By: Ava Torkaman
Abstract
Over the past three decades, the private market has come to dominate the Canadian market, yet the governance frameworks designed to ensure corporate accountability have not kept pace. Private companies employ thousands of workers, manage billions in capital, and influence civil society at a scale that rivals their public counterparts, all while operating outside governance disclosure obligations. This paper examines the growing gap in Canada’s corporate governance regime and argues for extending mandatory governance disclosure to large private companies. Drawing on recent governance failures such as Bridging Finance and British Homes Stores, empirical research on private market governance practices, and comparative frameworks in the United Kingdom and Australia, it proposes a threshold-based, comply-or-explain disclosure framework tailored to the Canadian context. The goal is not to replicate public market regulation, but to ensure that the most influential private actors in the Canadian economy are subject to a standard of governance transparency.
Introduction
The landscape of Canadian capital markets has changed fundamentally over the past three decades. Where public companies once dominated the economy and served as the primary vehicle for large-scale enterprise, private companies have steadily grown to fill that space. Global private assets have more than doubled over the last twelve years, reaching approximately $22 trillion in 2024, with companies remaining private an average of sixteen years before going public.1 Private markets now encompass private equity, venture capital, private credit, infrastructure, and real assets, and include at least 1,249 private companies valued at one billion dollars or more.2 Deregulation of the private market, overregulation of the public market, declining demand of public companies, and changes in the product market have all been cited as what has contributed to the shift towards the private market.3 As private firms mature and scale without entering public markets, they begin to resemble what might be described as shadow public companies; enterprises that perform public market functions in terms of capital formation and economic impact, yet remain outside its disclosure and governance architecture. This structural shift lies at the heart of the governance gap this paper seeks to assess.
The governance frameworks designed to ensure accountability in large enterprises have not kept pace with this shift. Canada’s corporate governance regime, developed primarily in the early 2000s in response to high-profile public company scandals, was built around a market that looks quite different from today. Its disclosure obligations, audit requirements, and transparency mechanisms apply robustly to public companies, but largely stop at the boundary of the private market. The rise of private companies in capital markets, combined with demands to broaden retail investor access, is making this gap harder and harder to justify.
This paper examines the case for extending governance accountability to large private companies in Canada. It begins by surveying the rise of the private market and the importance of corporate governance in both public and private contexts. It then outlines Canada’s existing regulatory framework, identifying where private companies fall outside its reach. Drawing on comparative approaches in the United Kingdom and Australia, it argues that a threshold-based, comply-or-explain disclosure framework offers a proportionate and principled response to the accountability gap the current regime leaves open. The goal is not to burden private companies or replicate the full weight of public market regulation, but to ensure that the most impactful private actors in the Canadian economy are subject to a minimum standard of governance transparency – one that protects stakeholders, strengthens market integrity, and reflects the realities of a market that has changed dramatically since the rules were first developed.
Part I begins by surveying the rise of the private market, and Part II addresses the importance of corporate governance in both public and private contexts. Part III outlines Canada’s existing regulatory framework, identifying where private companies fall outside its reach. Part IV examines what is known about governance practices within the private market, including evidence from private equity, venture capital, and family-owned enterprises. Part V builds the affirmative case for mandatory disclosure, drawing from empirical evidence on its benefits for companies, stakeholders, and the broader civil society. Part VI surveys comparative approaches in the United Kingdom and Australia, drawing lessons from jurisdictions that have already begun extending governance obligations to large private firms. Finally, Part VII proposes a made-in-Canada disclosure framework, addressing threshold design, the comply-or-explain model, the substance of disclosure, and enforcement.
I. Overview of Private Market Growth
In the past twenty years, the public market has faltered while the private market has continued to grow. In 2008, there were 1211 operating companies on the TSX, and in 2025 that number had dropped to 637.4 This shift has been felt globally as well. As of 2023, there were over 25 million private companies in the United States (“US”), and around 4,000 public companies.5 Additionally, between 2013 to 2023, the number of large private companies in the United States increased from 46 to 655, and their aggregate implied valuation increased from USD $137 billion to $2.05 trillion.6 Companies are staying private longer and engaging in going private transactions with private equity buyers, attracted by the ability to avoid public market scrutiny and compliance costs.7 There has also been a growing trend of formerly public companies going private and being delisted from stock exchanges, with 47 going-private deals in the US in 2022.8 In the global context, private market assets have increased by 170 percent over the past decade.9 Economists estimate that the market contributes 100 billion of gross capital flow every year in Canada10 and contributes up to 67 percent11 to the Canadian GDP.
