Corporate governance in Canada: A review of regulation and practices

Abstract

Emerging from the agency theory, corporate governance is the practice of ensuring a corporation conducts itself accountably, fairly and openly in all its dealings. The achievement of corporate performance relies on the mechanism efficiency of Corporate Governance both internally and externally. This study is intended to review the Canadian legal and practical landscape related to corporate governance and its external and internal mechanisms. One of the main goals of corporate governance is to ensure a company’s executives are managing the finances effectively and that they always act in the best interest of stakeholders. Canada passed a law in 2003 to strengthen corporate governance. Based on the U.S. Sarbanes-Oxley Act (SOX), this Canadian law aims to create confidence in the Canadian market and protect investors from corporate scandals. Corporate governance mechanisms can be divided into internal and external mechanisms. The internal mechanism is essentially derived from the board of directors and its committees whereas the external mechanism is derived from laws and regulation, capital market, corporate control market, stock holders (ownership structure), and investor activities. The balance and effectiveness of the corporate governance mechanisms can create a better corporate financial performance.