Corporate governance relates to the activities of the Board, the members of which are elected by and are accountable to the Shareholders, and takes into account the role of the individual members of management who are appointed by the Board and who are responsible for the day to day management of the Company.The Board is experienced and committed to sound corporate governance practices which are both in the interests of its Shareholders and contribute to effective and efficient decision making. The Company believes that its corporate governance practices ensure that the business and affairs of the Company are effectively managed so as to enhance Shareholder value.
Set out below is a description of the corporate governance practices of the Company as required by National Instrument 58-101 Disclosure of Corporate Governance Practices (“NI 58-101”) concerning corporate governance disclosure.
Composition of the Board of Directors and Board Independence
Pursuant to NI 58-101, a director is independent if the director has no direct or indirect material relationship with the issuer which could, in the view of the issuer’s Board, be reasonably expected to interfere with the exercise of a member’s independent judgment. Certain directors are deemed to have a material relationship with the issuer by virtue of their position or relationship with the Company.
The Board as of May 2021 is comprised of six members, three of whom the Board has determined are independent. In assessing whether a director is independent for these purposes, the circumstances of each director have been examined in relation to a number of factors. Messrs. Rowley, Matysek and Hangula are independent directors. Mr. Frewin is not considered an independent director as he is Interim Chief Executive Officer of the Company. Mr. Estepa is not considered to be an independent director as he is the Corporate Secretary of the Company. Mr Parkhouse is not considered to be an independent
director as he is Director of Investor Relations of the Company.
Since a majority vote is necessary to approve matters before the Board, the support of at least one independent director is required.
Board of Directors Mandate
The Board supervises the management of the business and affairs of the Company and is mandated to act with a view to the best interests of the Company. The Board holds regular meetings to review the business and affairs of the Company and to make any decisions relating thereto. The Board believes that it functions independently of management. To enhance its ability to act independently of management, the Board reviews its procedures on an ongoing basis to ensure that it can function independently of management. The Board is comprised of two non-independent and four independent directors including the Chairman and meets, as required, without management present. If conflicts arise, interested parties would be precluded from voting on matters in which they may have an interest. In light of the suggestions contained in NI 58-101, the Board would convene meetings, as deemed necessary, of the independent directors, at which non-independent directors and members of management would not be in attendance.
The Chairman of the Board, Martin Rowley, is an independent director. Currently, the Board is satisfied that it exercises its responsibilities for independent oversight of management. The independent Chairman and the ability to establish ad hoc committees comprised solely of independent directors provides the Board with the ability to meet independently of management whenever deemed necessary or appropriate and the chair of each such ad hoc committee provides the leadership for such committee.
The Board supervises the management of the business and affairs of the Company. The frequency of the meetings of the Board, as well as the nature of agenda items, changes depending upon the state of the Company’s affairs and in light of opportunities which arise or risks which the Company faces. A minimum of four meetings of the Board are held in each financial year. The Board has responsibility for overseeing a strategic planning process, reviewing and approving the Company’s strategic plan developed and proposed by management and monitoring performance against the plan. The Board is responsible for evaluating the principal business risks of the Company and oversees the implementation of appropriate systems to manage these risks. The Board, through its Audit Committee, is also responsible for developing, adopting and reviewing the adequacy of policies and procedures to ensure the integrity of the internal controls and management information systems of the Company. Matters that require Board approval include, among other things: (i) the approval of the quarterly and annual financial statements, management’s discussion and analysis and the Annual Information Form; (ii) the issuance of securities; (iii) the approval of acquisitions and divestitures; (iv) the approval of all other material contracts and business transactions; (v) the approval of the Company’s strategic plan and annual financial budget; (vi) the approval of all borrowing and other financing; and (vii) the approval of any other matters as appropriate.
Position Descriptions
The Board has developed a written position description for each of the Chairman, the Chief Executive Officer and the Chief Financial Officer. The charter of each Board committee sets out the role of the committee’s chairman. The Board appoints the Chief Executive Officer (“CEO”) of the Company and approves the appointment of other members of senior management. The Board reviews the Company’s succession plan and the annual performance of senior management.
The positions of the Chairman and the CEO are separate. The Chairman, Mr. Rowley is independent of management. The Board is currently of the view that the respective corporate governance role of the Board and management, as represented by the Chairman and the CEO, are clear and that the limits to the responsibility and authority of the Chairman and CEO are reasonably well understood.
Orientation and Education
The Board reviews its own composition on an annual basis. The Board expect that a prospective candidate will fully understand the role of the Board and the contribution expected of him or her. The Company does not have a formal written process of orientation for new directors. However, the Board conducts a discussion of the business of the Company at its Board meetings to ensure new directors are provided with an overview of the Board’s role and the Company’s operations. From time to time, corporate officers and legal, financial and other experts are invited to attend Board meetings to provide detailed presentations to the Board on significant developments and topics within their area of expertise. The Company Board Manual, which includes information on committee charters and corporate governance policies, is provided to new directors. Given the size of the Company and the in-depth experience of the current directors, there has been no formal continuing education program.
Shareholder Feedback and Concerns
The Company manages a shareholder relations program under the direction of its Interim Chief Executive Officer, Mr. Frewin. The program involves meetings with a broad spectrum of investors, including briefing sessions for analysts, investment fund managers and the public to discuss financial results and announcements by the Company. Shareholders, other stakeholders and the public are informed of developments in the Company by the issuance of news releases, all of which are approved by the Board Chairman and in most cases by the Board.
Management of the Company is available routinely to Shareholders to respond to questions and concerns. Shareholder concerns are dealt with on an individual basis. The responses will depend on the kind of information requested. Significant concerns are brought to the attention of the Company or the Board.