What the data showcases is that the private market is no longer a peripheral feature of the financial landscape. The traditional assumption that the most significant economic activity flows through public markets is increasingly difficult to reconcile with the scale and trajectory of private market growth. Once seen as second to the public market, capital raising has shifted to the private market, with private equity, venture capital, and private debt now serving as leading avenues to raise private capital.12 Additionally, the size of many private companies mirrors their public counterparts; La Maison Simons, The Jim Pattinson Group, Wealthsimple, McCain Foods, and Kal Tire all are examples of private companies in Canada. On the venture side, Canada also has a number of unicorn companies,13 with recent leading companies including Clio, Jane Software, StackAdapt, Tailscale, and Beacon.14
II. Importance of Corporate Governance in Both Public and Private Companies
The importance of governance extends beyond a company’s output. Having an effective corporate governance structure in place is essential for the prevention of fraud, corruption, and other ethical gaps within the corporation.15 Corporate failures like Enron and WorldCom in the US, and YBM Magnex and Sino-Forest in Canada, illustrate how the absence of effective governance mechanisms can amplify financial losses to a devastating scale. The magnitude of financial losses could potentially have been mitigated had there been more robust governance mechanisms in place.16 More recently, the collapse of Theranos Inc, whose unethical behaviour led to charges of fraud, has been credited to insufficient oversight of the board, poor and unethical leadership, and a lack of transparency.17 Similarly, WeWork’s demise has been attributed to a lack of board oversight over CEO Adam Neumann’s erratic and unethical leadership, and an unrealistic business model where expenditures outpaced the revenue streams.18 Established and robust governance mechanisms ensure that management remains accountable to the organization and its stakeholders, including those beyond the internal structure. This accountability helps not only foster stability and order within the company, but also to create a sense of confidence in financial systems and the market more broadly.
While the majority of literature and analyses on corporate governance focus on the public sector, the same benefits outlined are applicable to private companies. This gap is significant, as weak or absent governance frameworks in private companies carry real consequences for their stakeholders and the broader economy alike. Although not to the same scope as public companies, private companies are still accountable to stakeholders, employees, and society.19 The proliferation of multi-million and billion-dollar private entities underscores the importance of governance, as these organizations represent a substantial portion of the workforce, contribute meaningfully to the economy, and pose significant systemic risks to civil society in the event of corporate failure. One example of this is the Bridging Finance scandal and collapse. Bridging Finance was a privately held investment management firm based in Toronto, who at its height managed over 2 billion for over 26,000 investors.20 After a whistleblower tip and investigation from the Ontario Securities Commission (“OSC”),21 it was found that the company had been engaging in fraudulent actions and mismanaging the funds. The company’s CEO and investment officer, David and Natasha Sharpe, were found liable for fraud in their financial activities, including misappropriating nearly $40 million of funds, transferring millions of investor money for personal benefit, and engaging in conflict of interest.22
Despite the scale of fraud and millions taken from investors, little was known about Bridging Finance’s activities and loan book until the OSC investigation and Capital Market Tribunal hearing.23 During the hearing, a former Bridging Finance employee described the inconsistent loan approval process, highlighting instances of loan approval documents being altered for undisclosed reasons, or not telling credit committee members where loan funds would actually be used for.24 With respect to one of the loans in question, valued at $32 million, the employee noticed that the loan documents failed to have the owner listed. This opacity and lack of structured oversight underscores the risks associated with weaker governance frameworks in private companies. The Bridging Finance scandal demonstrates that without robust disclosure obligations and accountability mechanisms, significant misconduct can remain undetected until substantial harm has already occurred. As such, extending stronger corporate governance principles to private companies is not merely beneficial, but necessary to protect stakeholders, maintain market integrity, and prevent similar large-scale failures in the future.
The UK example of the British Homes Stores ("BHS") collapse similarly highlights the need for robust governance frameworks in private companies and the consequences of unchecked executive power. The department store retailer was bought by Sir Philip Green in 2000 and subsequently taken private.25 Green was also the owner of Arcadia Group, which owned a number of clothing retailers. In 2004, Green passed ownership of both BHS and Arcadia to his wife, Tina, and refinanced Arcadia’s debt and paid out $2.2 billion in dividends to Tina.26 Between 2000 to 2016, BHS’ market share dropped from 2.3 percent to 1.4 percent, and the company reported a loss of £70 million in 2014. All the while, Green and his family took £580 million out of the business in dividends, along with rental payments and loan interest.27 In 2015, Green sold BHS to a group of entrepreneurs for £1, writing off £215 million of debts in the process28 – a contrast to when he bought the company for £200 million 14 years prior.29 In 2016, the company filed for bankruptcy, with £1.3 billion in debt and a pensions deficit of £571 million.30 This left 11,000 jobs and 20,000 people’s pensions at risk.31 Moreover, creditors lost £1.3 billion in the collapse.32 The magnitude of the collapse, fueled by Green’s unethical practices, led to the UK Parliament to launch an inquiry and raised questions about the regulation of private companies.
The inquiry found that the Green family accrued significant wealth during the early years of BHS ownership, when the company was profitable.33 Moreover, the inquiry cited multiple failures of governance mechanisms, including sidestepping regulatory concerns, lack of corporate oversight, and a lack of effort in investing in the best interests of BHS.34 Ownership and control of the company were concentrated within the Green family, embedded in a complex web of interrelated entities with ultimate control residing in unknown offshore structures. This opacity made it difficult to distinguish directors from shareholders and to understand the company’s true activities.35 Much like Bridging Finance, the damage caused by BHS went largely undetected until it was too late, resulting in immense financial harm to employees, pensioners, and creditors.
