The scenario judgement the midterm asks
◈ 7 cardsAssess a described board against a five-point rubric — chair, majority, audit committee, tenure, related parties — and write the judgement with a fix per point.
The five-point rubric
The midterm’s governance question describes a board and asks whether it is independent enough for a listed company. Do not answer with an impression. Run five checks, in order, and give a verdict and a fix for each.
- The chair. Is the chair independent? If not, is there an independent lead director? (NP 58-201 s. 3.2)
- The majority. Are more than half the directors independent under the NI 52-110 test? (NP 58-201 s. 3.1)
- The audit committee. At least three members, all independent, all financially literate? (NI 52-110 s. 3.1)
- Tenure. Are any directors so long-serving that their independence has become a question of judgement? No rule sets a limit — this is the one point on the rubric where you weigh rather than test. NP 58-201 s. 3.18 says the board, its committees and each director should be regularly assessed; a director in year fourteen who has never been assessed is a concern.
- Related parties. Does any director do business with the company, and is it disclosed?
Worked assessment — Lakehead Marine
The facts from lessons 5.3 and 5.4: seven directors — the founder-CEO (also chair), the CFO, the CEO’s sister, the company’s principal lawyer, and three independent directors (a retired shipyard executive, a chartered accountant, an insurance broker). No lead director. The audit committee is the CFO, the sister and the accountant. The shipyard executive and the lawyer have each served fourteen years and the board has never assessed itself.
| Check | Lakehead’s fact | Verdict | Fix |
|---|---|---|---|
| Chair | CEO is chair; no lead director | fail | appoint an independent chair, or name the accountant lead director |
| Majority | 3 of 7 independent | fail | add two independent directors (5 of 9) or replace the sister and lawyer |
| Audit committee | CFO and sister are members | fail | committee = the three independents; CFO attends by invitation |
| Tenure | two directors in year 14, never assessed | concern | begin regular board and director assessments; consider renewal |
| Related parties | lawyer’s firm bills the company | fail | disclose the transactions; the lawyer should leave the board or the firm should stop acting |
Verdict: the board is not independent enough for a TSX-listed company. It fails four of the five checks, and the fourth is a concern. The recommendations are sequenced: fix the audit committee first (it is a rule, not a guideline, and the next filing depends on it), then the chair, then recruit to a majority, then start assessments.
Strengths, honestly. Three of the seven directors are genuinely independent, and one is a chartered accountant who can chair a compliant audit committee tomorrow. An assessment that lists only faults reads as a checklist, not a judgement; the marker is looking for the balanced view.
A second board, for contrast
Boreal Bikes Ltd., also listed: nine directors, six independent; an independent chair; an audit committee of three independent directors, two of them accountants; average tenure five years with annual assessments; one director’s spouse is a mid-level employee in the warehouse — not an executive officer, so not a deemed relationship, but disclosed. Boreal passes four checks cleanly and raises a minor related-party point that is already disclosed. It is independent enough; the recommendation is to keep the spouse’s employment under review and out of the audit committee’s remit.
Two boards, one rubric. The rubric is what earns the marks.