Ethical Business Conduct
The Board has approved a code of ethical business conduct code for directors, officers and employees of the Company. In circumstances where a director or executive officer has a material interest in a transaction or agreement which the Company is considering entering into, the individual is required to fully disclose his or her interest therein and an ad hoc committee of disinterested directors is appointed for review purposes to confirm, among other things, that such transaction or agreement, as applicable, is being entered into on arm’s length commercially reasonable terms. Such committee has the right to obtain advice from the Company’s counsel and other professional advisors and/or appoint independent counsel and/or advisors.
Board Committees
The Board currently has four standing committees: the Audit Committee, the Compensation Committee, the Health, Safety and Environment Committee and the Nomination and Governance Committee.
Audit Committee
The Audit Committee reviews the annual and quarterly financial statements of the Company and recommends these to the Board for approval, oversees the annual audit process and the Company`s internal accounting controls and the resolution of issues identified by the Company`s auditors. It recommends to the Board a firm of independent auditors to be nominated for appointment by the Shareholders at the Company`s next annual general meeting and reviews their audit plan and compensation. In addition, the Audit Committee meets on a quarterly basis with the external auditors of the Company. Further information on the Audit Committee, including a copy of its Charter, can be found in the Company`s AIF, which is available on the Company’s filings on SEDAR at www.sedar.com as required by National Instrument 52-110 -Audit Committees.
Compensation Committee
The compensation committee (the “Compensation Committee”) is appointed by the Board to discharge the Board’s duties and responsibilities with respect to officer and director compensation. During the most recently completed financial year, the Compensation Committee consisted of one member, who is “independent” within the meaning of section 1.4 of NI 52-110 being Paul Matysek, who acts as committee chairman together with two vacancies on the committee.
The Compensation Committee is responsible for obtaining information on executive compensation from a variety of sources, including independent consultants, compensation surveys and information from companies similar in size and function to that of the Company and then takes recommendations to the Board on compensation and all of its various elements. The Compensation Committee also reviews, identifies and mitigates risks that may be associated with the Company’s compensation policies.
Each of the Committee members has held senior management positions in public companies and has considerable experience in developing compensation programs, particularly in the context of executive compensation. The Compensation Committee develops and oversees the implementation of executive compensation plans and policies that are intended to:
- attract and retain skilled and experienced executives and senior managers;
- motivate the short and long-term performance of these executives and senior managers to achieve corporate objectives and create shareholder value; and
- encourage executives and senior managers to link their personal financial interest to those of the Company’s Shareholders.
In compensating its senior management, in 2021 the Company has used a combination of base salary, incentive bonuses and equity participation through the Company’s Amended and Restated Stock Option Plan (the “Stock Option Plan”).
Health, Safety and Environment Committee
In 2010 the Company established a Health, Safety and Environment Committee consisting of four directors, the majority of whom are independent within the meaning of the Governance Guidelines. In addition, Mr. Frewin, the Company’s Interim Chief Executive Officer is a member of this committee as the Board has determined that it is appropriate for a member of management to sit on this committee to assist the committee in discharging its responsibilities. The current members of this committee are Mr. Frewin, who acts as committee chairman together with Messrs. Matysek and Estepa. The Health Safety and Environment Committee has been established to oversee the development and implementation and best practices relating to health, safety and environment issues, in order to ensure compliance with applicable laws, regulations and policies in jurisdictions in which the Company carries on business.
Nomination and Governance Committee
During the financial year ended December 31, 2020, the Nomination and Governance Committee consisted of the Chairman of the Board and two vacancies. The Nomination and Governance Committee member is Mr. Rowley who acts as committee chairman and there are two vacancies on the Nomination and Governance Committee. The Nomination and Governance Committee is responsible for developing and monitoring the Company’s approach to corporate governance issues. The committee is also responsible for assessing the effectiveness of the Board as a whole and ensuring that the Board can function independently of management. The committee made recommendations on two new director nominees which were appointed in May 2021.
Term limits for Directorships
The Company has not adopted term limits for directors because the risk profile of the Company makes it more difficult for the Company to attract and to retain highly qualified board members than other companies. The Company seeks to avoid losing the services of a qualified director with knowledge of its business through the imposition of an arbitrary term limit
Code of Conduct
Forsys and its subsidiaries are dedicated to the principle of ethical and legal business conduct. Forsys expects its Directors, Officers and all other employees throughout the world to comply at all times with all domestic and foreign laws and regulations governing its operations.
The concept of ethical considerations often goes beyond what is lawful and it is occasionally difficult to determine whether an action is ethical or not. It is useful to discuss potential situations with your Manager to determine the appropriateness of an action beforehand and proactive consultation is encouraged. Good intentions and failure to seek timely advice will not excuse violations of this Code of Conduct.
A good test for deciding whether you are doing the right thing ethically is to ask the question:
“If there were full public disclosure of the facts, would it embarrass me, Forsys, my fellow employees or members of my family?”
In order for a Director, Officer, Employee or Consultant to conduct himself/herself in accordance with the specific provisions of this Code of Conduct, the following general guidelines must also be observed:
- While employed or retained by the Company, or in the case of Directors, during the term of their mandate on the Board of Directors of the Company, one must always act with prudence and diligence in the carrying out of their functions and duties, and always in strict accordance with the rules or code of ethics associated with their respective profession or occupation;
- They must further conduct themselves with the utmost honesty and integrity when carrying out such functions or duties, and always in the best interest of the Company; and
- While employed by the Company, everyone shall utilize all Company property in a reasonable and prudent manner. Any misuse or misappropriation of Company property can lead to disciplinary action, including dismissal.
Failure to comply with this Code can have severe consequences for both the offending party and the Company. The Company and the Board impose appropriate measures for violations of this Code.