The failures outlined in both Bridging Finance and BHS demonstrate that while corporate governance cannot prevent every company failure, its absence creates conditions where misconduct goes unchecked and stakeholders bear the consequences. Rather, effective governance ensures that companies remain accountable to their stakeholders and to the organization itself. Corporate governance is not meant to eliminate company failures, as that is simply in the nature of the field, but rather to ensure that the company is achieving and factoring their responsibilities to stakeholders and to the company itself. While corporate governance is not an end to itself in any company, effective corporate governance does make important contributions to company success and enhancing value. Adopting robust practices contributes to the effective functioning of the board, establishing a due diligence defence, and fostering a sense of confidence in the company to stakeholders.36
III. Corporate Governance Regulation in Canada
Canada has opted for a principle-based regulatory approach for corporate governance practices, allowing flexibility in how companies implement governance frameworks. Similar to the United States, corporate governance first gained prominence in the 1990s and early 2000s, following a series of corporate scandals. In the United States, the Sarbanes-Oxley Act (“SOX”) came into force in 2002, after a noticeable loss of investor confidence following Enron’s demise.37 Following SOX, Canadian regulators felt pressure to adopt similar reforms to protect the integrity of the Canadian market.38 One of the first reports on corporate governance in Canada – “Where Were the Directors?” – found that governance practices needed to be strengthened and proposed a “comply or explain” approach, where TSX-listed companies disclose whether their governance system complies with the recommendations made in the report, or explain if they did not comply.39 This approach set the stage for subsequent policy developments over the past 30 years.40
Corporate governance regulations are found within the Canada Business Corporations Act (“CBCA”) and provincial securities regulation. Mainly, there are certain disclosure requirements that public companies need to adhere to. Overarching these regulations, directors and officers in any federally incorporated company owe both a duty of care and fiduciary duty to the corporation.41
Corporate Governance Disclosure
National Instrument 58-101, which came into effect in 2008, sets out governance disclosure requirements for public issuers for practices relating to the board of directors, board mandate, position descriptions, orientation and continuing education, ethical business conduct, nomination of directors, compensation, other board committees, and assessments. There are certain discrepancies in requirements between venture-issuers42 and other non-venture issuers, mainly in regards to the breadth, scope and detail of disclosure required, which is intended to alleviate some of the burdens of disclosure on smaller companies.43 All reporting issuers are required to disclose board attendance records, the identity and role of an independent chair, or what the board does to provide leadership for independent directors in the absence of an independent chair. Moreover, non-venture issuers must provide detailed disclosure on whether or not the board has adopted a written code for the directors and how the board monitors compliance.
National Policy 58-201, introduced in 2005, outlines non-binding guidance on corporate governance best practices. It is not intended to be prescriptive, rather to help companies when developing their own governance practices and to reflect the evolving landscape of governance at the time.44
NI 52-109 sets out the filing and disclosure requirements for all reporting issuers. Under the National Instrument, the issuer’s CEO and CFO (or persons performing similar functions) are required to personally certify that the issuer’s annual filings and interim filings do not contain misrepresentations, that the financial statements fairly present the financial condition of the company, and that they have designed or supervised the design of disclosure controls and procedures.45 False certification containing misrepresentations can lead to quasi-criminal, administrative or civil proceedings under securities law.46
Other Disclosure Requirements
Under Ontario’s Securities Act (“OSA”) any company who wants to distribute securities publicly is required to file and receive receipts for a prospectus.47 In the prospectus, the company is required to provide full, true, and plain disclosure of all material facts relating to the securities issued or proposed to be distributed.48 Under securities regulation, continuous disclosure for public companies includes both the periodic disclosure of interim and annual financial statements and reports,49 and timely and accurate disclosure of material changes. National Instrument 51-102 defines material change as a change in the business, operations, or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of the issuer’s securities.50 If a material change occurs, the issuer needs to issue and file a news release authorized by a senior officer.51
Public companies are also required to disclose certain diversity metrics. Under the CBCA, public companies are required to disclose diversity about designated groups on the board and in senior management positions to shareholders at every annual meeting.52 The designated groups are set out by the Employment Equity Act, including women, Indigenous Peoples, visible minorities, and persons with disabilities. Disclosure includes the number of members of each designated group on the board and in senior management, disclosure of term limits or other board renewal procedures, whether the corporation has targets for representation, and a description of diversity policies for the selection of individuals from designated groups.53
There are also a number of transparency requirements, including disclosure on significant control, say-on-pay vote, incentive awards, and clawback policies. For significant control, which relates to someone whose shares carry 25 percent or more voting rights in a corporation, disclosure is required by both the CBCA and the Ontario Business Corporations Act (“OBCA”). In the CBCA, all companies need to keep a register of persons with significant control, which is then made available to the public.54 Similarly, in the OBCA, all corporations registered in Ontario must maintain a register of individuals with significant control, and must respond to requests of disclosure of those individuals.55 British Columbia, Saskatchewan, Manitoba, Nova Scotia, PEI, Newfoundland and Labrador and Quebec all maintain similar requirements.56
Electing Directors
