy recommendations are directed toward the sound and profitable operation of the institution, that senior management is open to concerns raised by the board and that senior management actively monitors adherence to board-approved policies.”

On the subject of compensation, OSFI notes that boards should satisfy themselves that the institutions compensation plans are consistent with sustainable achievement of its business objectives. Plans should reward executives for managing risk, not just making profit, says OSFI. Furthermore, governing committees, such as audit, conduct review, compensation and corporate governance committees, should be independent of management.

OSFI is seeking comment on the paper by August 31. It says that it expects comment from industry associations, but also welcomes comments and suggestions from individual institutions and other parties interested in OSFI’s supervisory process.