Canadian companies will be urged to adopt codes of ethics and publicly disclose any waivers granted to executives under new corporate governance guidelines set to be unveiled Friday by the Ontario Securities Commission.

The OSC's 18 new corporate governance standards for boards of publicly traded companies will replace the guidelines drafted by the Toronto Stock Exchange in 1994. The OSC announced in September that it will take over responsibility for monitoring governance standards from the TSX.

The redeveloped guidelines, being published Friday for public comment, add some tougher new standards for Canadian boards.

For example, the OSC has expanded the list of core responsibilities of boards to include a recommendation that, "to the extent feasible," directors should be satisfied both about the integrity of top executives and that top executives "create a culture of integrity throughout the organization."

The guidelines also recommend creating a written code of business ethics and conduct, which should be applicable to directors, officers and employees of the company. Among its features, the code should have standards to address conflicts of interest, proper use of corporate assets, protection of confidential information and fair dealing with customers or shareholders.

The new standards will also require any companies with ethics codes to file them publicly with regulators. As well, if a board of directors grants any officer or director of a company a waiver from the code of ethics, the company must immediately issue a news release to reveal the details of the waiver.

OSC spokesman Eric Pelletier said he could not comment in detail on the new guidelines until they are publicly released.

However, he said the OSC drafted the standards to "increase the transparency for investors about the corporate governance practices within our issuers."

He added that the existing TSX standards were drafted in 1994 at a time when common governance standards were less stringent than they are today.

A TSX-appointed committee reviewed the guidelines and recommended updates in 2001, but they were not adopted because the OSC began a broader review of governance standards after the collapse of U.S.-based Enron Corp.

"Having seen the guidelines in operation since the mid-1990s, we thought there were some improvements that could also be added in," Mr. Pelletier said.

Toronto lawyer Peter Dey, who led the committee that drafted the 1994 guidelines, said Thursday that the new set will play a key role in sending the message that a company's ethical values are set at the top of the organization.

As a result, Mr. Dey said it is important that one of the new guidelines will make the board responsible for overseeing the ethical culture of a company. "What we're engaged in here is a process of restoring investor confidence in the capital markets and the corporation as a principal means for commercial activity," he said.

Toronto securities lawyer and governance expert Carol Hansell said the new guidelines meet many of the tougher governance standards that have been widely debated in Canada, and also incorporate a number of rules introduced by the New York Stock Exchange and Nasdaq Stock Market for their listed companies.

For example, the NYSE requires companies to issue a news release to announce any waivers that have been granted from the code of ethics.

Ms. Hansell said the requirement is "terrific" and will ensure that companies don't grant such exemptions lightly. "You would have to explain it. So if you feel there is a legitimate reason for doing it, then spectacular, tell us about it."

The key difference between the U.S. and Canadian standards, however, is that the Canadian guidelines will remain voluntary, and companies can choose whether or not to comply. The OSC will require companies to publish an annual commentary disclosing details about whether and how they comply with the recommendations.

Ms. Hansell said it has not been "the Canadian way" to mandate governance standards.

"In Canada, we will continue to move forward with recommended best practices coupled with a disclosure requirement," she said. "So the markets can decide if they approve of a particular issuer's governance practices."

Mr. Dey said that although he would have accepted seeing a number of the guidelines become mandatory, the voluntary approach "maintains the flexibility implicit in using guidelines."

The TSX also required companies to disclose annually whether they met its governance guidelines, but companies had a spotty track record of compliance with the rule. A recent study by Patrick O'Callaghan & Associates and Korn/Ferry International found that 20 per cent of Canada's 319 public companies failed to disclose their compliance with each guideline.

Mr. Dey said that, as a senior regulator, the OSC will almost certainly take a tougher approach to ensure broader compliance with its new reporting standard. He said the sanctions are also greater for companies that breach an OSC rule.

"Under the exchange's listing requirement, the worst sanction was delisting, and you know the exchange is in the business of getting listings," he said. "So it was a counterproductive sanction."

Smaller companies that are not listed on a senior exchange such as the TSX or the NYSE, including those companies listed on the Canadian Venture Exchange, will be required to disclose their compliance against a list of only three guidelines. A venture company will have to discuss the independence of its board and chairman, the board's written mandate and the company's code of business ethics and conduct.

Key points

The OSC's new corporate governance standards for boards of publicly traded companies include:

-Boards should be a majority of independent directors.

-Chairman must be an independent director.

-Board satisfied as to integrity of C.E.O.

-Develop clear position descriptions for directors.

-Adopt a written code of conduct and ethics.

-Independent directors on compensation committees.