In 2022, multiple amendments were made to the CBCA surrounding director elections. Today, shareholders of public companies are allowed to vote “for” or “against” individual director nominations in an uncontested election.57 Additionally, if there is only one candidate for each board seat and a nominee receives less than 50% “for” votes from shareholders, they will not be elected.58 If a director is not elected at a meeting, then the incumbent director will remain until their successor is elected.59
Audit Committee
The CBCA sets out that all public corporations are required to maintain an audit committee of minimum three directors, with the majority of them not being officers or employees of the corporation or any of its affiliates.60 The audit committee is responsible for reviewing the company’s financial statements before they can be approved.61 In securities regulation, National Instrument 52-110, which has been adopted in every province except British Columbia, was designed to ensure that external audits are conducted independently of the issuer’s management by assessing oversight duties to an independent audit committee.62 NI 52-110 applies to all reporting issuers, and establishes guidelines for the responsibilities, independence, composition, and authority of audit committees. Additionally, NI 52-110 requires that members of the audit committee be financially literate, meaning that they have the ability to read and understand financial statements that are similar in scope and complexity to those of the company.63
Distinguishing Between Public and Private Companies
Canada’s regulatory approach to corporate governance reflects a clear distinction between the regulation of public and private companies. While all federally incorporated companies are subject to core obligations under the CBCA, including directors’ duties of care and fiduciary duty to the corporation, public companies are subject to significantly more prescriptive and transparency-focused regulation through securities laws. Public issuers must comply with rigorous disclosure requirements under the OSA and related instruments, including prospectus disclosure, continuous financial reporting, and timely reporting of material changes, alongside mandated disclosures on diversity in the CBCA. They are also subject to stricter governance mechanisms, such as majority voting in director elections and independent audit committees under NI 52-110. In contrast, private companies operate with comparatively limited mandatory disclosure and governance requirements.
IV. Corporate Governance in the Private Market
The absence of mandatory disclosure requirements for private companies means that much of what is known about their governance practices remains incomplete. The opacity within the private market presents challenges in making affirmative assumptions on the sector. However, this opacity should not be mistaken for an absence of governance. Many large private firms have adopted meaningful governance structures that mirror those found in public companies. The critical problem is not that private companies lack governance, but that without disclosure, those structures cannot be verified, compared, or enforced. Good governance that is invisible to stakeholders offers only limited protection, and it is this gap between practice and accountability that the following evidence helps illuminate.
Governance Structures in the Private Market
A joint study between KPMG and the David and Sharon Johnston Centre for Corporate Governance Innovation in 2020 conducted 19 interviews with private company owners, managers, and board members across 17 companies to understand what governance structures they use. They found that, unsurprisingly, there is not a one-size-fits all approach to the governance of private companies. Out of the 17 companies, over half had formal fiduciary boards in place, five had no formal structures in place, and three were third-generation family businesses.64 Out of those who mentioned they had a board in place, 73 percent stated that the majority of board members are independent.65 These findings suggest that while governance structures in the private market are heterogeneous, many private firms nonetheless adopt formalized oversight mechanisms that mirror those found in public companies. The presence of independent directors in particular signals an awareness of the value of objective oversight, even in closely held or family controlled firms. However, it is worth noting that this study captured only 17 companies, and those willing to participate in such research may not be representative of the broader private market. Firms with weaker or absent governance structures are less likely to volunteer their practices for examination, meaning the findings may skew toward more governance-conscious organizations.
Examples of governance within the private sector have been examined in the US context as well. A study on governance practices of private companies in the US found that there were no significant governance gaps between the 200 largest private companies and public companies.66 The study looked at practices across companies related to board composition, separation of CEO and chairperson, CEO tenure, director’s tenure, director elections, director independence, and the use of external gatekeepers. The study found that on most governance metrics, private companies do as well as public companies in having some sort of mechanisms in place.67 While these findings are encouraging, the existence of governance mechanisms does not, on its own, guarantee accountability. Without disclosure, there is no way to verify whether these structures are functioning as intended or merely exist on paper. This evidence challenges the assumption that robust governance is a function of public market regulation alone. Instead, it suggests that private companies, particularly larger and more sophisticated firms, have strong incentives to implement governance practices that promote accountability, strategic oversight, and long term value creation. For example, La Maison Simons appointed Bernard Leblanc as the company’s CEO in 2023, the first time someone outside the family is running the 186-year old family company.68 This shift has allowed for a diversification of the leadership team, which has established separation between the family council, an independent advisory board, and an operating leadership team.69 While this example is illustrative, it represents a single, high-profile case of governance evolution and should not be taken as indicative of broader trends across the private market. Positive examples are more likely to be publicly visible precisely because companies choose to share them, whereas governance failures or deficiencies in private firms often go undetected and unreported. In this sense, corporate governance remains a critical feature of the private market, even in the absence of mandatory disclosure and prescriptive regulatory frameworks.
Private Equity and Venture Capital
These incentives are also visible in the private equity and venture capital sectors, where governance is not merely a compliance mechanism but a primary tool for value creation.70 Venture capital fund sponsors and private equity firms aim to improve firm value in private companies through improvements in governance, strategy, operations, and financial engineering.71 Governance plays a foundational role in this framework by shaping how effectively the other levers can be deployed. In private equity backed firms, governance improvements often focus on minimizing managerial agency costs by replacing dispersed or passive ownership structures with a concentrated, highly incentivized, and sophisticated owner.72 This strategy is frequently paired with the use of leverage, which imposes financial discipline on management and further aligns incentives toward performance and efficiency. At the same time, the governance structures in private markets are not without risk. The pressure to exit investments within a relatively short time horizon, which is central to both private equity and venture capital fund models, can create strong incentives to maximize firm value during the holding period. This pressure may align the interests of investors and management, particularly where compensation is tied to equity value. However, governance driven primarily by investor return objectives is not equivalent to governance oriented toward broader stakeholder accountability. In the absence of disclosure requirements, there is limited ability for employees, creditors, or the public to assess whether governance practices in private equity backed firms are serving interests beyond those of the fund and its investors.
Family-Owned Businesses in Canada
Another element distinctive to the Canadian market is the prominence of large family-owned businesses, who account for nearly two-thirds of all businesses in Canada,73 and approximately 63 percent of all private sector companies.74 These companies often serve as pillars in their communities. The Jim Pattinson Group, J.D. Irving Ltd, McCain Foods, and James Richardson & Sons Ltd exemplify the scale and significance of private enterprise in Canada; each is a billion-dollar organization that contributes meaningfully to the national economy, employs thousands of Canadians, and plays a prominent role in civil society. Much like similar themes in private-sector governance, family-owned businesses across Canada adopt different approaches to governance. McCain Foods, for example, allegedly holds tight family control over the company and makes it “virtually impossible” for shareholders to sell to non-family parties.75 On the other hand, James Richardson & Sons states on their website that while the family are the shareholders, the company includes independent directors who are external to the family or management.76 For the many large private family firms that operate entirely outside of public scrutiny, there is no comparable window into how governance is structured or whether it adequately protects the interests of employees, creditors, and the broader communities they serve.
Limitations of the Evidence
While the research presented showcases what governance looks like within the private market, it is important to acknowledge the limitations of these findings. Research on private sector governance is scarce, and studies such as the KPMG and the David and Sharon Johnston Centre for Corporate Governance Innovation report, while useful, are constrained by small sample sizes. Moreover, although Parchomovsky and Eckstein’s findings are illustrative, it is important to note that it is not possible to make the same assessments for the Canadian context as we simply do not have the knowledge on the sector. For an area that represents the majority of the Canadian economy, the evidentiary base remains thin. This gap is not incidental; rather, it is a direct consequence of the absence of disclosure requirements for the private market. Without mandatory governance reporting, a comprehensive picture of how large private companies are actually governed is difficult, if not impossible, to construct. Additionally, without formal mechanisms in place, such as disclosure, there is no accountability that follows since the public only knows what the companies want public.
V. Rethinking Governance Regulations in the Private Market
When Canada was formulating their governance framework in 2005, the Canadian capital markets were quite different. Library of Parliament documents highlight that, in 2005, Canadian companies commonly went public at an earlier stage compared to the US.77 Until now, rethinking the status quo was not a pressing need, as public companies dominated the market and were the primary figures. However, the current market does not mirror the conditions that prevailed when these regulations were created.
The gap this creates is not merely technical. Large private companies employ thousands of workers, interact with millions of customers, and make decisions that affect communities and supply chains. In the United States, which faces a similar public-private divide, the regulatory framework has reformed in recent years to cover fewer firms and be easier to bypass.78 This shift has resulted in a system where companies can choose their regulatory system to follow since they can raise capital privately with ease,79 leading to a large section of American capital markets with light securities fraud oversright and enforcement.80 This also impacts regular investors as the traditional link between them and public companies has weakened, raising concerns for accurate pricing, access to good investment opportunities, and risk management given the diminishing amount of information now required to be disclosed.81 In the absence of governance disclosure requirements, there is no external check on whether these companies are managed responsibly, how risk is being overseen, or whether the interests of non-shareholder stakeholders are being considered at the board level. The public interest case for extending some governance accountability to large private enterprises is therefore growing stronger as these companies grow larger and more economically influential.
Additionally, while private markets have historically been closed off to retail investors, more initiatives have been undertaken in recent years to open access to private market investing. There has been growing demand from retail investors wanting to access private markets with the underlying presumption that these markets are more desirable than their public counterparts.82 Responding to this, investment funds have emerged in the US that provide retail investors with access to the private markets.83 In securities regulation, democratization efforts have taken place, such as prospectus exemptions, including for accredited investors, offering memorandum (“OM”), minimum amount invested, crowdfunding, and friends, family, and business associates (“FFBA”), that allows certain investors to circumvent the prospectus requirement and access private companies. The OSC found that between 2017 to 2019, OM, FFBA, and existing securities holder exemptions were used to raise over $1 billion.84
In 2024, the OSC released a consultation paper which proposed to introduce a new category of Canadian public investment fund, designed to make investments in long-term illiquid assets.85 Currently, retail investors have limited options for investing in long-term assets, and primarily are encompassed in the public market. While the OSC’s proposal has not been implemented as of right now, it highlights the growing shift towards opening access to the private market. The reasons behind this focus make sense; the private market is a growing part of the economy, and more types of investors want to access them. However, this shift further underscores the need to rethink our governance frameworks for private markets. The private market landscape has changed dramatically in the last 30 years, and as we rethink access and regulations surrounding them, we must also rethink our governance frameworks beyond the public market.
These considerations further highlight the growing tension between how governance obligations are currently structured and the market they are meant to govern. The regulatory framework was designed at a time when the public/private distinction served as a reasonable proxy for economic significance and stakeholder exposure. That assumption is no longer reliable. As private markets have grown to encompass companies of enormous scale, and as retail investors gain increasing pathways into them, the justification for categorically excluding private companies from governance accountability weakens considerably. The case for reform is not simply that the rules are outdated, but that the conditions which made those rules sensible in the first place have fundamentally changed.
VI. The Value of Disclosure Among Private Companies
Private markets intrinsically will never have the same transparency and regulatory obligations as public markets, yet some level of regulation is required to address their growing presence in our markets. Disclosure and transparency is an important aspect of governance as it helps foster stakeholder trust, ethical leadership and cultural integrity, and prevention of fraud and misconduct.86
Although some studies that have pointed out that disclosure has been linked to a reduction in the number of innovative firms and innovation spending, this is primarily concentrated in smaller firms, who perhaps cannot bear the financial burden of preparing disclosure documents.87 This is an important distinction, as any disclosure framework should be carefully tailored to avoid placing undue burdens on smaller companies. Therefore, the scope of disclosure is aimed primarily at large companies, who are seen to be less affected by the downsides of disclosure.88 Additionally, disclosure is much less intrusive and costly compared to other regulatory mechanisms, such as substantive mandates, prohibitions, or command-and-control initiatives.89
Efficiency
Empirical evidence looking at the impact of financial reporting had found that high-quality financial reporting is positively associated with firms’ investments and operational efficiency.90 Beyond individual firms, the broader dissemination of governance practices through information transfers can generate economy-wide benefits, including reduced agency costs and improved alignment between management and stakeholder interests.91 Disclosure allows for accountability on the governance practices companies claim to have in place. Having to publicly disclose practices allows for better enforcement of fraud, as not only is there more information for plaintiffs when filing and arguing a case, it also allows companies to be held accountable for deceptive financial reporting practices.92 In the public space, the requirement of having a senior officer certify the disclosure documents under NI 52-109 has been seen as an important initiative in maintaining integrity in the capital markets and enhancing investor confidence.93
Internal Benefits
Internally, disclosure also benefits the company’s governance behaviour. The disclosure system influences the company to adjust behaviour in welfare-enhancing ways, including promoting managerial-consciousness and the facilitation of better internal monitoring of corporate performance.94 The mere act of requiring companies to disclose their practices has the underlying behavioral effect because having to disclose non-standard or off-market practices would have a negative signaling effect to the company.95 Additionally, disclosure helps facilitate the role of the company’s lawyers, auditors, and underwriters to monitor disclosure and governance practices through due diligence. Because underwriters can be legally liable for errors or omissions, and lawyers and auditors must provide formal assurances, these actors have strong incentives to carefully review the company’s disclosures. Their involvement creates active external oversight of the company’s conduct, leading managers to act more carefully and responsibly, knowing their actions will be regularly scrutinized.96
External Benefits
Outside of management, disclosure can benefit stakeholders and help them in evaluating and comparing performance among different companies.97 Disclosure helps inform stakeholder decisions. Though private companies operate outside public markets, they still have investors with a legitimate interest in how the company is governed and managed. Disclosure provides shareholders the information they need to engage their fundamental rights as security holders effectively.98 Additionally, disclosure also supports the work of information intermediaries, such as investment analysts, rating agencies, and proxy advisory firms. While these actors help retail investors in the public market, they still provide information that accredited and institutional investors could use when choosing to invest in a private company. These firms are dependent on the information of a company’s activities, and disclosure allows for the facilitation of that information and subsequent analyses by the firms.99
VII. Comparative Approaches to Private Sector Governance in the UK and Australia
Other jurisdictions have already begun creating concrete regulatory changes to address private market accountability. The United Kingdom (“UK”) amended their Companies Act in 2018 to require large companies, regardless of whether they are private or public, to include certain disclosures on governance. These regulations came in place after a series of high-profile corporate scandals, including BHS.100 These companies are required to include a statement as to which corporate governance code they have applied and how.101 If a company has not applied any governance code, they need to explain why that is and what arrangements for corporate governance were applied. The reporting requirement applies to companies who have either (i) more than 2,000 employees, or (ii) turnover over £200 million and a balance sheet over £2 billion.102 Additionally, the UK also has provisions that require all UK companies, with the exception of smaller companies, to report on how directors took stakeholders into account when promoting the success of the company.103
The UK’s approach is important for Canada to consider for several reasons. First, it is threshold-based, meaning it is calibrated to capture companies of sufficient scale and societal significance while leaving smaller private firms unaffected. This proportionality is critical to any Canadian reform effort; a blanket application of governance disclosure to all private companies would be overly burdensome and impractical, but a size-based trigger grounds the obligation in legitimate public interest concerns. Second, the UK approach mirrors Canada’s existing comply-or-explain philosophy in the public markets. It does not impose a rigid, prescriptive set of governance metrics, but instead leaves the choice of governance code to the company itself, requiring only transparency about what has or has not been adopted and why. This preserves flexibility while still generating accountability. Third, and perhaps most importantly, the UK framework is now operating in practice and provides a useful data point. Since its introduction in 2018, there has been no significant backlash against the regulation, and it appears to be generally well-regarded. A 2023 assessment of section 172 of the Companies Act cites that the section is an “important milestone towards promoting responsible business conduct and long-term corporate management.”104
Similarly, the Australian Securities and Investments Commission ("ASIC") has increasingly focused on governance standards in large proprietary (private) companies, and the Corporations Act, 2001 imposes enhanced financial reporting obligations on “large proprietary companies,” meaning a company (including any entities it controls) who meets any two of the following requirements: (i) has a consolidated revenue of AUD $50 million or more, (ii) the gross assets in their end of financial year is AUD $25 million or more, or (iii) the company has 100 or more employees.105 These companies must prepare and lodge a financial report and director’s report each financial year, and the accounts must be audited.106 While Australia has not gone as far as the UK in mandating governance code disclosure for private companies, the regulatory trajectory points in the same direction: as private companies grow, the argument for maintaining a complete governance disclosure exemption weakens.
Canada does not need to adopt verbatim the UK or Australian model, but the logic underpinning it is directly applicable in the domestic context. A threshold-based, comply-or-explain governance disclosure requirement for large private companies would be consistent with Canada’s existing regulatory philosophy, would not impose disproportionate burdens on smaller private firms, and would begin closing the accountability gap that the current framework leaves open.
VIII. Towards a Canadian Framework for Private Market Disclosure
Any proposed framework must balance the legitimate public interest in greater accountability with the equally legitimate concern that overregulation could discourage private enterprise, burden smaller firms, or drive capital to less regulated jurisdictions. The following outlines the key design considerations for a made-in-Canada approach.
As we examine a new framework for private market disclosure, it is worth thinking about rethinking how we frame governance. The current rhetoric builds on a public/private divide, however it is worth questioning whether this distinction makes sense in the current market landscape. Canadian securities regulation already acknowledges that a one-size-fits-all approach is not sustainable; public venture issuers are subject to scaled-back disclosure requirements relative to non-venture issuers, precisely because regulatory burden should be calibrated to a company’s size, sophistication, and the breadth of its investor base. The underlying principle, then, is not purely about public versus private status. Rather, it is about proportionality and the realistic scope of a company’s economic footprint and stakeholder impact. If we accept that logic, the current framework’s sharp cutoff at the public/private divide becomes harder to defend. A large, mature private company with thousands of employees, billions in revenue, and retail investor exposure through exemptions or investment funds has a comparable stakeholder footprint to a reporting issuer of similar size, yet faces virtually no governance disclosure obligations.
The more coherent approach would be to anchor governance disclosure obligations in the characteristics that actually generate public interest concerns, such as company size, number of stakeholders affected, and the nature of the investor base, rather than relying solely on whether a company has chosen to list on a public exchange. The listing decision is increasingly a strategic and financial choice, not a reliable proxy for economic significance or public impact.
Threshold Framework
The most foundational design question is who the framework should apply to. As demonstrated by the UK and Australian models, a size-based threshold is the most defensible approach. It targets companies whose scale generates meaningful stakeholder exposure while leaving smaller private firms, which make up the vast majority of Canadian businesses, entirely unaffected.
A Canadian threshold could be modelled on a combination of existing domestic benchmarks and international precedent. Drawing from the UK’s framework, a reasonable starting point might capture private companies that meet one of the following criteria: over 500 employees, annual revenues exceeding CAD $500 million, or total assets exceeding CAD $1 billion. These figures are illustrative and would require consultation and refinement, but they reflect the scale at which a private company’s governance failures begin to carry genuine systemic and social risk. Notably, Canada already uses analogous size-based thresholds in other regulatory contexts, such as the OSC’s accredited investor exemptions that reflect the principle that regulatory obligations should be proportionate to scale and risk.
It is also worth noting that a threshold-based approach would likely capture many of the largest and most economically significant private companies in Canada while leaving the vast majority of private firms untouched. The goal is not to regulate private enterprise broadly, but to bring the most consequential private actors within a flexible, minimum accountability framework.
Fitting Within the Comply-or-Explain Model
Canada’s existing corporate governance landscape strongly favours a comply-or-explain approach, and there is no principled reason to depart from that tradition when extending governance expectations to the private market. A prescriptive, rules-based framework would be difficult to calibrate across the diversity of large private companies and would risk becoming either over-inclusive or under-inclusive in practice.
Under a comply-or-explain model, large private companies meeting the applicable threshold would be required to disclose which corporate governance framework or code they have adopted and how they apply it. Where a company has not adopted any recognized governance code, it would be required to explain why and describe the alternative arrangements it has in place. This approach respects the structural heterogeneity of the private market while still generating the transparency and accountability that disclosure is designed to produce. It also creates a reputational incentive to adopt recognized governance standards, since a company’s explanation for non-compliance would be visible to investors, lenders, employees, and other stakeholders.
Substance of Disclosure
Beyond the threshold and compliance model, a further question is what specific governance matters should be disclosed. For the private market, disclosure should focus on macro-level components, including conflicts of interest, opacity, and asymmetries of information.107 Drawing from the existing NI 58-101F1, which sets out the corporate governance disclosure for public companies, disclosure requirements could reasonably cover the following areas: (i) board of directors, (ii) board mandate, (iii) position descriptions, (iv) orientation and continuing education, (v) ethical business conduct, (vi) nomination of directors, (vii) compensation, (viii) other board committees, and (viii) assessments. Additionally, similar to the CBCA s 172.1, subject companies should disclose diversity metrics.
Mechanism of Disclosure
Currently for reporting issuers, governance disclosure is either presented in management, information circulars, annual information forms (for non-venture issuers), or annual MD&A. The disclosure must be filed on SEDAR+ at the same time as annual financial statements. Private company governance disclosure need not follow the same model, but some form of public accessibility is necessary for the framework to generate meaningful accountability.
One approach would be to require large private companies to publish a governance disclosure statement on either SEDAR+ or their website annually and publish a news release, similar to how many public companies adhere to continuous disclosure obligations.108 This would make the information accessible to employees, the board, stakeholders, customers, and communities without requiring the creation of an entirely new regulatory filing infrastructure. Regulators could then monitor compliance on a risk-based basis, intervening where disclosures are materially deficient or misleading rather than conducting routine review of every filing. This mirrors the approach already applied to public companies for non-prospectus disclosure obligations, where regulatory oversight is targeted rather than exhaustive.
Enforcement
Any disclosure framework is only as effective as its enforcement mechanism. For public companies, securities regulators have broad powers to investigate, sanction, and require corrective disclosure. A comparable enforcement mechanism would be needed for private company governance disclosure to promote its legitimacy.
At a minimum, regulators should have the authority to require corrective disclosure where a company’s governance statement is found to be misleading or materially incomplete, and to impose administrative penalties for persistent non-compliance. Civil liability for material misrepresentations in governance disclosures, analogous to the secondary market liability provisions already in place for public companies under provincial securities legislation, could also serve as a deterrent. The prospect of liability would sharpen the incentives of directors, officers, and their legal advisors to take governance disclosure seriously.
Taken together, these design elements reflect a framework that is consistent with Canada’s regulatory tradition, sensitive to the diversity of the private market, and capable of meaningfully closing the accountability gap that the current regime leaves open.
Conclusion
The private market is no longer a secondary feature of the Canadian economy. Rather, it has replaced the once dominating public market. Large private companies employ hundreds of thousands of workers, manage billions in capital, and make decisions that impact civil society and supply chains across the country. However, the governance frameworks that apply to them remain largely unchanged from an era when public companies dominated the landscape and private enterprise occupied a more peripheral role. That mismatch carries real consequences. As the collapse of Bridging Finance and BHS demonstrated, the absence of disclosure and accountability mechanisms in the private market does not prevent misconduct, it simply allows it to go undetected until substantial harm has already occurred.
This paper does not seek to claim that private companies lack governance, nor that they should be subjected to the full regulatory burden carried by public issuers. The evidence surveyed here suggests that many large private firms, including private equity-backed companies and prominent family enterprises, have voluntarily adopted meaningful governance structures. The problem is that without disclosure, those structures cannot be verified, compared, or enforced. Good governance that is invisible to stakeholders offers only limited protection.
Canada has the tools and the tradition to respond thoughtfully to this challenge. Its comply-or-explain approach, which is already embedded in public market regulation, offers a model that is flexible, proportionate, and consistent with the structural diversity of the private sector. Threshold-based frameworks in the United Kingdom and Australia demonstrate that extending governance disclosure to large private companies is achievable without imposing undue burdens on smaller firms or stifling private enterprise. A Canadian version of this approach is feasible and overdue. This approach would be calibrated to domestic benchmarks, grounded in existing regulatory infrastructure, and sensitive to the heterogeneity of the private market. Additionally, this reframing has the advantage of internal consistency, as it extends a principle already embedded in Canadian regulatory design rather than importing a foreign concept.
The private market has become too prevalent in the overall economy to remain outside the scope of governance accountability entirely. Regulators, policymakers, and market participants alike have an interest in ensuring that the companies shaping so much of the Canadian economy are managed with transparency, integrity, and meaningful regard for the stakeholders they affect.
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